Building a Resilient Power Sector

Description

This report deals with the risks and vulnerabilities the power sector is likely to face due to climate change and more frequent extreme weather, and the options the sector can tap in order to become more resilient.

Making investment decisions in the power sector, given their long timeframe (20 to 100 years), “involves anticipating the long-term environment and the needs and constraints under which utilities will operate. When making decisions, utilities face several uncertainties: economic and policy uncertainty associated with technologies, political commitments and demographic and socioeconomic trends; scientific uncertainty around the impacts at regional levels and the reaction of affected systems; and natural variability of the climate system. In addition to these uncertainties, rapid urbanization will exacerbate climate change impact. Indeed, some of the world’s biggest and fastest growing cities are located on low-lying areas exposed to flooding and storm surges. Their growth is coupled with rising energy demand that increases pressures on capacity and reduces redundancies in power generation to riskier levels. An extreme weather event (or greater frequency of extreme events) will impact more people, and the resulting costs (through lost business, damage to homes, infrastructure and goods) will be higher”.

The nature of the different risks and their variation increases the importance of fully understanding the risks and potential adaptation measures. Assessing and managing these risks requires electric utilities to embrace uncertainty. Its Infrastructure must be strengthened but also more flexibility needs to be built in to allow a more effective response to unexpected events.

In the evaluation of potential adaptation measures, the report stresses the importance of going beyond the necessary quantification step of risk-cost benefit analysis by engaging with communities and considering risks beyond utilities’ own assets. This approach would allow one “to identify cost-effective measures that will best manage the risks and build resilient communities”.

The report is built around 18 business cases which illustrate noteworthy lessons learnt in different geographical contexts around the world, which “show that climate change is leading to the emergence of new business models in the power sector that incorporate new ways of approaching risks and uncertainty. Utilities will face additional pressure from insurance and the financial sector to improve their understanding and management of climate risks and to build, design or retrofit their assets accordingly. In some countries, regulations (such as property rights, insurance and planning) currently block the emergence of these new business models. Policies and regulations need to be adjusted or created to incentivize investments that increase resilience in operations, in power systems and in local communities.”

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