Events such as hurricanes, floods, wildfires, and extreme temperatures pose an increased risk to utility infrastructure. These adverse weather events are increasing in frequency, intensity, and variability. The severity of the impact of these extreme events has increased, given that existing infrastructure was not built to withstand the meteorological extremes of the 21st century. The cost of the damage is increasing at an accelerated pace. This is exemplified by the impacts of Hurricane Ida, which caused $95 billion in damages in Louisiana, and the infamous Texas winter storm Uri in 2021 that caused $195 billion damage and 4.5 million customer outages.
Predicting Extreme Events for Long-Term Utility Planning
Extreme events by their nature are high-consequence and low-probability, which make them challenging to forecast, particularly in a changing climate. As a result, climate change risk has not been explicitly incorporated into most asset investment plans.
Power sector assets have useful lives that span decades. However, utilities’ long-term planning is hindered without the integration of climate change extremes’ impact on asset performance. While many utilities are currently leveraging climate risk disclosure frameworks to acknowledge these risks, most do not quantify asset risk posed by physical climate impacts.
Critical for cost-effective climate adaptations and new infrastructure design, quantification of physical climate risks provides an addressable baseline against which to measure the value of the investments required to mitigate them. This article presents a framework for utilities to measure physical climate risks downscaled to specific asset locations based on Intergovernmental Panel on Climate Change (IPCC) global climate scenarios.
To illustrate this methodology, we use the hypothetical utility Black Swan Energy (Black Swan) that serves two million customers. Black Swan’s concentration of coastal assets has historically been exposed to hurricanes and coastal flooding (due to sea-level rise) and the utility is seeking additional clarity on its level of exposure to climate threats and asset vulnerabilities to better understand its risk to future climate impacts.
With physical risk from climate change, the measure of value is avoided resilience risk. Figure 1 below illustrates the core elements of the framework to establish a baseline for this risk.
Figure 1: Resilience Risk Assessment Approach
For utilities to better prepare for these extreme events, it is important to forecast risk across many climate hazards at an asset level. For example, forecasts of annual average temperatures—in particular, the extremes—can provide a clearer line of sight of future peak capacity and conditions that could increase derating. Flood projections can target where storm hardening and investments in the network are needed. Extreme wind forecasts can help determine future design standards and locations of above-ground assets.
Climate science has established that the world is warming, and climate extremes are happening more frequently. However, the degree of warming through the end of the century is still dependent on numerous natural and anthropogenic factors that are difficult to model with absolute certainty. To overcome this challenge, we rely on a range of possible climate futures, as laid out by the IPCC in its joint Shared Socioeconomic Pathways-Representative Concentration Pathway (SSP-RCP) framework. Jupiter Intelligence, our physical climate risk partner, provides downscaled climate forecasts for these scenarios. Jupiter’s metrics are based on a collection of global climate models (GCMs) that represent the cutting edge of scientific understanding of the effects of carbon emissions on the climate.
GCM outputs are downscaled at a local level (e.g., the way broad precipitation patterns will cause local flooding, or how urban heat islands will experience increased warming). Collectively, these methods improve over publicly available climate data sources by incorporating the nonstationary nature of climate change, separately modeling climate change’s impacts on tropical cyclones, and forecasting at a resolution necessary for asset-level decision-making.
After calculating the expected climate forecasts, we examine Black Swan Energy’s asset vulnerabilities, which maps climate hazards to assets and defines the failure modes and thresholds for each, as shown in Figure 2 below.
Figure 2: Vulnerability Assessment for Transmission Structures, Substations, and Distribution Poles.
Assessing Black Swan Energy’s assets, overall risk grows by a compound annual growth rate of 0.2% for substations (flooding), 7% for substations (heat), 0.2% for transmission structures, and 0.1% for distribution poles by 2100. As the probability of substations’ failure increases due to changes in flood likelihood, so does the financial risk to Black Swan Energy, growing from $58 million in 2020 to $70 million through 2100.
Distribution pole failures grow from $37 million in 2020 to $40 million in 2100. Heat risk to substations represents the most dramatic change, with risk materializing in 2040 at the lowest value within that year ($1.7 million) to nearly $100 million by 2100. We can further disaggregate which element of the risk equation (failure likelihood, cost of failure, and asset count) is the primary driver of total risk (see Figure 3).
Figure 3. Cumulative Risk from 2020-2100 for Each Asset Class-Hazard Pair, RCP 4.5.
W = Wind, F = Flood, H = Heat
Based on results of the vulnerability and risk assessments, adaptation measures are identified to provide an actionable path forward for utilities to manage their exposure to resilience risk (see Figure 4).
Figure 4: Adaptation Measures for Transmission Structures, Substations, and Distribution Poles.
Recommendations may also impact existing engineering standards and operating procedures. These actions call for utilities to evaluate their design standards for each asset class to further prevent the exposure from climate hazards when new assets are installed. By quantifying resilience risk, Black Swan Energy was able to prioritize adaptation investments for flooding to substations, which posed the greatest risk prior to 2050, followed by wind risk to distribution poles.
Utilities have historically invested to improve the condition of their assets and keep the lights on. While these investments do mitigate some resilience risk, existing design standards do not account for the increasing frequency and severity of extreme climate events. Extreme events by their very nature are high-consequence, low-probability events and are challenging to forecast, particularly in a changing climate. While historical weather data is an important benchmark, relying on it to project future risk will result in substantially underestimating asset risks from climate extremes. Utilities’ resilience plans will require significant investment over the coming decades to strengthen the grid. This further emphasizes the need to quantify that risk in dollars, develop asset-level resilience targeted adaptation measures, and substantiate their comprehensive resilience investment plans to regulators and customers.