By David Dapice and Edward A. Cunningham, December 2011
Ensuring affordable, stable, and accessible energy supply remains one of the most critical functions of government, particularly in the developing world. The creation and expansion of a national energy system presents governments with inherent risks that must be managed if an economy is to be supplied with the energy it requires to grow. Some risks are structural, and inherent to the sector itself. Energy systems are characterized by high levels of capital intensity (e.g. oil refining), long-cycle investments with extended pay-back periods (e.g. oil exploration and production), natural monopolies (e.g. electric grid and gas transmission), and high levels of risk that result from the combination of these attributes. Energy flows may also carry the added complexity of perceived national security externalities, such as supply risk in the form of oil import dependency on one partner.