March 31

How to overcome challenges in energy risk management?


For several years, energy risk management was seen as an isolated exercise that was separate from compliance procedures.

The main purpose of risk management was to ensure that employees were not violating the law. However, there was little connectivity to compliance management with information and data not shared between risk and energy departments, preventing organisations from following best energy regulation practices.

However, times are beginning to change; the UK government is becoming stricter on energy practices. Instigated by recent rulings from Ofgem or another regional or international institution, regulatory institutions are now scrutinising firms in greater detail to ensure that they are following environmental, social, governance (ESG).

The change in regulatory stance presents a lot challenges in expanding the scope of risk management while also streamlining compliance processes to make them more comprehensive and efficient. Read on to know some of the effective ways you can overcome challenges in Energy risk management.

Changing perceptions in energy risk management 

Regulatory agencies used to be steps behind the latest practices and techniques. However, this has changed because regulatory bodies now have a vast network of corporate and market data along with sophisticated systems that allow them to analyse company processes and systems to identify and uncover red flags in regulatory processes.

This prompts firms in the energy industry to upgrade their own energy risk processes using more advanced technology, such as AI and advanced analytics. The type of technology that is critical for making more sense of regulatory content. 

Moreover, compliance and risk management were considered to be siloed functions where the responsibility for compliance lies with each department and business unit, which, unfortunately, lead to a discombobulated definition of compliance. 

However, as regulators are expanding their scope for assessing business operations using AI and machine learning, businesses need to re-examine their approach to compliance by integrating risk management into regulatory procedures.

Companies need to modernise their compliance procedures by merging them with risk management to address this issue. 

This would allow organisations to identify any red flags in compliance operations and take action to amend operations before they are flagged for severe compliance penalties. 

Optimising and streamlining risk management challenges

Leverage AI and advanced analytics 

Sitting at the core of all these changes in energy regulation are artificial intelligence applications such as NLP, machine learning, and advanced analytics. Hence, it makes sense for energy companies to incorporate this technology into their regulatory processes. 

Moreover, incorporating this advanced technology into risk management gives your regulatory team additional options in critical procedures such as energy risk management.

You can leverage the technology to streamline risk management by monitoring behavioural patterns within the organisation and identifying misconduct, making it easier to find and flag compliance violations.

Furthermore, these tools can simplify and expand the reporting process, turning compliance into a more transparent procedure and make it easy for organisations to turn compliance into a company-wide process. 

This allows organisations to streamline risk management while turning it into a more accurate process. 

Merging compliance and risk management 

In the past, organisations have treated compliance and risk management as two separate entities. The difference was that compliance was an external function forced on the company by outside bodies. At the same time, risk management was an internal process designed to ensure that employees were not violating any of the company’s internal procedures and policies. 

While the two systems have traditionally remained separate, merging the two is now necessary for allowing organisations to minimise risks in risk management.

By merging compliance and risk management, organisations can flag compliance violations before they are found by regulators. 

In essence, you are conducting an internal audit to ensure that your organisation is meeting all regulatory requirements, thereby ensuring that you are following best practices while also minimising compliance penalties in the future, hence reducing risks in management. 

Furthermore, this also has the added benefit of streamlining compliance and risk management because it reduces costs and turns compliance into a timely process.

Keeping up with the latest compliance updates 

As the UK government begins to increase regulation, reducing the risks within energy risk management will be critical for organisations if they want to avoid costly compliance penalties. 

Facing challenges confidently and succeeding in an environment that has a renewed focus on sustainable energy practices would require organisations to merge risk management and compliance.


Energy Industry Risk, Energy Risk, Energy Risk Management

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