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Climate Risk Management Approaches in the Electricity Sector: Lessons from Early Adapters

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Weather Matters for Energy

Abstract

Climate change adds a new source of unknowns for the electricity sector. Despite considerable risks and opportunities, energy sector actions to manage climate change risks and take advantage of future opportunities remain limited and patchy. An estimate of the sums spent since 2000 and planned out to the 2020s by five utilities on climate risk management totals US$1.5 billion. Considering that these investments are to address climate change risks or opportunities of a considerable magnitude, they are relatively modest. The sector has focused on climate data analysis and research on impacts rather than on concrete capital, technological and/or behavioral adaptation responses. Further, most of this research is concentrated for the most part in the developed world and on a handful of climate change impacts. Analysis of early adapters in the electricity sector offers a number of useful lessons for power utilities, regulators and stakeholders in the developing world, for instance: (i) joint efforts between the electricity sector and hydrometeorological offices to develop high quality and tailored climate data and information are needed to avoid ‘wait-and-see’ strategies among power utilities; (ii) energy sector adaptation requires going beyond high level research on impacts and adaptation to produce information that can be applied operationally; (iii) without a business environment favorable to climate change adaptation, power utilities have little incentive to go beyond ‘business-as-usual’ weather risk management; and (iv) it is by building the economic case for adaptation that utilities can be incentivized to take action.

The authors are grateful to Dr. Jeanne Ng and Dorothy Chan (CLP Holdings), Lwandle Mqadi (Eskom), René Roy (Hydro-Québec), Steve Wallace (National Grid), Jonathan Rhodes and John Rixham (E.ON), and Channa Perera (Canadian Electricity Association) for their willingness to share their insights and experiences for this paper; Istvan Dobozi, Silvia Martinez, Vanessa Lopes, Rohit Khanna (ESMAP), and Peter Fraser (Ontario Energy Board) for earlier reviews; Pedzi Makumbe (ESMAP), Richenda Connell, Bastien Fournier-Peyresblanques and Michelle Colley (Acclimatise) for their assistance.

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Notes

  1. 1.

    Authors interviewed China Light and Power (China), Electricité de France (France), E-ON (Germany), ESKOM (South Africa), Hydro-Québec (Canada), National Grid (United Kingdom) by email and phone.

  2. 2.

    Energy output divided by energy consumed (aka "supply-side efficiency").

  3. 3.

    Climate normals are decadal or multidecadal datasets used to summarize or describe the average climatic conditions of a particular location.

  4. 4.

    See the environmental impact assessment for the La Romaine hydrolectric complex (Vol 7, Chap. 49, pp. 49–6 to 49–19), available at http://www.hydroquebec.com/romaine/documents/etude.html (accessed 12/09/2011).

  5. 5.

    See http://www.ceaa.gc.ca/050/documents/26480/26480E.pdf (accessed 12/09/2011).

  6. 6.

    Cooling degree day (CDD) is the number of days when average temperature is above 65 degrees Fahrenheit/18 degrees Celsius and people start to use air conditioning to cool buildings.

  7. 7.

    See http://www.bg-group.com/sustainability09/climate_change/Pages/climate_change_our_strategy.aspx (accessed 16/10/2011).

  8. 8.

    Extreme icing damaged 116 transmission lines and 3,110 support structures (including 1,000 steel pylons), as well as 350 low-voltage lines and 16,000 wood posts. To restore service rapidly to its customers following the disaster, Hydro-Québec spent CDN$725 million repairing the lines and support structures with the least damage and building temporary transmission and distribution equipment. See Turcotte et al., 2008, ibid.

  9. 9.

    René Roy, Hydro-Québec, personal communication, 25/10/2011.

  10. 10.

    Climate change has exacerbated recent mountain pine beetle outbreaks in Western North America. Unusually hot and dry summers (favorable for beetle reproduction), and mild winters (which allow beetle larvae to survive), have contributed to infestations destroying more than 700 million m3 of pine in British Columbia, Canada, which represents more than 50 % of the province's pine. See Carroll et al. 2003.

  11. 11.

    Similarly, higher ambient temperatures will reduce the heat rate and power output of natural gas-based generating units. See Ebinger and Vergara 2011.

  12. 12.

    Due to warming, less heating will be needed for industrial, commercial, and residential buildings and cooling demand will increase, though this will vary by region and season. However, overall net energy demand is influenced for the most part by the economy and the structure of the energy industry. See Wilbanks et al. 2007.

  13. 13.

    In a few examples, energy regulators have requested more in-depth analysis of climate change impacts as part of environmental assessment obligations. See for example recommendation 39 in Joint Review Panel Environmental Assessment Report—Darlington New Nuclear Power Plant Project. 2011. ISBN: 978-1-100-19116-4.

  14. 14.

    For further examples of possible funding arrangements see Troccoli, A. 2009. Weather and climate risk management for the energy sector: workshop recommendations. In: Troccoli, A. (ed.) 2009. Management of Weather and Climate Risk in the Energy Industry. Proceedings of the NATO Advanced Research Workshop on Weather/Climate Risk Management for the Energy Sector Santa Maria di Leuca, Italy, 6-10 October 2008, Springer.

  15. 15.

    Peter Fraser, Ontario Energy Board, authors’ communication, 22/10/2011.

  16. 16.

    Presently, few developing countries have included the energy sector within their National Adaptation Plans of Action (NAPAs). A recent analysis found that only 3.7 % of 455 adaptation projects proposed by these NAPAs were related to the energy sector.

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Author information

Authors and Affiliations

  1. ESMAP–World Bank Group, Washington, DC, USA

    Pierre Audinet

  2. Deloitte (formerly Acclimatise), 100 Queen street, Ottawa, Ontario, K1P 5T8, Canada

    Jean-Christophe Amado

  3. Acclimatise, Pascoe House, 54 Bute Street, Cardiff Bay, Cardiff, CF10 5AF, UK

    Ben Rabb

Authors
  1. Pierre Audinet
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  2. Jean-Christophe Amado
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  3. Ben Rabb
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Correspondence to Pierre Audinet .

Editor information

Editors and Affiliations

  1. Pye Laboratory, CSIRO Marine and Atmospheric Research, Canberra, Aust Capital Terr, Australia

    Alberto Troccoli

  2. EDF - R&D, Chatou, France

    Laurent Dubus

  3. Research Applications Laboratory, Haupt Associates, Boulder, Colorado, USA

    Sue Ellen Haupt

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Audinet, P., Amado, JC., Rabb, B. (2014). Climate Risk Management Approaches in the Electricity Sector: Lessons from Early Adapters. In: Troccoli, A., Dubus, L., Haupt, S. (eds) Weather Matters for Energy. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-9221-4_2

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