Académique Documents
Professionnel Documents
Culture Documents
Project Report
Global Electric Utilities
Building business resilience
to inevitable climate change
Project Manager
Jean-Christophe Amado
Approved by
John Firth, CEO and co-founder
Acclimatise
Hexgreave Hall,
Upper Hexgreave,
Farnsfield,
Nottinghamshire,
NG22 8LS
Acknowledgements
The authors would like to thank the following organisations and individuals
for their guidance, advice and support in the preparation and publication
of this report:
IBM believes the electricity industry is Energy Agency1. This is due not only So, the industry is both a major
central to addressing world concerns to population growth, urbanisation greenhouse gas emitter and one of
about both energy and climate. and improvement in living standards, the solutions to reducing emissions.
Reducing greenhouse gas emissions, but also to new requirements such as For example, electric vehicles are
adapting to the climate change already electric vehicles and the substitution promoted by many as the best
underway and planning for a secure of electricity for hydrocarbon-based option to reduce vehicle emissions,
energy future must be addressed in fuels as an ‘energy carrier’. We can but there is little point in doing this
concert. And action is required now. expect further growth in energy if the generation, transmission and
demands as individuals, communities distribution of electricity is no ‘cleaner’
and organisations strive to adapt to than it is today.
History shows the need to invest
changing climatic conditions.
for the future
Climate change will exacerbate
Throughout history major problems The industry faces major challenges some existing industry challenges
have been the catalyst for major in meeting this growing demand, not and give rise to new ones.
change. The growing demands and least because of inhibitors such as:
constraints on the electricity industry regulation and legislation; inadequate
suggest we are rapidly approaching Climate change problems and
investment returns and out-dated
such a critical moment. So, a look solutions are intertwined
economic incentives that are now
back to the lessons from previous unhelpful; and the supply of natural The two core focus areas in addressing
large scale infrastructural changes resources. Climate change concerns climate change come together for the
might be timely. both constrain and direct the way electricity industry more acutely than
in which these challenges can in many areas of society:
The problems of overcrowding be overcome.
and unhygienic living conditions in
• Mitigation: reducing greenhouse
Victorian London endangered not only Taking just one example, electricity gas emissions to limit the impact
people’s health but also the political companies face major financing of climate change in coming
and commercial well-being of the city. challenges. With an urgent demand decades will require changes in
The result was major expenditure on for more capacity, the industry must consumption behaviour and new
a new infrastructure, the sewerage raise capital for these projects. This supply side technologies
system. The difficulty in transporting is particularly difficult because of
people and goods over large distances the size of the investment (in the UK, • Adaptation: addressing the risks
in 19th century USA, was a major the industry requires an estimated and opportunities resulting from the
inhibitor to growth removed by £233.5 bn investment2 over the inevitable climate change – occurring
massive investment in the rail network. next 15 years which equates to a now due to previous emissions
cost of approximately £9000.00 per of greenhouse gases – which are
Key to both examples is that a household), the desire from investors changing demand patterns and
completely fresh approach was for a short return on investment and placing operational and resource
taken and the investment made the general lack of funding available constraints on supply.
for the future rather than repairing due to the current global financial
existing infrastructure. situation. The situation is made more Mitigation has been the main focus
complex by the relative immaturity of the industry so far. There are
and lack of commercial scale of some many good examples of the work
A crisis of energy demand
of the technologies central to these underway here, with investment
and supply
projects. to reduce emissions from existing
We now face a series of major infrastructure, the development of
problems relating to the generation, Any growth in energy supply must new technologies such as wind and
transmission and consumption of be achieved in a low carbon way. solar, and the deployment of smart
energy, all of which are essential to Power generation creates 25% of the grids and smart meters. But there is
the commercial world, the way we world’s CO2 emissions, the largest much still to do and it is vital that
live and the development aspirations man-made source, according to The these efforts intensify without delay.
of the majority of humankind. Climate Group and McKinsey & Co3.
Sadly, too much of the generated Adaptation, according to the analysis
The world is demanding more and energy is currently wasted. According in this report, has not had the same
more energy. The projected growth of to a recent Ontario Smart Price Pilot focus and we ignore this at our peril.
worldwide energy demand by 2030 is report4, 170 billion kilowatt-hours of We need to understand the effects
36.8% according to the International electricity are wasted each year by that inevitable climate change will have
consumers due to insufficient power on the electricity industry over the
1
International Energy Outlook 2008. usage information. next few years – and what steps the
2
3
Times article, quoting Ernst & Young Study, 25 May 2009.
The Climate Group and McKinsey & Co.,“Smart 2020 Report”.
industry should be taking.
4
Ontario Smart Price Pilot report: http://www.oeb.gov.on.ca/OEB/Industry+Relations/OEB+Key+Initiatives/
Regulated+Price+Plan/Regulated+Price+Plan+-+Ontario+Smart+Price+Pilot ii
IBM Viewpoint
Scientists inform us that climate systems means more dynamic control To achieve this, we need the
change is underway and the of the flows of power, information and consumer to become part of the
direct effects of increasing global money; new sources of ‘supply’ and electricity management and efficiency
temperatures, changes in precipitation ‘demand’; and changed relationships story. Examples of this type of
and rising sea levels are becoming between the two. engagement include:
more evident. The indirect impacts
on social, environmental and economic
Many opportunities exist to optimise • Encouraging people to use less
systems are also beginning to come
and grow existing capabilities and energy, differently. This can help
into view. For the electricity industry,
accelerate emerging technologies to to lower energy usage directly and
these effects are likely to bring
commercial scale. lower and spread peak usage. A
increasing pressures, for example:
smart way of achieving this would
be to implement smart grids (which
IBM sees the need for three areas
• Significant changes in the could help to lower emissions by
of action to happen consecutively,
demand for electricity. Increasing 14% by 20205), smart meters,
not sequentially.
urbanisation will be driven in part remote operation and automated
by climate change with people operation of electrical appliances
migrating to find water, food and • Optimise: Apply smart solutions and goods
work, etc. Energy infrastructure to optimise and extend existing
will be placed under increasing capabilities, making the most • Encouraging people to collaborate
pressure. For many urban areas the efficient use of the assets that with utilities in generation –
capacity to meet growing demands already exist to buy time and take expansion of micro generation, for
will be inadequate or non-existent appropriate adaptation action. example CHP, photovoltaic, solar
Examples could include: asset heating, etc., has the potential
• Significant changes to the supply life extension and optimisation to provide an almost infinitely
chain. Access to and transportation programmes, and new, cleaner controllable electricity generation
of raw materials, commodities and fossil-fuel plants. capability able to meet demand
goods will be affected by changes more closely than the current
in climate creating disruptions to • Grow: Rapidly grow existing centralised approach.
supply chains. We are already seeing commercialised capability through
conflicts between users for water smarter design and operation
Change is needed now to
with competing demands to grow providing ‘low-regret’ solutions
enable prosperity in a much
crops, provide drinking water and with potentially large benefits, for
different future
cool power plants. In addition, as example: factoring changing climatic
urban centres change and expand, conditions into the design stage for Successful electricity companies over
it is likely that food and water will new cooling systems; developing the next 10 years will be those that act
have to be transported over longer transmission systems to cope now upon the clear signals that climate
distances requiring ever greater with increased temperatures and change is underway.
energy inputs provide greater access to remote
renewable energy assets; new-
• Significant shifts in the availability build nuclear programmes; They will have recognised the risks
of natural resources. Climate change automated and intelligent smart and opportunities arising from a
will alter the productivity, economics grids; smart metering and demand changing climate and will have created
and operational feasibility of management technologies; and business models that understand the
renewable and non-renewable new regulatory incentives. changing nature of supply, demand
power generation in different and control in the electricity sector.
areas of the world. • Accelerate: Nurture and accelerate
new capabilities to commercial
They will have a fully integrated
scale, whilst at the same time
There is a confluence of conflicting approach to the challenges of the
maintaining options that allow further
pressures: a variety of restrictions energy revolution, reducing emissions
adaptation actions in the future.
to generating additional supplies of and adapting to climate change.
Examples could include: carbon
electricity; a growing demand for They will use the lessons gained from
capture and storage, deep-water
more energy; a changing geographic the present financial crisis and from
wind, tidal and wave power, micro-
demand for energy; changing climate history to avoid the even greater and
combined heat and power (CHP),
and environmental conditions on entirely ‘predictable surprise’ created
more efficient home wind and solar,
a geographic basis; and a need to by climate change.
distributed on-shore wind, waste
reduce greenhouse gas emissions.
and bio; various forms of storage;
electric vehicle infrastructure; and The industry must behave differently
Consumers must help with intelligent home devices. Other to address pro-actively the immediate
the supply side and utilities industries will need to transform the and longer term impacts of inevitable
with demand energy efficiency and demands of climate change while continuing to
the products and processes both deal with today's immediate pressures.
Electricity is a complex system-of- to ease pressure on the electricity
systems and it requires an integrated industry and reduce their risks to
approach to fundamentally redesign Senior executives in the sector
increasingly stressed supply. must take the lead and drive
the way the industry works if it is to
meet the challenges of a changing their companies towards this
climate. Optimising this system-of- transformation.
iii 5 The Climate Group and McKinsey & Co., “Smart 2020 Report”.
Executive Summary
Electricity companies must assess • Reductions in agricultural and The present financial crisis is driving
the risks and opportunities arising fisheries yields many companies to take stock and
from inevitable climate change as revisit their business models. This
• Increasing stress and competition
well as taking essential action to provides the ideal opportunity for
for water resources
reduce emissions. The focus so far, companies to look at the strategic
as evidenced by responses to the • Enhanced migration to urban areas and operational issues they will need
Carbon Disclosure Project, has been to address if they are to become
primarily on electricity companies • Changing disease patterns climate resilient.
reducing emissions and secondarily • Geo-political risks.
on understanding the risks posed by The successful electricity companies
climate change. Companies should of the future will be those that act
recognise the need for action in the These impacts add up to significant
changes in the demand for electricity now upon the clear signals that
near term to build business resilience climate change is underway. They
to manage the risks and capitalise against a backdrop of supply
challenges, ageing assets, new will have a fully integrated approach
on the opportunities that inevitable to the challenges of the energy
climate change brings. technology, prescriptive regulation
and impacts on asset performance revolution, reducing emissions and
and efficiency. adapting to climatic change. They
This century will see unprecedented will use the lessons gained from the
urbanisation and intense competition present financial crisis to avoid the
for scarce resources, driven by Although there is uncertainty in the even greater and entirely ‘predictable
population growth and economic knowledge we have about the extent surprise’6 created by climate change.
development. A revolution in energy and rate of future climate change, Acclimatise and IBM have jointly
generation, supply and demand there is sufficient information to assess prepared a set of Prepare-Adapt
is needed with companies taking impacts on business models and questions to help electricity companies
an integrated approach to the enable robust decisions to be taken take the right steps towards building
challenges through: as a result. The successful electricity corporate resilience to inevitable
company of the future is taking climate change.
climate risks into account today, and
• The optimisation of existing is developing adaptive strategies and
infrastructure assets, systems and actions to manage the uncertainties.
information The existence of uncertainties
• Growth of existing capabilities regarding the business risks arising
from climate change, should by itself
• Acceleration of emerging act as a catalyst for companies to
technologies to a commercial scale. quantify the risks, monitor the impacts
as they arise and be prepared for
There is scientific consensus that changes to their business models.
the world’s climate is changing due
to human activity and that whatever Consumer preferences and needs
steps we take to limit GHG emissions will change; markets will open up in
we are now faced with several new locations and for new products
decades of increasing global and services. Those businesses
temperatures and a far longer period that do not respond will lose out
of rising sea levels. We are already to their competitors, whilst those
seeing the impacts of these and other that recognise the opportunities will
climatic changes on social, economic become electricity sector leaders.
and environmental systems. The
impacts will become more severe
over time creating, for example:
6 A predictable surprise describes a situation or circumstance in which major issues are marginalised to satisfy short-term
expediency. Predictable surprises can be defined as issues that:
• at least some people are aware of,
• are getting worse over time, and
• are likely to create a crisis,
• but are not priorities for decision makers or have not elicited a response fast enough to prevent severe damage.
See M. Bazerman and M. Watkins (2004) ‘Predictable Surprises: The Disasters You Should Have Seen Coming, and
How to Prevent Them’. iv
Contents
IBM Viewpoint ii
Executive Summary iv
1 Introduction 1
Appendix 2: Examples of 21
the impacts of inevitable
climate change for the
electricity sector
References and 25
further reading
1 Introduction
In this report we explore the issues Those companies focussing their The Information Request was sent
that electricity companies are climate change activities exclusively on to the world’s largest 218 electric
beginning to face in response to a reducing GHG emissions (and many utilities globally (based on market
changing climate and the actions companies have yet to understand capitalisation). Acclimatise has
being taken. the urgency for action in this area) analysed the responses to assess
are only considering half the picture. the business resilience of companies
The report draws upon an analysis of By failing to build resilience they will to a changing climate. A separate
the responses from global electricity miss significant business opportunities technical appendix is available online
companies to the 2008 Carbon created by the energy revolution. at www.acclimatise.uk.com with the
Disclosure Project (CDP). Examples results from the analysis.
of actions and issues taken from the The report includes a series of
responses are provided. Prepare-Adapt questions prepared Acclimatisation Index
by Acclimatise and IBM to help
The analysis of the responses to the
As the most carbon intensive industry senior electricity company executives
CDP Information Request has been
in the world, the electricity sector is identify the steps they need to take
undertaken using our Acclimatisation
simultaneously a significant contributor towards building corporate resilience
Index methodology. This enables
to and victim of climate change. to inevitable climate change.
a semi-quantitative analysis of the
Reducing the greenhouse gas (GHG) responses recognising the scope
emissions of the sector is central to The Carbon Disclosure Project of the questions. The Index can
achieving a low-carbon economy7 take into account information from
CDP is an independent not-for-profit
and requires “nothing short of other sources to provide a more
organisation which holds the largest
an energy revolution.”8 Ensuring comprehensive analysis.
database of corporate climate change
the resilience of the generation,
information in the world. The data is
transmission and distribution
obtained from responses to CDP’s The Acclimatisation Index has
network and shifting the focus to
annual Information Requests, issued been used to analyse the resilience
renewable sources of energy, low
on behalf of 475 institutional investors, of global electricity companies
carbon generation and more dynamic
to more than 3,700 corporations to climate change in response to
balancing of supply and demand will
across the globe. Since its formation questions contained within sections
require levels of investment that will
in 2000, CDP has become the gold 1 and 49 of the CDP questionnaire.
transform the industry.
standard for carbon disclosure
methodology and process, providing
Many of the climate changes that we primary climate change data to the
will see over the next 30 to 40 years global market place. CDP plays a
are already built into the climate vital role in encouraging companies
system due to GHG emissions. to measure, manage and reduce
Mitigation efforts to reduce emissions emissions and climate change impacts.
are vital if we are to keep climate
change from surpassing a dangerous
The CDP Information Requests
and rapidly approaching threshold.
include a series of questions seeking
This has been called avoiding the
disclosure on the physical impacts
unmanageable. However the effects
of climate change on existing and
of climate change are already upon us
future company performance and
and are growing rapidly. A significant
the management responses. (A copy
reduction in emissions is essential,
of the questions is available on the
but, we must also prepare for and
CDP website: www.cdproject.net
respond to the impacts – we must
together with a list of the investors).
adapt to manage the unavoidable.
http://www.eurelectric.org/CEO/CEODeclaration.asp
7
IEA, 2008.
8
Excluding question b ‘Individual Performance’ of section 4 which focused on performance towards GHG targets.
9
2 Climate change
is underway
There is scientific consensus that the The IPCC has recommended that
“Even with drastic cuts in emissions world’s climate is changing due to urgent action is required to limit
in the next 10 years, our results human activity and that whatever steps the concentration of GHG’s in the
project that there will only be around we take to limit GHG emissions we atmosphere and prevent global
a 50% chance of keeping global are now faced with several decades of average temperatures rising above
temperature rises below 2°C. If the increasing global temperatures and a 2°C. A temperature rise above 2°C will
world fails to make the required far longer period of rising sea levels. be difficult for contemporary societies
reductions, it will be faced with to cope with, and will cause major
adapting not just to a 2°C rise in social, economic and environmental
temperature but to 4°C or more In 2007, the Intergovernmental Panel
on Climate Change (IPCC) – the most disruptions through the rest of the
by the end of the century.” A 2°C century and beyond. There are also
increase in global temperatures will authoritative scientific body on climate
change – confirmed the scientific concerns that increases above 2°C
create severe stress in many parts significantly increase the risk of large
of the world.” evidence that climate change is
already under way10 : scale, irreversible system disruption.11
Dr Vicky Pope,
Head of Climate Change Advice • “Warming of the climate system Limiting temperature rise to 2°C is
at the UK Met Office is unequivocal, as is now evident looking increasingly challenging and if
from observations of increases we fail we are faced with further rises
in global average air and ocean in temperature and an even greater
temperatures, widespread melting adaptation challenge.
of snow and ice, and rising global
mean sea level.” (see Figure 1)
• “At continental, regional, and ocean
“Climate change is increasingly basin scales, numerous long-term
recognised as a key strategic issue changes in climate have been
for the electricity generation sector… observed. These include changes
in Arctic temperatures and ice,
The opportunities and compulsion widespread changes in precipitation
for carbon reduction and adaptation amounts, ocean salinity, wind
strategies for this sector are patterns and aspects of extreme
therefore considerable and warrant weather including droughts, heavy
particular attention from investors.” precipitation, heat waves and the
intensity of tropical cyclones.”
Global Climate Disclosure
Framework for Electric Utilities,
Institutional Investors Group
for Climate Change
Scientific Symposium on Stabilisation of Greenhouse Gases – Avoiding Dangerous Climate Change Exeter February 2005.
11
Figure 1: Comparison of observed continental- and global-scale changes in surface temperature with results
simulated by climate models using either natural or both natural and anthropogenic forcings12
Europe
Temperature anomaly (˚C)
1.0
North America Asia
0.5
Temperature anomaly (˚C)
0.5 0.5
1900 1950 2000
Year
0.0 0.0
Year Year
1.0
South America Australia
0.5
Temperature anomaly (˚C)
0.5 0.5
1900 1950 2000
Year
0.0 0.0
Observations
50N
45N
6 40N
35N
30N
10W 0 10E 20E 30E 40E
Temperature anomaly (K)
4
0 1 2 3 4
-2
1900 1950 2000 2050 2100
Year
13 Stott, P.A., Stone, D. A. and Allen, M. R. (2004) Human contribution to the European heatwave of 2003.
Nature, Vol 432, pp 610-614.
Carbon Disclosure Project Report Global Electric Utilities
Figure 3: Increasing energy demands from emerging economies16 “Besides the efforts of reducing
greenhouse gas emissions from its
Exhibit 1 End-use energy demand by region,1 quadrillion British thermal units (QBTUs) operations to limit climate change
Higher energy E.ON acknowledges and plans for
productivity Potential 25% decline in energy CAGR,2 CAGR,2 both the effects of gradual warming,
demand in 2020 from base 2005-20, 2005-20, as well as an increased frequency
case – larger than today's total % base case % with energy
energy demand in China productivity of extreme weather events. We
380 93
capture expect that these seasonal and
}
27 10
5 weather-related fluctuations
14
7
11
in revenues and demand will
29 +3.4 +1.4
14 continue. As a response we will
32
45 287 improve our grid management and
22 +3.7 +2.3
36 29
optimize the usage of our power
231 +3.6 +1.6
Africa 16
stations. We have also undertaken
30 +4.5 +1.8
India 23
42 operational and infrastructure
30 +2.3 +0.9
Middle East 23
52
improvements to increase the
31
Southeast Asia 26 +3.2 +1.1
resiliency of our generating assets
Latin America 26 38 +1.4 -0.7 and transmission and distribution
Eastern Europe3 42 networks to these extraordinary
138
106 +4.2 +2.4 conditions. E.ON has made these
China 74 mitigation and adaptation efforts
a part of its Business Continuity
2005 energy Projected Demand Potential lower Management processes.”
demand 2020 energy abatement energy demand
demand, opportunity in 2020
base case from energy Matthias Hansch,
productivity
investment VP Climate Protection
and Environment,
1 Figures may not sum to totals, because of rounding
2 Compound annual growth rate E.ON AG
3 Includes Belarus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Russia,
and Slovakia.
Increase in global demand for energy. Energy underpins our social and
Energy demand is expected to grow economic systems. Access to reliable “People really need to understand
by 1.6% per year on average between and increased supplies of low-carbon that the average global surface
2006 and 2030, an increase of electricity are essential to meet the temperature is like the temperature
45%14. Although the current financial adaptation needs arising from, for of your body – and if you have
crisis has affected energy demand, example, increasing urbanisation, a fever of 40.5°C, even though
the underlying growth in demand agriculture (to improve yields and that’s only three and a half degrees
is expected to continue over the manage drought), transportation, the above normal, it’s potentially fatal.
medium-long term. Between 2007 built environment (to cool buildings), Everything that is expected to
and 2030, around 13.2 trillion US$ of potable water supplies, drainage and result from global climate change
cumulative investments are forecasted waste water treatment. driven by greenhouse gases is not
to be required in the power sector to only happening, but it’s happening
maintain supply and respond to the It is not clear from the scenarios faster than anybody expected.”
increased demand for electricity15. developed by organisations such
The increasing energy demands from as the International Energy Agency Dr. John Holdren,
emerging economies and developing if these additional energy needs Chief Scientific Adviser
countries, relevant to that from the driven by climate change impacts to President Obama,
OECD countries, is a key challenge and adaptation responses have been 6 February 2008
(see Figure 3). included in demand estimates.
The direct and indirect impacts of The IPCC Synthesis Report provides
climate change (see Figure 4) will examples of the impacts associated
increase the demand for electricity and with global average temperature
affect the resilience of assets to meet change (see Figure 4). The black
the changing demands. The impacts lines link impacts; broken-line arrows
will also increase the competition indicate impacts continuing with
for water resources between the increasing temperature. Entries are
electricity sector and other users (for placed so that the left-hand side of
example, agriculture, fisheries, drinking text indicates the approximate level
water, industry, and natural habitats). of warming that is associated with
the onset of a given impact.
14 International Energy Agency World Energy Outlook 2008. Paris.
15 CDP, 2008.
16 Farrell D. And Remes. J (2009) Promoting energy efficiency in the developing world. McKinsey Global Institute.
3 The energy revolution
Increased water availability in moist tropics and high latitudes WGII 3.4.1, 3.4.3
WATER Decreasing water availability and increasing drought in mid-latitudes and semi-arid low latitudes 3.ES, 3.4.1, 3.4.3
Hundreds of millions of people exposed to increased water stress 3.5.1, T3.3, 20.6.2,
TS.B5
Complex, localised negative impacts on small holders, subsistence farmers and fishers 5.ES, 5.4.7
Tendencies for cereal productivity Productivity of all cereals 5.ES, 5.4.2, F5.2
FOOD to decrease in low latitudes decreases in low latitudes
Tendencies for some cereal productivity Cereal productivity to 5.ES, 5.4.2, F5.2
to increase at mid-to high latitudes decrease in some regions
0 1 2 3 4 5° C
†
Significant is defined here as more than 40% ‡
Based on average rate of sea level rise of 4.2mm/year from 2000 to 2080.
EC Directive 2001/80/EC.
17
Hewer, 2006.
18
Global Trends in Sustainable Energy Investment 2009, UN Environment Programme's (UNEP) Sustainable Energy
19
Finance Initiative.
Carbon Disclosure Project Report Global Electric Utilities
9.0
8.0
7.0
Population (billions)
6.0
5.0
4.0
3.0
2.0
1.0
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
20 United Nations (2008) Department of Economic and Social Affairs. Population Division. World Urbanization Prospects:
The 2008 Revision. United Nations 2008.
21 Ceres, Pacific Institute ‘Water scarcity and climate change: growing risks for businesses and investors’ 2009.
22 Energy Demands on Water Resources: Report to Congress on the Interdependence of Energy and Water,” U.S. Department
Figure 6: Water consumption by type of energy generation23 Financing the energy revolution.
Power-sector investment in the
short-term is expected to be severely
Water consumption required
Total water consumed per megawatt for U.S. daily energy affected by the current financing
Energy type hour (m3/MWh) production (millions of m3)
difficulties. In the longer term the
Solar 0.0001 0.011 scale of the investment required
Wind 0.0001 0.011 to meet the energy challenge is
Gas 1 11 significant. A recent study by Ernst &
Coal 2 22
Young26 concludes that £234 billion
of new investment is now required to
Nuclear 2.5 27.5
meet the UK’s energy goals. These
Oil 4 44 additional investments will double the
Hydropower 68 748 value of the UK’s total energy supply
Biofuel (1st generation) 178 1958 asset base (after taking into account
depreciation) by 2025.
A particular area of concern for the Delivering and treating clean drinking Clear national government policy.
electricity sector is the impact of water together with safe sewerage and In addition to the technological
climate change on water resources. waste water treatment systems to an challenges, the electricity sector
The IPCC Synthesis Report released increasing global urban population is faced with an uncertain regulatory
in 2007 states24: will create significant increases in landscape and in many cases a
the demand for electricity. vacuum in national government policy.
“Climate change is expected to Governments are slow to agree and
exacerbate current stresses on water Current global financial situation. The implement the policies needed to
resources from population growth International Energy Agency estimates create the certainty required by
and economic and land-use change, that global electricity consumption the companies and their investors.
including urbanisation. On a regional could drop by as much as 3.5% in The timelines do not match that
scale, mountain snow pack, glaciers 2009 – the first annual contraction required to close the growing
and small ice caps play a crucial role since the end of the Second World supply – demand gap.
in freshwater availability. Widespread War.25 There is a risk of complacency
mass losses from glaciers and creeping in as the recession decreases New regulatory landscapes. Although
reductions in snow cover over recent demand, obscures the greater new regulatory provisions are being
decades are projected to accelerate challenges from the energy revolution developed in many countries in
throughout the 21st century, reducing and climate change and delays action. response to these challenges, there
water availability, hydropower Investment is needed to invest in remains a great deal of uncertainty
potential, and changing seasonality of assets now during the downturn to regarding the scope, content and
flows in regions supplied by meltwater prepare for the future. A prolonged format of future legislation. Greater
from major mountain ranges (e.g. depressed financial situation will certainty about the future regulatory
Hindu-Kush, Himalaya, Andes), where delay investment and create further landscape is required to encourage
more than one-sixth of the world pressures for electricity companies companies to invest. New regulatory
population currently lives.” and for societies and economies. pricing structures will be required
in some countries to encourage
“Changes in precipitation and greater energy efficiency and demand
temperature lead to changes in management measures.
runoff and water availability. Runoff
is projected with high confidence to
increase by 10 to 40% by mid-century
at higher latitudes and in some wet
tropical areas, including populous
areas in East and South-East Asia,
and decrease by 10 to 30% over some
dry regions at mid-latitudes and dry
tropics, due to decreases in rainfall
and higher rates of evapotranspiration.
There is also high confidence that
many semi-arid areas (e.g. the
Mediterranean Basin, western United
States, southern Africa and north-
eastern Brazil) will suffer a decrease
in water resources due to climate
change. Drought-affected areas are
projected to increase in extent.”
23 Linking Water, Energy & Climate Change: A proposed water and energy policy initiative for the UN Climate Change
Conference, COP15, in Copenhagen 2009,” DHI, Draft Concept Note, January 2008.
24 IPCC ‘Climate change 2007: synthesis report’.
25 OECD and IEA The impact of the economic and financial crisis on global energy investment May 2009.
26 Ernst & Young (2009) Securing the UK’s energy future – meeting the financing challenge. London.
4 What are the impacts for
the electricity sector?
Successful electricity companies Companies should recognise that
already cope with climate risks, climate change will have both direct “As climate change takes hold, few
ranging from day-to-day and seasonal and indirect impacts. It is vital that businesses will be able to escape
changeability in weather and extreme companies do not limit their risk the impact of greater competition
events. Assets have been designed assessments to the direct physical for resources. As nations become
to operate within thresholds and impacts of climate change. The more protective of their assets, and
margins to: compound impacts are likely to markets become more volatile, it
reverberate through a company’s can no longer be business as usual.
business model – creating a ‘pinball Business strategy and operations
• Meet the climatic differences across will be increasingly impacted and it
the various regions in which they machine effect’ as the impacts in one
area rebound and have consequential is critical that companies and their
operate insurers work to understand these
impacts elsewhere in a company’s
• Maintain environmental and health business systems for example affecting: interdependencies now, and begin to
and safety regulatory requirements reflect them in their business plans
and approach to risk management.”
• Deliver against financial performance • Natural resources and raw materials
standards Dr Richard Ward,
• Procurement supply chains and
• Meet operational performance and logistics Chief Executive Officer,
customer service delivery standards. Lloyd’s
• Asset design and construction
Power Systems Engineering Research Center (2007) The Electric Power Industry and Climate Change: Power Systems
27
Critical threshold
29 Willows, R.I. and Connell. R.K. (Eds). (2003). Climate adaptation: Risk, uncertainty and decision-making. UKCIP Technical
10 Report. UKCIP. Oxford.
Carbon Disclosure Project Report Global Electric Utilities
Business continuity and crisis- Change drivers for Prescriptive action is also inevitable
management responses are corporate action with regard to other key resources
appropriate to manage the impacts used by the electricity sector. For
Inevitable climate change will
of extreme events but have little example, the increasing stress
have impacts for all companies,
relevance to incremental change. The placed on fresh water resources from
but electricity companies are
latter requires companies to carry out competing demands driven in part by
particularly vulnerable.
fundamental reviews of their business climate change will change the way in
models and check that processes which water is priced and regulated.
are ‘fit for purpose’ and climate-proof The key drivers for adaption will It is inevitable that water will become
under new operating conditions. be experienced through regulatory a highly regulated and state controlled
and legal liabilities, changes in cost resource, with electricity companies
profiles, market transformations, having to understand the future
Chronic (incremental) changes. These
stakeholder interest and governance regulatory and cost implications
changes to our climate are more subtle
(Figure 8). within their business models.
and their impacts on business models
and assets may pass undetected
until critical thresholds are breached. Figure 8: Change drivers for The wider geo-political risks
The responses may result in ‘step- arising from access to scarce
corporate action30
changes’ for a company, increasing water resources should be considered
operational costs beyond forecasts, for those companies operating in
falling revenues, unplanned capital Regulatory/Legal Costs/Revenue sensitive areas.
investment and additional balance
sheet financing to manage the The wealth of information on the
consequences. impacts of climate change from the
Governance
scientific community, academia,
Assets and operational processes Organisation research institutions, government,
designed without any allowance trade associations, and NGOs is so
for incremental change may fail to Management great that no company or director,
meet design criteria, operational senior manager or professional advisor
performance targets, key performance could claim ignorance in a legal
indicators (KPIs) and future regulatory challenge. As the financial impacts of
standards. Understanding the Other Stakeholders Markets climate change are further recognised,
incremental changes in the climate we are likely to see litigation used to
and a company’s current thresholds, recover costs incurred from changing
sensitivities and vulnerabilities are Some examples of how these drivers climatic conditions.
significant issues to be considered are beginning to affect electricity
in any analysis of a company’s future companies, and how they are There are examples of lawsuits
financial performance. They should anticipated to change over the against power companies aimed at
feature in corporate assessments next few years are given in the securing compensation for damages
of strategic, operational and project following paragraphs. resulting from extreme events (and
risks. This is a particularly important which are projected to become more
area for companies to focus on when Regulatory and legal drivers frequent under climate change).31
undertaking asset and capability As the impacts of climate change The legal costs and reputational
optimisation actions. become more direct we are likely to damage associated with defending
see governments resort to prescriptive such climate–induced legal actions
Examples of observed and potential regulation and statutory controls to could be significant.
impacts of climate change across ensure that electricity companies
the electricity value chain have been providing essential infrastructure take New regulatory approaches
provided in Appendix 2. appropriate action on adaptation. Early are required that maintain
indications of action by governments competition whilst allowing more
are already evident. In the United collaboration. Regulation is also
Kingdom the Climate Change Act 2008 required to provide incentives and
gives the government the power to funding to support research and
require electricity companies to assess implementation of technologies.
and disclose the impacts climate
change might have on their business.
Adapted from the “Energy & Efficiency Framework,” IBM Climate Change Centre of Excellence.
30
For example, a power company responsible for maintaining the transmission lines in Victoria (Australia) is being sued in a
31
class action suit introduced by victims of a wildfire allegedly caused by a fallen power line. The claim is made “on the basis of
negligent management of power lines and infrastructure”. 11
4 What are the impacts for the electricity sector?
32 Each kWh of electricity generated via the steam cycle requires approximately 25 US gallons (about 95 litres) of water
(Wilbanks et al, 2008).
12 33 Wilbanks et al., 2008.
Carbon Disclosure Project Report Global Electric Utilities
Ceres, IGCC, IIGCC and GRI have all questions to be answered then clearly The impacts of climate change on
issued reports aimed at the electricity senior executives should be ensuring operational performance are rarely
sector. The disclosure requirements in that the correct questions are being reported. Companies did however
these reports cover issues such as: asked within their own companies. recognise that the climate impacts
on the availability and quality of water
• Climate change strategy and How are companies responding? was a risk. ATCO Ltd. reported that
processes for managing climate “reduced cooling water availability
Companies are beginning to may require the addition of air cooling,
change risks and opportunities
identify risks which would be an additional cost,”
• Impact of regulation Respondents most often identify while Dominion Resources noted that
both ‘acute’ and ‘chronic’ climate “droughts can result in reduced water
• Quantitative data (both historical and
risks to assets and natural resources. levels that could adversely affect
projected) related to their exposure
Companies operating renewable operations at some of the company’s
to climate change (for example
energy assets such as hydroelectric power stations.”
generation mix and electricity
and wind power installations highlight
production).
risks to natural resource availability.
Changing stakeholder perceptions
and expectations regarding supply
In each of these reports the
Impacts of climate change on reliability, price and the economic,
importance of communications
transmission and distribution assets social and environmental sustainability
and disclosure in financial reports,
are also reported. For example, Duke of new assets are rarely reported. For
sustainability reports, analyst briefings
Energy noted that “its local electric example, water availability for cooling
and mandatory reports to securities
distribution systems are vulnerable to processes has effects not only
regulators such as the U.S. Securities
damage from extreme weather events on generation processes but also
Exchange Commission is emphasised.
such as ice storms, tornados and on community relations and social
The use of shareholder resolutions
severe thunderstorms – the types of licences to operate. In several American
to encourage companies to address
weather events that could potentially states concerns about water supplies
climate change risks has increased
be impacted by climate change”. have led to permits not being granted
dramatically. Ceres noted that a record
for new thermoelectric power plants.34
high of 57 climate-related resolutions
were filed with U.S. companies during Companies also report changes to
the 2008 proxy season. Of that figure, markets, demand and price. These Companies are reporting direct climate
almost half were withdrawn because include increased energy price impacts and particularly those created
the businesses positively addressed volatility, episodes of higher peak by extreme events. There is less
the issues involved in the resolutions. demand and overall seasonal demand coverage of the indirect impacts
changes. Consolidated Edison wrote or of risks created by incremental
that it is at risk from these impacts, climatic changes.
The external challenge for greater
noting that “increases in temperature,
disclosure should act as a catalyst
in particular, the frequency and
for internal action by companies to Actions to manage risks
severity of heat waves, would result in
assess, manage, integrate and engage Companies report investing in more
increased electric and steam demand.”
on the consequences of climate climate-resilient materials and designs,
change. If investors believe there are such as coastal sea defences,
sustainable drainage systems, dam
reservoir overflow management or
“disaster-resistant configurations such
Table 1: The most frequently mentioned risks identified by companies as power system networking and the
and those that they are being addressed (Source: CDP Information multiplexing of power facilities” (Chubu
Requests 2008) Electric Power, Japan). Verbund
in Austria has revisited the level of
security of its hydropower dams:
Top 10 risks identified Top 10 risks managed “dam security was re-calculated
1. Distribution grids negatively affected by extreme events 1. Distribution grids negatively affected by extreme events for flood levels of HQ 5000 (a level
2. Changing levels of precipitation leading to variable river levels for hydro 2. Assets compromised by extreme weather events reached every 5000 years).”
3. Assets compromised by extreme weather events 3. Changing levels of precipitation leading to variable river levels for hydro
4. Increased energy demand for air conditioning and refrigeration in 4. Disruptions to offsite utilities (e.g. communications, water, waste Actions are being taken by some
summer treatment, etc.) companies to respond by optimising
5. Reduced river flows and efficiency of cooling processes 5. Rising temperatures will increase energy demand for air conditioning and their existing assets, for example
refrigeration in summer
by generation companies improving
6. Wholesale and retail energy prices will remain volatile 6. Wholesale and retail energy prices will remain volatile their cooling water processes.
7. Milder winters will result in less demand 7. Customer expectations of secure energy provision will place increasing
pressure on companies
8. Disruptions to offsite utilities (e.g. communications, water, waste 8a. Increased interruptions to transport systems
treatment, etc.) 8b. Restrictions on water abstraction and efficiency of cooling
9. Changes in sea level and flooding will compromise assets 9a. Changes in sea level and flooding compromising assets
9b. Increase of wholesale and retail energy prices because
10. Changes in wind pattern that could affect the wind energy production of restrictions in supply
9c. Litigation becomes more significant
14
5 What actions should
companies take?
A business will only flourish if its If businesses are to become climate
leaders are adept at weighing risks resilient and meet the challenges of “A fundamental question confronting
and making robust decisions in the the energy revolution then they need those of us in the electric power
face of uncertainty. The successful to draw on the experience of the business is what kind of world we
business of the future is taking current financial crisis. In our report want to leave to our children. Will it
climate risks into account today, and exploring the FTSE35035 we set out be a world given over to rising seas,
is developing adaptive strategies and some of the key challenges for senior stronger storms, widespread drought
actions to manage the uncertainties. executives. These challenges apply and exorbitant energy prices? Or will
Although there is uncertainty in the equally to companies operating in the it be a world where we harness the
knowledge we have about the extent global electricity sector: power of markets to tame carbon
and rate of future climate change, emissions, preserve our environment,
there is sufficient information to enable and strengthen our energy security?”
• The relevance of climate change
robust decision-making to take into to fiduciary responsibilities –
account the possible impacts on FPL Energy
Senior executives need to act in
business models. The existence of accordance with their wider fiduciary
uncertainties regarding the business responsibilities to create sustainable
risks arising from climate change, business growth and return over a
should by itself act as a catalyst longer time scale. Senior executives,
for companies to quantify the risks, who focus on the response to
monitor the impacts as they arise immediate challenges at the expense
and be prepared for changes to their of a balanced position on the risks
business models. facing their business arising, are not
acting in the best interests of their
There is scientific consensus that shareholders, nor of those of their
the world’s climate is changing due employees, customers and the
to human activity and that whatever communities in which they are located.
steps we take to limit GHG emissions
• Governance meeting the challenge –
we are now faced with several
The scientific evidence that climate
decades of increasing global
change is underway, that further
temperatures and a far longer period
climate change is inevitable and that
of rising sea levels. We are already
impacts are already occurring in
seeing the impacts of these and other
social, environmental and economic
climatic changes on social, economic
systems, is overwhelming. It is
and environmental systems. The
incumbent upon all senior executives
impacts will become more severe
to ensure that potential risks to their
over time creating, for example:
business models and value chains
have been identified and assessed
• Reductions in agricultural and to understand the consequences of
fisheries yields decisions and the factors affecting
• Increasing stress and competition their company’s future.
for water resources • Risk disclosure – In most countries
• Enhanced migration to urban areas the regulation of companies under
statute requires some form of
• Changing disease patterns disclosure of future risks, for example:
• Geo-political risks. – In the USA Item 303 in the
Securities Exchange Commission
These impacts add up to significant Act of 1933 requires U.S. publicly
changes in the demand for electricity traded companies to disclose
against a backdrop of supply “where a trend, demand,
challenges, ageing assets, new commitment, event or uncertainty
technology, prescriptive regulation is both presently known to
and impacts on asset performance management or reasonably likely
and efficiency. to have material effects” on the
financial condition of the company.
36 A key challenge facing the electricity sector in meeting the energy challenge is the capacity of the manufacturing sector
16 to meet the potential demand for the construction and supply of new assets.
Carbon Disclosure Project Report Global Electric Utilities
During 2009 there will be many Prepare-Adapt: 10 questions 3 How sensitive is demand for your
opportunities for companies to for senior executives in the products and services to climate
talk to governments, politicians, electricity sector change impacts?
scientists, trade associations, and
Acclimatise and IBM have jointly
NGOs in the run up to the United
prepared their Prepare-Adapt set of • How will customer needs, buying
Nations Framework Convention
questions to help electricity companies behaviour and ability to pay
on Climate Change (UNFCCC)
take the right steps towards building change and over what timescale?
fifteenth Conference of the Parties
corporate resilience to inevitable
in Copenhagen. Although the main • What are the implications
climate change. A simplified version
emphasis of the conference will be of increasing urbanisation
drawing on a more comprehensive
on reaching a global GHG emissions and changing energy
set of questions is provided below.37
agreement, electricity companies demand profiles?
must become fully engaged in the
discussions on adaptation. Your risks • What are the implications
arising from changes in the
1 What are the operational impacts demographics of the countries
This report has concentrated on on your company of climate in which you operate?
the issues for listed companies in change?
the electricity sector. The impacts
are however not limited to these • What are the implications for
companies alone. They apply equally the operating performance 4 How could current and future
to those countries where the state and efficiency of your existing climate change regulations and
manages generating, transmission assets under changing climatic industry standards affect your
and distribution assets. The impacts conditions? organisation and its reputation?
are also of relevance to the world’s
urban areas dependant upon the • How will the impacts of climate
availability of resilient energy systems change on the other operators in • What is your level of regulatory
in order to function effectively. the electricity value chain affect and financial exposure to the
your business? introduction of prescriptive
legislation on adaptation, together
The successful electricity companies • How will changes in water with further legislation on urgent
of the future will be those that act now resources and water quality mitigation action, as the reality
upon the clear signals that climate together with increased of climate change becomes
change is underway. They will have competition from other users more pressing?
a fully integrated approach to the affect your operational capacity?
challenges of the energy revolution, • How effective and auditable
reducing emissions and adapting is your process for reporting
to climatic change. regulatory and policy
2 Are your current and planned compliance?
major operating assets located • Which areas of your business
in areas vulnerable to climate are sensitive to media, NGO
change impacts and what are and local community concerns?
the implications?
37 Please contact Acclimatise or IBM if you would like to know more about the ‘Prepare-Adapt’ questions. 17
5 What actions should companies take?
Your opportunities Your response 9 How can you ensure that your
approach is based on robust
5 What new and enhanced existing 7 How clear and effective are information and assumptions?
products and services can you your internal management
offer your customers? responsibilities for climate change
and your engagement with • How have you integrated the
stakeholders? latest available climate science
• What steps are you taking
to develop new or enhanced and climate change scenarios to
business opportunities that will inform your business planning
• To what extent are your internal
provide competitive leadership? and decisions?
climate change leadership
• How will you develop brand and management roles clearly • Are your management information
stretch to take advantage of defined, supported and systems for raw materials and
changes in customer behaviours empowered to meet fiduciary resources, assets, supply
and develop climate related responsibilities? chains, operations, markets and
markets? customers reporting on and
• How are you sharing information
monitoring climate change KPIs
• Can you provide products and with and influencing governments,
using realtime, interconnected
services that that will help regulatory bodies, NGOs,
and intelligent data?
commercial and domestic consumer groups and the
customers predict, monitor, and media to manage and forecast • Can your information systems
adapt to the impacts of climate exposure? provide an early warning of
change as well as enhance their climate change driven signals
• What actions are you taking
efforts to reduce their emissions of changes in operational
to ensure that the investment
footprint? performance and demand
community, your bankers and
profiles?
insurers understand and support
the steps you are taking regarding
climate risk?
6 What benefits could you realise
from better managing your 10 How can you demonstrate
response to climate change? that your climate business
resilience plans are realistic
8 How well structured is your
and financially viable?
• How can you improve the approach for managing
attractiveness of your company climate change?
to investors, banks, credit • What actions have you taken
rating agencies, employees • How effective is your process to understand and manage
and potential recruits? for exploring longer term future liquidity and ensure
scenarios and identifying risks sufficient contingency funding in
• How will you use the current preparation for more intense and
economic crisis as an opportunity and opportunity signals as
they emerge to plan and act frequent extreme climatic events?
and an incentive to revisit your
business model and respond to accordingly? • How do your business continuity
the growing social, environmental • How are you assessing the and crisis management plans
and economic challenges? vulnerability of your raw materials reflect the changing risk profiles
and resources, suppliers, assets, due to climate change and are
• What are the cost advantages they well-rehearsed?
if you can secure more favourable operations, workforce and
insurance cover by demonstrating markets to changing risks? • What steps are you taking to
strong operational risk • What steps are you taking to involve your employees, develop
management processes ensure that climate change driven new skills and expertise to grow
limiting potential consequential business risks and opportunities your internal capability and
loss claims? are integrated into your decision accelerate the commercialisation
making through optimisation, of new technologies?
growth of existing capabilities,
and acceleration of new
commercial technologies?
© Copyright Acclimatise (Climate
Risk Management Ltd) and
International Business Machines
Corporation 2009
18
Appendix 1
The future electricity sector Fuel/energy sources. A variety of Generation. Electricity is most
value chain sources are used: fossil fuels (coal, often generated at a power station
oil, natural gas), nuclear, biomass, by electromechanical generators,
In this report we explore the impacts
water, solar, tidal, wave, wind primarily driven by heat engines fueled
of inevitable climate change and the
and geothermal. New generation by chemical combustion or nuclear
business resilience of companies
technologies linked to the development fission but also by other means such
operating in the electricity sector.
of commercially viable fuels (e.g. as the kinetic energy of flowing water
The 88 companies who responded38
hydrogen, second generation biofuels, and wind. There are many other
to the 2008 CDP Information Request
algal derived fuels) will become technologies that can be and are used
include companies with fully integrated
increasingly important. to generate electricity such as solar
operations across the value chain, and
photovoltaics and geothermal power.
those concentrating on a particular
part, for example generation. Access to and developing each
of these fuel sources will need to The large fixed assets used in
recognise the effect of changing the generation of electricity with
The sector value chain is in a period
climatic conditions and indirect comparatively long asset lives are
of transition and development in
impacts on asset performance, supply vulnerable to a changing climate.
response to some of the challenges
chains and logistics, interruptions Existing assets will have been
identified in the previous section.
due to extreme events, environmental designed to operate against historic
Energy storage and local, distributed
regulations and local communities. climate data and demand criteria that
power systems are becoming
are no longer robust as a basis for
increasingly important features of the
decision making. New assets must be
value chain in the twenty-first century.
designed to operate against a range of
Figure 9 provides a simplified overview
possible climate scenarios, rather than
of the electricity sector.
absolute values.
Energy Storage
Customer
Fuel/Energy
Generation Transmission Distribution Energy
Source
Services
Distributed Power
88 companies out of a total 218 electricity companies invited to participate in the 2008 Information Request provide complete
38
responses to the questions covering disclosure on the physical impacts of climate change on existing and future company
performance and management responses. 19
Appendix 1
20
Appendix 2
21
Appendix 2
Turbine performance is affected by increasing ambient located near the coast for cooling water purposes. It
air temperature with reductions in thermal efficiency can lead to asset damage, disruptions to supplies and
and power output. There is a linear relationship between downtime during clean-up operations.
air temperature and turbine efficiency: a 10 degree
Fahrenheit (5.56 degree Celsius) increase in ambient Decommissioning nuclear assets will need to take into
temperature would produce as much as a 3 to 4% account climate change over many centuries. This will
reduction in power output. become a major issue for coastal assets affected by
rising sea levels. Existing decommissioning schemes
Although the impacts might appear ‘small’ in percentage will need to be reviewed against the latest information
of lost efficiency, they could mean significant losses of on sea level rise.
supply. On a global scale, a net reduction in fossil-fuel
based electricity generation of 1% due to increased Regulatory impacts due to climate change
ambient temperature would represent a drop in supply
of electricity of 25 billion kWh. Generic
Increasing competition between stakeholders for
The accounting rules for decommissioning assets under water will place pressure on governments to introduce
IFRS (IAS 37) require a company to recognise a liability regulatory controls and water pricing.
as soon as the decommissioning obligation is created,
which is normally at the time facility is constructed. Early indications of action by governments are evident:
In the UK, the Climate Change Act 2008 gives
Decommissioning provisions represent a significant government the power to require electricity companies
financial risk because the majority of cash flows occur at to assess and disclose the impacts climate change
the end of a project's life. Companies will need to assess might have on their business.
and report the impacts of changing climatic conditions
on the decommissioning costs for their existing and All sectors of the electricity value chain can expect to
planned assets. see regulations used by Governments to provide greater
consumer protection.
Hydro power
Silting of hydropower dams may accelerate due to Biomass
increased erosion and sediment load as a result of Increasing competition between stakeholders over
precipitation and temperature changes. access to agricultural land may result in regulatory
controls to protect food production.
Climate change will alter river flow levels and
velocities. Dams will face changes in flood extremes Nuclear
and return periods. Nuclear power stations require higher levels of water to
operate compared to fossil fuelled electricity generation
Increased sediment load may cause abrasion of (between 20 to 83 % more than for other power
turbine blades requiring increased maintenance, stations). Water abstraction limits by nuclear power
loss of generating efficiency and increased costs. stations may become more regulated as resources are
placed under stress by changes in flow and temperature.
Biomass Increasing competition for water resources from other
Energy generation using biomass requires significant users in response to climate change will also place
amounts of water. pressure on Governments to regulate abstractions
and discharges.
Solar
Solar energy assets located in arid regions may sustain Consumer and market impacts due to climate change
greater damage as a result of abrasion with increasing
wind speeds and more intense storms. Generic
The market impact of hotter, drier summers is already
Wave and tidal reflected in energy demand trends. Across Europe, new
More intense tropical and extra-tropical cyclonic events demand profiles are being seen in summer and winter.
will need to be considered in the design and operation Summer peak demand will be amplified in cities through
of wave and tidal energy assets. Storm surge heights the Urban Heat Island effect.
are expected to increase.
Customer expectations of secure energy provision will
Wind place increasing pressure on companies. Companies
Increasing wind speeds may require turbine can be expected to be the subject of adverse media
design changes. and customer comment.
22
Electricity companies will face major challenges in providing All sectors of the electricity value chain can expect to
new generation capacity and supply reliability within see regulations used by Governments to provide greater
urban areas to meet the increased demands from domestic consumer protection.
customers, essential urban utilities (for example water and
sewerage), and the technological changes in transportation Consumer and market impacts due to climate change
(for example the increased use of electric vehicles).
The market impact of hotter, drier summers is already
Biomass reflected in energy demand trends. Across Europe, new
There is a developing international trade in biomass fuels demand profiles are being seen in summer and winter.
– which is generally expected to increase and stabilise Summer peak demand will be amplified in cities through
over the next ten years. Some estimates indicate that a the Urban Heat Island effect.
realistic potential for biomass energy generation could
be between 35 and 1130 EJ/y worldwide, with a large A study commissioned by electricity companies in the
proportion of this resource being found in the C.I.S and UK identified system overload in the summer during the
Baltic states, South and North America and the Far East. 2020s, taking account of climate change. Overloads and
power cuts have already occurred in central London.
Fossil The number of cooling degree days in London increased
Restrictions in gas supply due to extreme event by an additional 30-34 days over the period 1961-2006.
disruption are likely to increase wholesale and retail Further increases can be expected.
energy prices.
Electricity companies will face major challenges in
providing new generation capacity and supply reliability
Transmission within urban areas to meet the increased demands
from domestic customers, essential urban utilities (for
Asset impacts due to climate change
example water and sewerage), and the technological
changes in transportation (for example the increased use
Changes in the intensity and frequency of extreme
of electric vehicles).
events will create major issues for assets designed to
cope with historic climate conditions. Changes in wind
Customer expectations of secure energy provision will
speed, icing, temperature and flooding, together with
place increasing pressure on transmission companies.
ground movement following subsidence and heave
Companies can be expected to be the subject of
events and permafrost thaw will increase the risks
adverse media and customer comment.
of asset failure. In Melbourne, Australia during early
2009 explosions caused by extreme heat damaged two
Successive extreme events leading to outages (heat
major 500 KV transmission lines causing blackout for
wave, flood, drought) may create a loss of consumer
500,000 residents.
(and investor) confidence.
In many countries transmission assets are nearing the
The UK grid operator issued a supply shortfall warning
end of their design life. These assets may no longer be
in 2003 and 2006, when the south-east and parts of
performing to their original design criteria and the original
Central London were hit by blackouts due to the impact
design standards may no longer be sufficient to meet the
of higher temperatures and increased demand for energy
impacts of a changing climate.
for cooling.
The efficiency of transmission systems will be affected
by increases in average temperatures and heatwaves. Distribution
Changes in the frequency and intensity of extreme events
will increase the risk of transmission failures. Changes Asset impacts due to climate change
in wind speed and ice formation increase the risk of
transmission line failures. In many countries distribution assets are nearing the
end of their design life. These assets may no longer
Regulatory impacts due to climate change be performing to their original design criteria and the
original design standards may no longer be sufficient to
Early indications of action by governments are evident: meet the impacts of a changing climate.
In the UK, the Climate Change Act 2008 gives
government the power to require electricity companies The efficiency of distribution systems will be affected
to assess and disclose the impacts climate change by increases in average temperatures and heatwaves.
might have on their business. In Australia the National Changes in the frequency and intensity of extreme
Government is undertaking risks assessments for events will increase the risk of distribution failures.
critical electricity infrastructure.
The significant increases in demand with increasing
As a result of lawsuits filed regarding the efficiency urbanisation due in part to climate change (particularly
of transmissions assets (e.g. March 2009 People of in developing countries) will place major strains on
California v. U.S. Dept. of Energy) tighter regulations assets, leading to overloads and outages.
may be introduced.
23
Appendix 2
Early indications of action by governments are evident: Asset impacts due to climate change
In the UK, the Climate Change Act 2008 gives
government the power to require electricity companies SMART meters are seen as a valuable first step to
to assess and disclose the impacts climate change creating a ‘SMART grid’, which would enable energy
might have on their business. In Australia the National suppliers to be much more efficient in their use of power.
Government is undertaking risks assessments for
critical electricity infrastructure. Regulatory impacts due to climate change
Regulation may become more focussed on ensuring that Regulation to promote energy efficiency measures
distribution systems are secure and climate resilient. and incentivise action by consumers and electricity
companies.
All sectors of the electricity value chain can expect to
see regulations used by Governments to provide greater All sectors of the electricity value chain can expect to
consumer protection. see regulations used by Governments to provide greater
consumer protection.
Consumer and market impacts due to climate change
Consumer and market impacts due to climate change
The combination of summer peakloads, plus losses in
generation (due to increasing temperatures and cooling Extreme weather events, for example extreme
water restrictions) and losses in transmission and precipitation or flooding, may result in delayed or
distribution (due to increasing temperatures), will add cancelled routine maintenance or other services.
to the growing supply/demand gap. The market impact This could lead to reputational issues.
of hotter, drier summers is already reflected in energy
demand trends. Across Europe, new demand profiles Electricity companies will face major challenges in
are being seen in summer and winter. Summer peak providing new generation capacity and supply reliability
demand will be amplified in cities through the Urban within urban areas to meet the increased demands
Heat Island effect. from domestic customers, essential urban utilities (for
example water and sewerage), and the technological
Electricity companies will face major challenges in changes in transportation (for example the increased
providing new generation capacity and supply reliability use of electric vehicles).
within urban areas to meet the increased demands
from domestic customers, essential urban utilities (for Increased demands to meet air-conditioning and
example water and sewerage), and the technological cooling needs.
changes in transportation (for example the increased
use of electric vehicles). The market impact of hotter, drier summers is already
reflected in energy demand trends. Across Europe, new
Customer expectations of secure energy provision will demand profiles are being seen in summer and winter.
place increasing pressure on distribution companies. Summer peak demand will be amplified in cities through
Companies can be expected to be the subject of the Urban Heat Island effect.
adverse media and customer comment.
Customer expectations of secure energy provision will
Successive extreme events leading to outages (e.g. place increasing pressure on companies. Companies
heat wave, flood, and drought) may create a loss of can be expected to be the subject of adverse media
consumer (and investor) confidence. and customer comment.
24
References and
further reading
Acclimatise (2009). Understanding the Garnaut, R. (2008). The Garnaut Climate Morrison, J., Morikawa, M., Murphy, M.
investment implications of adapting to Change Review. Cambridge University and Schulte, P. (2009). Water Scarcity
climate change – UK energy generation. Press: Cambridge. Hadley Centre (2005). and Climate Change: Growing Risks for
Oxford, UK Climate Change and the Greenhouse Businesses and Investors. CERES:
Effect – A Briefing from the Hadley Centre. Boston, U.S.A.
Acclimatise and Synergy (2008). Climate
Finance, Business and Community: The Henderson Global Investors, Insight Asset Smith, B., T. et al. (2005) ‘Climate change
Benefits of Co-operation on Adaptation. Management, RAILPEN Investments and and thermoelectric cooling linkages’.
Discussion Paper. Oxford, UK Universities Superannuation Scheme (2008). Potential effects of climate change on
Managing the Unavoidable: Understanding thermoelectric cooling systems. Oak Ridge
AEA Technology (2006) ‘Regulation of the investment implications of adapting to National Laboratory: Oak Ridge, Tennessee.
Energy from Solid Biomass Plants’. A report climate change.
produced for the Environment Agency. Stern, N. (2007). The Economics of Climate
Didcot, UK Hewer, F. (2006) A Scoping Study on Change: The Stern Review. Cambridge
the Impacts of Climate Change on University Press: Cambridge, 692 p.
Barthelmie, R.J. Kjellstrom, E. Mann, the UK Energy Industry. Met Office:
J. Pryor, S.C. (2005) ‘Potential Climate United Kingdom. Stott, P.A., Stone, D.A., and Allen, M.R.
Change Impact On Wind Energy Resources (2004). ‘Human contribution to the European
In Northern Europe’. Geophysical Indian Institute of Management (IIM) (2005) heatwave of 2003’. Nature. Vol. 432,
Research Abstracts Vol. 7. European Climate Change Impacts on Industry, pp. 610-614.
Geosciences Union Energy and Transport in India.
Three Regions Climate Change Group
Bray, C., Colley, M., and Connell, R. (2007). Institutional Investors Group on Climate (2005). Adapting to Climate Change: A
Credit Risk Impacts of a Changing Climate. Change (2007). Disclosure Framework for Checklist for Development. Greater London
Barclays Environmental Risk Management Electric Utilities. London Authority: London.
and Acclimatise: London, UK.
IPCC, 2007: Climate Change 2007: Impacts, Totty, M. (2009, February) ‘Smart roads.
Bloom, A., Kotroni, V., Lagouvardos, k (2008) Adaptation and Vulnerability. Contribution of Smart Bridges. Smart Grids’. The Wall
‘Climate change impact of wind energy Working Group II to the Fourth Assessment Street Journal: New York.
availability in the Eastern Mediterranean Report of the intergovernmental Panel on
using the regional climate model PRECIS’ Climate Change. M.L. Parry, O.F. Canziani, UKCIP (2005). A Changing Climate for
Natural Hazards and Earth System Science: J.P. Palutikof, P.J. van der Linden and C.E. Business: Business Planning for the
8 (6) pp.1249-1257 Hanson, Eds., Cambridge University Press, Impacts of Climate Change. Oxford, UK.
Cambridge, UK UNEP Financial Initiative (2005). A
Business day (2009) 'AGL stands by
drought-hit hydro plants’. May 11th 2009. International Energy Agency (2008). legal framework for the integration of
http://www.businessday.com.au/business/ World Energy Outlook: 2008. Paris. environmental, social and governance
agl-stands-by-droughthit-hydro-plants- issues into institutional investment.
20090510-az6a.html extracted Jenkins, G.J., Perry, M.C., and Prior, M.J.0
(2007). The climate of the United Kingdom Wageningen (2006) Climate adaptation in
9th June 2009 the Netherlands
and recent trends. Met Office Hadley
Carbon Disclosure Project (2009). Electric Centre, Exeter, UK. Watson, S, J (2006) “Report on EPSRC
Utilities Report 2009. CDP: London, UK. Project GR/18915/01: A Generic Process
Kaushish, S.,P and Naidu, B.S.K (2001)
Ceres (2006) Best Practices in Climate Proceedings of the Second international for Assessing Climate Change Impacts on
Change Risk Analysis for the Electric Power Conference. ‘Silting problems in Hydropower the Electricity Supply Industry and Utilities
Sector, Boston Plants’ 26th – 28th September 2001 (GENESIS)”
Ceres, Institutional Investors Group on LaCommare, K. H., Eto, J. H. (2004) Wilbanks, T.J., Bhatt, V., Bilello, D.E., Bull,
Climate Change, and Investors Group on Understanding the Cost of Power S.R., Ekmann, J., Horak, W.C., Huang,
Climate Change (2008). Electric Utilities: Interruptions to U.S. Electricity Consumers Y.J., Levine, M.D., Sale, M.J., Schmalzer,
Global Climate Disclosure Framework. Ernest Orlando Lawrence Berkeley National D.K., and Scott, M.J. (2008) Effects of
Laboratory Climate Change on Energy Production
Dowden, M. (2005). The forecast predicts and Use in the United States: Synthesis
legal liabilities. Practice and Law. Estates Lloyd’s (2006). Climate Change: Adapt or and Assessment Product 4.5. U.S.
Gazette: London. Bust. 360 Risk Project. London. Climate change Science Program and the
Subcommittee on Global Change Research.
Dowden, M. and Marks, A.C. (2005). Come Lloyd’s (2009) Climate change and security: Washington, D.C.
rain or shine. Practice and Law. Estates risks and opportunities for business, London
Gazette: London. World Business Council for Sustainable
McDonald, J. (2008). Leader or follower: Development. (2007). Adaptation: An issue
Fidje, A., Martinsen, T., Marstein, E. and Developing the smart grid business case. brief for business.
Johannensen, J. C. (2006). Effects of climate IEEE Power & Energy Magazine. November/
change on solar energy. Institute for Energy December 2008. World Business Council for Sustainable
Technology. Norway. Development (2008). Powering a Low-
Met Office (2006) Climate change and Carbon Economy.
Firth, J., and Colley, M. (2006). The energy management
Adaptation Tipping Point: Are UK
businesses Climate Proof? Acclimatise
and UKCIP: Oxford.
25
Acclimatise legal disclaimer Acclimatise
EUW03001-GBEN-00