Nearly all electric utilities claim climate change is threatening power outages, higher costs and changes in usage as demand grows to power the world’s expanding cities, according to an Acclimatise global report, backed by IBM (NYSE:IBM).
Over 90% of global electric utilities that report climate change activity to the Carbon Disclosure Project recognised they are at risk from changes in climate and water availability, which are already adding stress to the sector. However, less than a third claimed to undertake any financial or quantified evaluation to 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 IndexTM Methodology.
Additional findings include:
- While responding companies seem to have incorporated climate change in general into their governance structures, only a few electric utilities (6%) refer to adaptation directly as an integrated element of their governance, reporting and lobbying practices.
- 48% report to manage their climate risks, however adaptation actions are generally isolated and rarely form part of climate risk management strategies.
- 31% provide evidence of their climate change risks.
- Compared to identifying climate risks (93%), far fewer electric utilities report that they recognize the opportunities of changing climatic conditions (59%).
"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, 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."
Due to the increasing legislation and cost implications stakeholders that include investors, lenders, insurers, market and financial analysts, governments and regulatory agencies, consumers, local communities and NGOs are already starting to place greater pressure on electricity companies to address climate change risks and opportunities. If plans for expansion are to be achieved, stakeholders and increased investment are crucial to the development of the global electricity industry.
John Firth, CEO and Co-Founder, climate change adaptation specialists Acclimatise said: "The successful electricity companies of the future will be those that act now upon the clear signals that climate change is underway. They will have a fully integrated approach to the challenges of the energy revolution, reducing emissions and adapting to inevitable climatic change."
Acclimatise and IBM have jointly prepared a set of Prepare-Adapt questions to help electricity companies take informed steps towards building corporate resilience to inevitable climate change.
”The Electric Utilities sector is one of the most advanced in its understanding of climate change related impact to its operations, said Paul Dickinson, CEO, Carbon Disclosure Project. ”The impact of a carbon price has driven awareness around mitigation. However it is also important that the industry focuses on adapting to climate change and issues including changes in water availability and extreme weather events. These all have an impact on the sector and those companies which plan ahead, will be the best positioned.”
A full copy of the report is available at the link below.
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