Climate change threatens global power supplies

Most electric utility companies believe climate change could bring more power outages, higher costs and usage changes, but many aren’t taking across-the-board action to prepare for such possibilities, according to a new Acclimatise global report backed by IBM.

Over 90 per cent of global electric utilities that report climate change activity to the Carbon Disclosure Project recognise they are at risk from changes in climate and water availability, which are already adding stress to the sector. However, less than one third say they had undertaken any financial or quantified evaluation of the impact of climate change on their business.

The report suggests the energy industry is rapidly approaching a critical stage of development. As demand is growing from new requirements such as electric vehicles, increased cooling during warmer summer months and rapid urbanisation, utilities need to attract new financial investment to grow existing capabilities and develop emerging technologies in a low-carbon way.

Without correct adaptation measures built into business plans, climatic risks could impact a utility company’s financial and operational performance, potentially leading to additional operational and capital expenditure. Financial projections made today based on current life, performance and value of assets may not be robust, which could impact a utilities value and interest from investors.

The report “Global Electric Utilities: The Adaptation Challenge” is based on 219 responses to the Carbon Disclosure Project’s annual request for investor information from the industry, analysed using the Acclimatisation Index™. Methodology.

Further key findings of the report:

• While responding companies seem to have incorporated climate change in general into their governance structures, only a few electric utilities (6 per cent) refer to adaptation directly as an integrated element of their governance, reporting and lobbying practices;
• While 48 per cent of companies claim to manage their climate risks, their adaptation actions are generally isolated and rarely form part of climate risk management strategies;
• Nearly one third of companies — 31 per cent — provide evidence of their climate change risks;
• Compared to identifying climate risks (93 per cent), far fewer electric utilities report that they recognise the opportunities of changing climatic conditions (59 per cent).

“Risk management and adaptation planning are crucial to business success as climate change is directly affecting the generation, transmission and consumption of electricity,” said Graham Butler, utilities sector lead for IBM Global Business Services UK & Ireland. “The smart electricity company of the future needs to have a fully integrated approach to building resilience. Business leaders will need the ability to gather and mine vast amounts of operational information to make accurate, smarter decisions to face climate change successfully and profitably.”

Many scientists report that climate change is underway and the direct effects of increasing global temperatures, such as changes in precipitation and rising sea levels, are becoming more evident. Climatic issues have the potential to impact how all major electric utilities operate, underpinning the world’s major cities, transport and water infrastructures, which are essential to the commercial world and the way we live.

Key challenges the electricity industry faces due to environmental changes:

• Impact of power outages: Outages caused by the weather can result in failure in the supply of power. Interruptions and longer term outages can cause major financial losses for utilities and the customers that depend on the service;
• Damage to operational performance: Extreme weather events and incremental change impact the bottom line of electric utilities by degrading site conditions, damaging assets, decreasing efficiencies of operations, reducing availability and quality of raw materials and natural resources. These events can also disrupt energy supplies which can then increase energy prices;
• Increased demand from urbanisation: The trend toward increasing urbanisation is expected to be accelerated as people move from rural areas. Electricity companies will face major challenges in providing new generation capacity and supply reliability within urban areas to meet the increased demands from domestic customers;
• Stress on water resources: Changes to the weather and an increasing population is placing global fresh water resources under increasing stress. Less water, declining water quality, and growing water demand are creating immense challenges to the electricity sector which is a major user of water. Delivering and treating clean drinking water, combined with providing safe sewerage and waste water treatment systems to an increasing global urban population will create significant increases in the demand for electricity. The impacts of climate change will also increase the competition for water resources among the electricity sector and other users for example, agriculture, fisheries, drinking water, industry and natural habitats.