185. Physical and technological risks derive from the physical characteristics of RE assets, related to the intermittency of natural resources (e.g. variations in wind levels and solar radiations) and from novel RE technologies.
186. While conventional fossil fuel energy projects generally employ mature technologies that have been proven over years of successful commercial application, RE projects employ recent and evolving technologies that do not have established track records and lack actuarial data. The risk of technological obsolescence is penalized by risk-adverse financiers. Only a few individual technologies such as onshore wind power41 and solar PV42 benefit from relatively well-defined risks and adequate operational history.
187. In particular, risk related to volatile output, such as weather-related volume risk, may result in revenue falling consistently below projections. Wind volumes can deviate by 25% from normal values in any given year, whilst solar radiation levels typically deviate by no more than 4% from normal levels (Economist Intelligence Unit, 2011). Consequently, output may fall dramatically short of estimated levels, due to inadequate weather projections and increasingly unpredictable weather patterns caused by climate change.
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41. Wind power is harnessed by rotor blades and converted into electricity: resource risk includes longterm wind power reliability, while technology and operational risks include wind turbine breakdown by failure of a control unit or electrical parts, as well as pitch control.
42. PV panels are made of semi-conductor material that, when exposed to sunlight, generates electricity: practically no resource risks are associated, as there is substantial data on solar isolation in various parts of the world and the technology has matured over time.