Infrastructure Risk Management in Renewable Energy Projects Using Risk Flexibility Theory

Climate-change-concerns coupled with US high dependence on exhaustible resources such as oil and coal have urged the federal government to support a more extensive private sector participation in developing renewable energy projects. Though the federal government has pledged to promote private participation in renewable energy developments through supportive legislation and ad-hoc incentives, the private investors' profitability in such projects is not yet secured. As a result, potential private investors are reluctant to invest in renewal energy projects making it a lose-lose situation. Literature survey shows that there are currently no effective methods to address this important issue. This paper presents a novel approach, namely the Risk Flexibility Theory, to correctly assess the financial feasibility of renewable energy projects. Risk Flexibility Theory properly reckons flexibilities that can make the project more profitable by offsetting part of the project risk.