Building energy infrastructure for extreme weather
When Hurricane Sandy turned the lights off in Manhattan in 2012, it became clear that our energy infrastructure is not built to withstand extreme weather events. Swiss Re Corporate Solutions joined forces with Marsh & McLennan Companies and the World Energy Council to produce a series of reports about how to make our energy sources fit for the future.
The first part of the series "The road to resilience − managing extreme weather risks " addresses the key emerging weather risks for the energy industry and how to manage them.
Global warming is the main driver of extreme weather events. It will increase the frequency and severity of events like hurricanes, storm surges, heat waves and ice storms. They will also occur in areas previously unaffected, the report says.
The damage caused by Hurricane Sandy showed what can happen if our infrastructure is not resilient. Other examples include reduced power production in Brazil due to the current drought, ripped transmission lines on the US East Coast as a result of ice storms and breached New Orleans' levees due to Hurricane Katrina.
Soft resilience – building smarter not stronger
Our infrastructure fails because hard resilience measures, such as dams, can't withstand ever-increasing water levels. In other words, they are only built to withstand events of a certain magnitude.
We need to complement hard resilience with soft resilience. It means that key parts of infrastructure must remain intact so that they can immediately resume services following an extreme weather event even if other parts of infrastructure fail. Examples include building elevated transmission stations to protect them from floods or dividing electrical current grids that cover large areas into smaller units. In case of a planned shutdown fewer people are affected. Being smarter not stronger will protect our infrastructure from inevitable future extreme weather events of even greater magnitude.
Financing resilient infrastructure
Implementing soft and hard resilience requires a new regulatory approach and investments. Protecting energy infrastructure assets from extreme weather will add significantly to the IEA-estimated US$48–$53 trn in cumulative global investment needed by 2035 the report says.
Financing future energy infrastructure and related soft and hard resilience requires funding from private investors such as pension funds and insurance companies. But to attract private funds, energy investments must provide adequate and stable returns.
Insurance key for infrastructure development
Decentralized power production through renewable energy sources such as wind and solar enhances energy infrastructure resilience. In the case that some stop working during an extreme weather event, others continue to function, minimizing negative effects. The downside is that they may not produce energy if the wind does not blow and the sun does not shine. This threatens the expected economic returns for private investors – and with it their appetite to invest in this type of energy infrastructure.
That's where insurance comes in. In two pioneering transactions, clients from the hydroelectric and wind industries secured insurance protection against adverse weather. This guarantees stable returns, making the projects economically viable for private investors.
"Building resilient energy infrastructure is possible if regulators, the private sector, project developers and the financial sector work together," says Jürg Trüb, Head of Environmental and Commodity Markets at Swiss Re Corporate Solutions. "We now must implement the right environment for private investors, so we can start building."
Published 1 October 2015
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