Building Resilient Energy Infrastructure: Climate Transition Risk

A Risk Manager's Perspective

For over two decades I've worked in the energy sector on some of the largest electricity, gas and nuclear infrastructure projects. It's a place I call home and one that I'm extremely passionate and still excited about. I've developed my career within it across many different roles and organisations. I've been fortunate to have rubbed shoulders with some incredibly knowledgeable, capable and experienced people who have helped shape my career for which I'm eternally grateful. The following represents my forward look at building resilient energy infrastructure within the context of climate transition risk.

Working in the energy sector on projects has always meant dealing with significant levels of uncertainty which I've always found fascinating. In hindsight it perhaps explains why I gravitated towards the risk management profession. However, the pace and scale of uncertainty and change we're now facing is unprecedented. Policy commitments to net zero, investor pressure on ESG and society’s growing expectations are reshaping how we think about infrastructure. The transition to net zero isn't just another challenge on the horizon but rather a wholesale transformation of the way we generate, distribute, and consume energy.

Regardless, one truth still stands the test of time: the projects we sanction and develop today will outlast governments, market cycles and they'll define our energy system for generations. That weight of responsibility requires a sober approach. We can’t afford false certainty or silver-bullet solutions. Instead, we need clarity about the uncertainties (both positive and negative), the complexity we face and the confidence to make better decisions despite them.

What Climate Transition Risk Really Means in Projects

When people talk about “climate risk,” they often picture extreme weather or rising sea levels. However, in the energy sector, climate "transition risk" isn't just an abstract policy debate. It plays out in the need case, development and delivery of every major energy infrastructure project supporting how we shift away from fossil fuels towards a greener, more sustainable future. Each project stage carries its own vulnerabilities and together they demonstrate why a structured and intelligent approach to risk based decision making is essential but needs improving from the current state and below par track record.

Need Case – Are We Building the Right Thing?

At the earliest stage, projects are justified on assumptions about future demand, technology mix, regulatory and commercial frameworks. Yet these assumptions are increasingly volatile. For example:

• Electrification could accelerate faster than forecast, requiring more capacity than planned

• A demand surge in offshore wind or solar could alter grid reinforcement needs

• Policy shifts (such as new carbon pricing) may change which technologies are viable

If the need case is built on outdated or narrow assumptions, projects risk being locked into solutions that don’t fit the future. The danger here is not just stranded assets but wasted opportunity investing billions in infrastructure that fails to meet emerging system needs. What makes this especially challenging is the inherent uncertainty in demand, policy and technology shifts which rarely move in sync, yet projects must commit capital years in advance. If the need case rests on shaky ground, the risks only compound as projects move into development.

Development – Can the Business Case Withstand Transition Pressure?

As projects move into development, transition risk becomes sharper. Business cases are stress-tested not only by economics but also by regulators, investors and communities, each with different expectations

• Changing generation mix: A gas-fired power plant may look viable at the outset, but tightening carbon pricing or accelerated renewable deployment can make it uneconomic before financing is secured.

• Grid reinforcement projects: Assumptions about load growth and location of new connections can shift dramatically if offshore wind clusters or industrial electrification zones develop differently than planned.

• Interconnectors: Political or regulatory changes between countries can threaten cross-border agreements, undermining confidence in expected revenue flows.

• Nuclear programmes: Long lead times expose business cases to shifting government policy and financing models. Support mechanisms in place at inception may not hold over decades.

• Storage and flexibility assets: Revenue models often rely on emerging markets (capacity, balancing, ancillary services) that are still being defined. Policy or market design uncertainty makes cash flows hard to bank.

• Carbon capture projects: Dependent on evolving subsidy frameworks and public acceptance. A change in support mechanism, or community opposition can delay or derail development.

At this stage, risk isn't only about numbers on a spreadsheet, it’s about confidence from regulators to approve, investors to fund and communities to support. Transition risks, if unmanaged can undermine all three. Without this development slows, costs rise and in some cases projects become non-viable.

Delivery – Are We Building in Resilience?

By the time construction begins, the risks don’t fall away, they can multiply. Delivery teams may encounter the practical consequences of transition risk, where even small changes can cascade across cost, schedule and reputation.

• Supply chain fragility is one of the biggest challenges. Offshore wind programmes compete globally for turbines and cables; battery storage projects rely on rare earths subject to geopolitical tension; nuclear projects depend on specialist components with limited suppliers. Shortages or delays here ripple through entire delivery schedules.

• Design assumptions may shift mid-project meaning transmission reinforcements may need to account for new resilience standards; offshore wind hubs may face tighter environmental reporting requirements; nuclear builds may need to adapt to evolving safety or emissions frameworks. What looked compliant at contract award may no longer meet the mark once regulations move.

• Complex interfaces magnify uncertainty where contractors, operators, regulators and financiers each hold different interpretations of what “climate alignment” means in practice. Misalignment here may lead to disputes, redesigns, delays and costly rework.

Delivery is where transition risks become most visible. Unlike early stages, where uncertainty can be debated in models and scenarios, here it shows up in missed milestones, budget overruns, and reputational damage that can define a project’s legacy.

During each of the above stages (need case, development and delivery) transition risks shape not just the outcome of a project, but its very viability. We know that change is inevitable and that ignoring it only compounds risk. What makes transition risk difficult is not just its scale but its uncertainty and interconnectedness and therefore it’s not enough to manage today’s risks in isolation - a systems wide perspective is required. We must test projects against the uncertainties of tomorrow so that the assets we deliver remain valuable, resilient and trusted.

Why Energy Infrastructure Is Exposed

The energy sector has always carried heavy the responsibility of keeping the lights on, powering industry and enabling growth. But in today’s environment, the very characteristics that make infrastructure essential also make it uniquely vulnerable to transition risks.

Long Asset Lifecycles: Unlike other industries where investments can pivot in a few years, energy infrastructure assets are designed to last 30, 40 or even 50 years. A power station, substation or transmission line commissioned today must still be viable mid-century, long after climate targets, carbon pricing and technology choices have shifted. This longevity locks in exposure. Decisions made now will either align with the future or create stranded assets that are costly to retrofit or abandon.

High Capital Intensity: Infrastructure is capital-heavy. Programmes often require multi billion pound commitments upfront, with financing secured years before the first megawatt flows. This magnifies risk because even small shifts in regulation or demand can destabilise financial models. For sponsors and investors the stakes are far higher than in shorter-term ventures. Once capital is committed, unwinding or redirecting it becomes prohibitively expensive.

Policy Dependence: Energy infrastructure is tightly bound to government policy. Subsidies, market mechanisms and regulatory frameworks often determine a project’s viability more than the underlying engineering. This makes projects highly sensitive to political shifts. A change in government priorities, a new emissions target or altered tariff structure can reshape economics overnight. For those of us who’ve worked across multiple policy cycles, this fragility is all too familiar.

Interconnected Supply Chains: The energy transition is global. Supply chains for critical equipment such as turbines, transformers, batteries and nuclear components can span continents. Geopolitical shocks, trade disputes or resource shortages can ripple quickly across projects. Delays, cost escalations and quality issues can become amplified in an industry where timelines are already stretched. Transition risk compounds these challenges by increasing demand for scarce low-carbon technologies, adding further pressure on supply resilience.

Complex Stakeholder Landscape: Energy projects rarely belong to a single actor. They involve regulators, financiers, delivery partners, contractors and local communities, each with their own risk appetite and priorities. A regulator may see risk in compliance gaps, while investors worry about long-term returns and communities focus on environmental and social impacts. This diversity makes decision-making harder because what reassures one stakeholder may trigger alarm for another.

System-Level Interdependencies: Perhaps most importantly, energy infrastructure is not built in isolation. Every project interacts with wider systems such as national grids, markets and policy frameworks. A new interconnector affects wholesale prices; a renewable hub requires complementary storage; a nuclear programme changes baseload dynamics. This interconnectedness means that risk is rarely localised. A shock in one part of the system whether policy, market or physical can cascade across others in unpredictable ways.

Together, these factors mean energy infrastructure projects are exposed to compounded risks where long timelines amplify uncertainty, high capital raises the stakes and interconnected systems multiply impacts. Traditional risk management often struggles with this complexity because it assumes linearity and stability. However, those of us with industry experience know that the energy sector has never been linear or stable. The transition simply adds new dimensions. What matters now is whether we can anticipate and navigate these exposures in a structured and confident way.

A Better Way of Making Decisions

After spending decades working on energy projects, one lesson stands out for me - the real challenge is not uncertainty itself, but how we choose to face it. Too often on infrastructure projects we cling to the idea of a “most likely” future. Yet in practice projects are always exposed to a spectrum of possibilities and in today’s energy transition, that spectrum is broader and more volatile than ever. This is why we need practical and pragmatic structured approaches that don’t pretend to remove uncertainty, but instead help us navigate it with discipline and transparency.

At Kaleido this is where we believe better Decision Intelligence makes the difference. Our approach is to bridge the gap between decision-makers and the people, processes, data and technology they need to succeed in the modern project environment. We provide a framework that augments human expertise, enables "slow thinking" during critical stages and ensures technology serves rather than leads projects:

• System-level thinking: No energy project exists in isolation. Reinforcements, interconnectors, renewables and storage all interact with wider grids, markets and communities. Looking at projects in system terms helps avoid siloed decisions, improves communication and reduces unintended consequences.

• Scenario planning: Rather than betting everything on a single forecast, scenario planning helps sponsors and delivery partners stress-test strategies across multiple plausible pathways. It’s not about predicting the future, but about ensuring projects are resilient enough to adapt to whichever future arrives.

• Integrated modelling: By linking cost, schedule and risk in one framework, project teams can test assumptions against a range of scenarios. In the need case, this highlights whether system requirements hold up under different futures. In development, it shows regulators and investors where vulnerabilities lie. In delivery, it prevents nasty surprises from materialising late in the build.

• Knowledge and data management: Projects generate vast streams of fragmented data including cost estimates, schedules, risks, assumptions and much more contextual information which needs to be preserved, reviewed and updated. This needs to be transformed into a living source of truth to support accelerated decision making, traceability and alignment across all teams and iterations.

These methods won’t eliminate risk or uncertainty but they can shift the conversation from fear of the unknown, to confidence in action. In my experience that is the difference between projects that stall under pressure and those that deliver with resilience.

Conclusion

Many of us in the industry have seen what happens when transition risks are ignored or left unaddressed leading to increased lifecycle costs, projects being delayed, reputational damage and financing being withdrawn at critical moments when investors lose confidence. These are not hypotheticals but are real and painful lessons which continue to repeat over time. Energy infrastructure has always been complicated or complex. Projects sit at the intersection of politics, economics and social expectations but the climate transition and current world context adds new layers of challenge. That in turn makes delivering them more ever more challenging but also more critical to get right.

There is no silver bullet. No model or forecast can give us perfect certainty but there are better ways of making more intelligent and informed decisions. By embedding structured, transparent and system-wide approaches we can build confidence in uncertain times. It’s about preparing for multiple futures instead of assuming just one. It’s about approaching uncertainty with the right mindset, tools and methods. That mindset shift is what turns uncertainty from a liability into a source of resilience. That is Decision Intelligence in action.

The opportunity is clear - to not just survive the transition, but to shape it. The projects we deliver today will power generations to come. The question is whether we choose to build them with resilience at their core.

At Kaleido, we bring Decision Intelligence to life by empowering leaders and project teams to Anticipate, Evaluate and Respond to uncertainty with confidence. We help bring clarity from complexity by revealing meaningful insights leading to clearer actionable choices that ultimately drive better project outcomes.

Learn more about Deepak Mistry on LinkedIn: https://www.linkedin.com/in/deepak-mistry-74004989/

Follow Kaleido on LinkedIn: https://www.linkedin.com/company/kaleidoprojects/