New approaches are required for the management and financing of energy infrastructures as companies and governments seek to meet the challenges of increased extreme weather risks. New thinking is needed says the latest report from the World Energy Council, ‘The road to resilience – managing and financing extreme weather risks’.
The report highlights the need for a move from ‘Fail-Safe’ systems that only look at single assets to ‘Safe-Fail’ systems which take a systemic overview of the energy value chain and a more strategic approach to identifying vulnerabilities.
Christoph Frei, Secretary General of the World Energy Council said: “We are on a path where today’s unlikely events will be tomorrow’s reality. We need to be smarter and imagine the unlikely. Traditional ‘Fail–Safe’ systems, based on predicted events, no longer operate in isolation. New ‘Safe-Fail’ systems, which recognise that unexpected weather events are occurring and that systems which go down need smarter, not stronger, solutions. This new approach is essential if we are to cope with new weather patterns and phenomena such as the more powerful El Niño currently experienced in many parts of the world.”
To manage and finance resilience against extreme weather risks, the World Energy Council report recommends:
– Clear metrics that deliver robust systems which can recover in the event of a weather catastrophe
– A move from ‘Fail-Safe’ to ‘Safe-Fail’ systems that include soft resilience solutions. These recognise that the unexpected can occur and makes contingencies for any extreme events
– New financial instruments such as:
– Weather derivatives that complement traditional re-insurance solutions
– Catastrophe bonds that transfer peak risks to capital markets
– Adaption bonds which ensure funds go towards resilience measures, particularly in vulnerable areas.
As average global temperatures over land and ocean surfaces rose to the highest on record for the period January to June 2015, so have the number of global extreme weather events increased over the past three decades, rising by a factor of more than four from only 38 events in 1980 to 174 events in 2014. In 2014 the global insured losses from natural catastrophes and man-made disasters were US$35bn, with uninsured losses in excess of US$130bn.
In North America when Hurricane Sandy hit Manhattan the lights stayed out for more than three days. In early 2015 in Chile the country experienced the equivalent of 7 years of rain in 12 hours leaving thousands without electricity. And in the Philippines, the cost of recovery from the 2013 typhoon was estimated at more than double the GDP of the country.
With a shift in the frequency and severity of extreme weather events, the financial impact of extreme weather events is also rising, driven by a mix of factors that include economic development, population growth and a higher concentration of people and assets in exposed areas.
In conclusion Frei said: “Our report has highlighted that current estimates for the cost of energy system adaptation do not fully account for the additional financing required to accommodate these new emerging risks. We need to ensure that resilience can turn these risks into rewards.”
‘The road to resilience – managing and financing extreme weather risks’ report, which is to be presented at the meeting of G20 energy ministers in Istanbul, Turkey, is the first in a series of reports that addresses the need for more investment and system change to combat the new emerging risks, including extreme weather, the energy water food nexus and cyber risks.
The reports are prepared with Swiss Re Corporate Solutions and Marsh & McLennan Companies with insights from the European Bank for Reconstruction and Development and will be delivered ahead of the World Energy Congress to be held in Istanbul, Turkey in October 2016.
To read the full report click here.