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This study analyses the phenomenon of political risk in the German energy industry. Political risk can be understood as “the probability that factors caused or influenced by the (in) action or reactions of stakeholders within a political system to events outside or within the country” (Brink 2004). This study asks for determinants and characteristics of political risk, its origination, its occurrence, and its impact. The focus of this study lies in the German energy industry, where politically initiated drastic changes are the predominant challenge for utilities (Roland Berger, 2013). The industry levels investigated include strategic and risk company’s issues and are focused on the senior management and senior politicians’ insights. It looks for the identification and analysis of the linkage of political risk and their effect on utility companies in Germany of different sizes and active within different sectors. While political risk is not limited to Germany or the energy industry, there have been enormous changes in this field recently: the German government recently decided to shut down all nuclear-fuelled power plants as part of a programme called energy turnaround (Energiewende). The content of this programme will change the industry structure radically. Renewable energy is now heavily favoured with a consequent decline in nuclear energy usage. This study analyses political risk combining two approaches: an outside-in and an inside-out analysis. Two important perspectives are captured, evaluated and compared with each other. The first group of interviews focuses on senior political experts, who are strongly connected with the energy industry. This “inside” information comes from experts including members of the state and federal parliament, as well as European parliament and one former federal minister of economics. The second group of interviews therefore seeks “outside” information from industry experts, senior managers of the German energy industries, who are daily confronted with the impact of political risk. It is enriching to combine these two sides, to develop an understanding of the phenomenon of political risk in the German energy industry. The approach of having two interview series with conflicting expert opinion generates a new view of this topic. The findings illustrate these ideas, thoughts, and opinions together, which helps to explain the different sides of political risk in the German energy industry and generates approaches for the utility companies to take to mitigate political risk. The analyses of the experts’ insights generated the following results (1) identification and description of the definitional tensions of understanding political risk in the German energy industry (2) analysis of the political risks the industry is facing (3) evaluation of the potential impact of these risks on the industry and its companies (4) development of a conceptual approach for political risk management in the German energy industry. In detail, it has been derived from the analysis that there are huge differentiations in the understanding of political risk between politicians and managers. There is also no common understanding within the group of politicians. The different perception of political risk was also evident for the types of political risk that were discussed in this study. Despite the observed influence of political decisions on single enterprises in Germany in recent history, there are also differentiations in the evaluation of the impact of political risk within practice. Managers perceive it as a given fact and accept is as an element of their environment that they must interact with, while some political experts argue towards a legislative character of political decisions. The generated insights of the experts were used to develop a conceptual approach for the evaluation of political risk in the German energy industry. It uses three groups of criteria (inside view, outside view, and level of political communication) to evaluate the level of political risk. Three levels of political risk are described and linked with level-related sets of recommendation as a main contribution to theory and practice. The model enables the individual company to take individual actions by anticipating their individual political risk exposure. |
