As companies and countries move toward greater electrification, react to short-term catastrophic weather events, and plan for long-term climate change, research is actively underway to help energy companies prioritize system investments and better manage the impacts of extreme weather. Each year, weather events such as drought, wildfires, floods, and severe storms cause hundreds of billions of dollars of damage and lost productivity to infrastructure systems, residences, and businesses worldwide. In fact, according to data from NOAA, the frequency of billion-dollar weather disaster events in 2020 was more than double those in 2010 and quadruple the number of events in 2000.
The energy system is one of many critical infrastructure sectors impacted by these disasters—growing in importance as dependence on electricity increases. Historically, energy companies have responded to damage incurred from extreme weather disasters to restore power as quickly as possible by rapidly deploying large, skilled crews and replacing severely damaged components. This response can incur significant costs. For example, in the wake of Hurricane Irma, Florida utilities filed to recover more than $1 billion for their storm recovery expenses.
However, research demonstrates that planning for future climate conditions and proactively implementing resilience strategies may significantly reduce the costs incurred by energy companies for response, repair, and recovery. Though there is not a plethora of research in this area, there is consistent alignment in study results that proactive investment can save companies money over the long term. A recent white paper published by EPRI (an independent, non-profit, energy R&D institute) catalogs the results of these studies to summarize the costs and benefits of proactive resilience investments.
One study from Fant et al. estimates an annual savings of more than $7 billion across the electric sector from adjusting U.S. transmission and distribution (T&D) designs to accommodate future climate projections through the end of the century. The study found that if no action is taken, climate change impacts could result in annual costs of $13.4 to 23.7 billion from 2080–2099. Proactive infrastructure designs based on future climate predictions would reduce these costs by approximately 50%.
In the near term, a McKinsey & Company analysis estimates that a typical Southeastern utility company could save between $0.7 and 1 billion in hurricane-related damage costs over the 2030–2050 timeframe by proactively adapting its systems and infrastructure to meet changing climate conditions.
While these figures clearly show the benefit of proactive investment, they underestimate the full economic benefit that can be realized since they typically only review a subset of impacts.
Despite the evidence supporting proactive investment in resilience, more research is needed to understand the potential economic and social benefits of proactive resilience and adaptation investment for the energy sector. It is not feasible to harden or upgrade every asset in the power system to withstand every extreme weather event or condition. A risk-based approach is needed to assess potential climate impacts to prioritize and select the best resilience investments.
To inform these investments, EPRI is leading a three-year initiative—the Climate Resilience and Adaptation Initiative (Climate READi)—bringing together more than 38 (and counting) energy providers, system operators, climate scientists, regulators, policymakers, regional transmission operators, national labs, universities, insurers, ESG organizations, and government agencies to work toward a common framework. The initiative will embody one of the most comprehensive, integrated approaches to physical climate risk assessment and response. Recognizing the value of proactive investment in resilience, the objective is to accelerate physical climate risk assessment and resilience investment decision-making.
Since society has come to expect consistently high levels of electric power reliability, power system owners, operators, and stakeholders will make countless decisions about how to develop the grid to withstand extreme weather today and the impacts of a changing climate. In a world where technology and environments evolve in ways that are not fully predictable, proactive adaptation can be a financially prudent approach to building critical infrastructure systems that will last well into the future.