Power sector faces ‘trilemma of tension’ - WTW

A “trilemma of tension’ is being faced by the global power sector, emphasising the need for risk managers to invest in horizon-scanning to assess and manage their unique risk profile.

Encompassing stress between energy security, affordability and sustainability, the trilemma
has led to continuing volatility in the power sector, according to WTW’s 2023 Power Market Review.

Uncertainty has been amplified by the global polycrisis, including the rising global cost of living, supply chain disruptions and geopolitical tensions. With potential recession looming and sustained inflation, the power sector faces the “risk of assault on multiple fronts”, the report warns.

Head of global natural resources at WTW, Graham Knight, said these issues are creating uncharted waters for the sector, as generators of all types, conventional and renewable, seek to balance competing demands for energy security, affordability and sustainability.

"The challenges we reported in 2022 – the Russia-Ukraine conflict, global inflation, energy transition and climate change – are ever-present. We’ve seen some positive developments, though. Wholesale gas markets have eased and supply has shifted away from Russia. There’s signs of global inflation easing as economies respond to higher interest rates and growing momentum behind the energy transition," he explained.

“On the other side of the equation, the crisis in the Middle East, precipitated by the Israel–Hamas conflict, combined with the very real potential for a global recession, creates further uncertainty for generators and markets. High levels of natural catastrophes are also driving major losses across the continents and they’ve showed no sign of returning to lower historical norms. Meanwhile, transmission networks are coming under pressure from a higher reliance on intermittent power, as re-commissioned coal plants are turned off and gas-fired output is deployed to balance the system."

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