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Cdp utilities report

  1. 1. Carbon DisclosureProject ReportGlobal Electric UtilitiesBuilding business resilienceto inevitable climate changeThe Adaptation ChallengeReport prepared by: Report sponsored by:
  2. 2. Acclimatise reference CDP001/02This document should be referenced as:Acclimatise (2009). ‘Building Business Resilience to Inevitable Climate Change’.Carbon Disclosure Project Report. Global Electric Utilities. OxfordProject ManagerJean-Christophe AmadoApproved byJohn Firth, CEO and co-founderAcclimatiseHexgreave Hall,Upper Hexgreave,Farnsfield,Nottinghamshire,NG22 8LST: +44 (0) 1623 884347E: enquiries @ authors would like to thank the following organisations and individualsfor their guidance, advice and support in the preparation and publicationof this report:Daniel Turner Carbon Disclosure ProjectJoanna Lee Carbon Disclosure ProjectMatt King AcclimatiseClephane Compton AcclimatiseDavid Beer AcclimatiseJon Bentley IBMCathy Pickering IBMGraham Butler IBMGavin Jones IBMJohn Juliano IBMPeter Richardson IBMThe IBM Viewpoint was written by Graham Butler, Executive Partner,Utilities Sector, Global Business Services, IBM UK & Ireland
  3. 3. IBM ViewpointIBM believes the electricity industry is Energy Agency1. This is due not only So, the industry is both a majorcentral to addressing world concerns to population growth, urbanisation greenhouse gas emitter and one ofabout both energy and climate. and improvement in living standards, the solutions to reducing emissions.Reducing greenhouse gas emissions, but also to new requirements such as For example, electric vehicles areadapting to the climate change already electric vehicles and the substitution promoted by many as the bestunderway and planning for a secure of electricity for hydrocarbon-based option to reduce vehicle emissions,energy future must be addressed in fuels as an ‘energy carrier’. We can but there is little point in doing thisconcert. And action is required now. expect further growth in energy if the generation, transmission and demands as individuals, communities distribution of electricity is no ‘cleaner’ and organisations strive to adapt to than it is today.History shows the need to invest changing climatic conditions.for the future Climate change will exacerbateThroughout history major problems The industry faces major challenges some existing industry challengeshave been the catalyst for major in meeting this growing demand, not and give rise to new ones.change. The growing demands and least because of inhibitors such as:constraints on the electricity industry regulation and legislation; inadequatesuggest we are rapidly approaching Climate change problems and investment returns and out-datedsuch a critical moment. So, a look solutions are intertwined economic incentives that are nowback to the lessons from previous unhelpful; and the supply of natural The two core focus areas in addressinglarge scale infrastructural changes resources. Climate change concerns climate change come together for themight be timely. both constrain and direct the way electricity industry more acutely than in which these challenges can in many areas of society:The problems of overcrowding be overcome.and unhygienic living conditions in • Mitigation: reducing greenhouseVictorian London endangered not only Taking just one example, electricity gas emissions to limit the impactpeople’s health but also the political companies face major financing of climate change in comingand commercial well-being of the city. challenges. With an urgent demand decades will require changes inThe result was major expenditure on for more capacity, the industry must consumption behaviour and newa new infrastructure, the sewerage raise capital for these projects. This supply side technologiessystem. The difficulty in transporting is particularly difficult because ofpeople and goods over large distances the size of the investment (in the UK, • Adaptation: addressing the risksin 19th century USA, was a major the industry requires an estimated and opportunities resulting from theinhibitor to growth removed by £233.5 bn investment2 over the inevitable climate change – occurringmassive investment in the rail network. next 15 years which equates to a now due to previous emissions cost of approximately £9000.00 per of greenhouse gases – which areKey to both examples is that a household), the desire from investors changing demand patterns andcompletely fresh approach was for a short return on investment and placing operational and resourcetaken and the investment made the general lack of funding available constraints on supply.for the future rather than repairing due to the current global financialexisting infrastructure. situation. The situation is made more Mitigation has been the main focus complex by the relative immaturity of the industry so far. There are and lack of commercial scale of some many good examples of the workA crisis of energy demand of the technologies central to these underway here, with investmentand supply projects. to reduce emissions from existingWe now face a series of major infrastructure, the development ofproblems relating to the generation, Any growth in energy supply must new technologies such as wind andtransmission and consumption of be achieved in a low carbon way. solar, and the deployment of smartenergy, all of which are essential to Power generation creates 25% of the grids and smart meters. But there isthe commercial world, the way we world’s CO2 emissions, the largest much still to do and it is vital thatlive and the development aspirations man-made source, according to The these efforts intensify without delay.of the majority of humankind. Climate Group and McKinsey & Co3. Sadly, too much of the generated Adaptation, according to the analysisThe world is demanding more and energy is currently wasted. According in this report, has not had the samemore energy. The projected growth of to a recent Ontario Smart Price Pilot focus and we ignore this at our peril.worldwide energy demand by 2030 is report4, 170 billion kilowatt-hours of We need to understand the effects36.8% according to the International electricity are wasted each year by that inevitable climate change will have consumers due to insufficient power on the electricity industry over the1 International Energy Outlook 2008. usage information. next few years – and what steps the23 Times article, quoting Ernst & Young Study, 25 May 2009. The Climate Group and McKinsey & Co.,“Smart 2020 Report”. industry should be taking.4 Ontario Smart Price Pilot report: Regulated+Price+Plan/Regulated+Price+Plan+-+Ontario+Smart+Price+Pilot ii
  4. 4. IBM ViewpointScientists inform us that climate systems means more dynamic control To achieve this, we need thechange is underway and the of the flows of power, information and consumer to become part of thedirect effects of increasing global money; new sources of ‘supply’ and electricity management and efficiencytemperatures, changes in precipitation ‘demand’; and changed relationships story. Examples of this type ofand rising sea levels are becoming between the two. engagement include:more evident. The indirect impactson social, environmental and economic Many opportunities exist to optimise • Encouraging people to use lesssystems are also beginning to come and grow existing capabilities and energy, differently. This can helpinto view. For the electricity industry, accelerate emerging technologies to to lower energy usage directly andthese effects are likely to bring commercial scale. lower and spread peak usage. Aincreasing pressures, for example: smart way of achieving this would be to implement smart grids (which IBM sees the need for three areas• Significant changes in the could help to lower emissions by of action to happen consecutively, demand for electricity. Increasing 14% by 20205), smart meters, not sequentially. urbanisation will be driven in part remote operation and automated by climate change with people operation of electrical appliances migrating to find water, food and • Optimise: Apply smart solutions and goods work, etc. Energy infrastructure to optimise and extend existing will be placed under increasing capabilities, making the most • Encouraging people to collaborate pressure. For many urban areas the efficient use of the assets that with utilities in generation – capacity to meet growing demands already exist to buy time and take expansion of micro generation, for will be inadequate or non-existent appropriate adaptation action. example CHP, photovoltaic, solar Examples could include: asset heating, etc., has the potential• Significant changes to the supply life extension and optimisation to provide an almost infinitely chain. Access to and transportation programmes, and new, cleaner controllable electricity generation of raw materials, commodities and fossil-fuel plants. capability able to meet demand goods will be affected by changes more closely than the current in climate creating disruptions to • Grow: Rapidly grow existing centralised approach. supply chains. We are already seeing commercialised capability through conflicts between users for water smarter design and operation Change is needed now to with competing demands to grow providing ‘low-regret’ solutions enable prosperity in a much crops, provide drinking water and with potentially large benefits, for different future cool power plants. In addition, as example: factoring changing climatic urban centres change and expand, conditions into the design stage for Successful electricity companies over it is likely that food and water will new cooling systems; developing the next 10 years will be those that act have to be transported over longer transmission systems to cope now upon the clear signals that climate distances requiring ever greater with increased temperatures and change is underway. energy inputs provide greater access to remote renewable energy assets; new-• Significant shifts in the availability build nuclear programmes; They will have recognised the risks of natural resources. Climate change automated and intelligent smart and opportunities arising from a will alter the productivity, economics grids; smart metering and demand changing climate and will have created and operational feasibility of management technologies; and business models that understand the renewable and non-renewable new regulatory incentives. changing nature of supply, demand power generation in different and control in the electricity sector. areas of the world. • Accelerate: Nurture and accelerate new capabilities to commercial They will have a fully integrated scale, whilst at the same timeThere is a confluence of conflicting approach to the challenges of the maintaining options that allow furtherpressures: a variety of restrictions energy revolution, reducing emissions adaptation actions in the generating additional supplies of and adapting to climate change. Examples could include: carbonelectricity; a growing demand for They will use the lessons gained from capture and storage, deep-watermore energy; a changing geographic the present financial crisis and from wind, tidal and wave power, micro-demand for energy; changing climate history to avoid the even greater and combined heat and power (CHP),and environmental conditions on entirely ‘predictable surprise’ created more efficient home wind and solar,a geographic basis; and a need to by climate change. distributed on-shore wind, wastereduce greenhouse gas emissions. and bio; various forms of storage; electric vehicle infrastructure; and The industry must behave differentlyConsumers must help with intelligent home devices. Other to address pro-actively the immediatethe supply side and utilities industries will need to transform the and longer term impacts of inevitablewith demand energy efficiency and demands of climate change while continuing to the products and processes both deal with todays immediate pressures.Electricity is a complex system-of- to ease pressure on the electricitysystems and it requires an integrated industry and reduce their risks toapproach to fundamentally redesign Senior executives in the sector increasingly stressed supply. must take the lead and drivethe way the industry works if it is tomeet the challenges of a changing their companies towards thisclimate. Optimising this system-of- transformation.iii 5 The Climate Group and McKinsey & Co., “Smart 2020 Report”.
  5. 5. Executive SummaryElectricity companies must assess • Reductions in agricultural and The present financial crisis is drivingthe risks and opportunities arising fisheries yields many companies to take stock andfrom inevitable climate change as revisit their business models. This • Increasing stress and competitionwell as taking essential action to provides the ideal opportunity for for water resourcesreduce emissions. The focus so far, companies to look at the strategicas evidenced by responses to the • Enhanced migration to urban areas and operational issues they will needCarbon Disclosure Project, has been to address if they are to becomeprimarily on electricity companies • Changing disease patterns climate resilient.reducing emissions and secondarily • Geo-political risks.on understanding the risks posed by The successful electricity companiesclimate change. Companies should of the future will be those that actrecognise the need for action in the These impacts add up to significant changes in the demand for electricity now upon the clear signals thatnear term to build business resilience climate change is underway. Theyto manage the risks and capitalise against a backdrop of supply challenges, ageing assets, new will have a fully integrated approachon the opportunities that inevitable to the challenges of the energyclimate change brings. technology, prescriptive regulation and impacts on asset performance revolution, reducing emissions and and efficiency. adapting to climatic change. TheyThis century will see unprecedented will use the lessons gained from theurbanisation and intense competition present financial crisis to avoid thefor scarce resources, driven by Although there is uncertainty in the even greater and entirely ‘predictablepopulation growth and economic knowledge we have about the extent surprise’6 created by climate change.development. A revolution in energy and rate of future climate change, Acclimatise and IBM have jointlygeneration, supply and demand there is sufficient information to assess prepared a set of Prepare-Adaptis needed with companies taking impacts on business models and questions to help electricity companiesan integrated approach to the enable robust decisions to be taken take the right steps towards buildingchallenges through: as a result. The successful electricity corporate resilience to inevitable company of the future is taking climate change. climate risks into account today, and• The optimisation of existing is developing adaptive strategies and infrastructure assets, systems and actions to manage the uncertainties. information The existence of uncertainties• Growth of existing capabilities regarding the business risks arising from climate change, should by itself• Acceleration of emerging act as a catalyst for companies to technologies to a commercial scale. quantify the risks, monitor the impacts as they arise and be prepared forThere is scientific consensus that changes to their business models.the world’s climate is changing dueto human activity and that whatever Consumer preferences and needssteps we take to limit GHG emissions will change; markets will open up inwe are now faced with several new locations and for new productsdecades of increasing global and services. Those businessestemperatures and a far longer period that do not respond will lose outof rising sea levels. We are already to their competitors, whilst thoseseeing the impacts of these and other that recognise the opportunities willclimatic changes on social, economic become electricity sector leaders.and environmental systems. Theimpacts will become more severeover time creating, for example:6 A predictable surprise describes a situation or circumstance in which major issues are marginalised to satisfy short-term expediency. Predictable surprises can be defined as issues that: • at least some people are aware of, • are getting worse over time, and • are likely to create a crisis, • but are not priorities for decision makers or have not elicited a response fast enough to prevent severe damage. See M. Bazerman and M. Watkins (2004) ‘Predictable Surprises: The Disasters You Should Have Seen Coming, and How to Prevent Them’. iv
  6. 6. Contents IBM Viewpoint ii Executive Summary iv 1 Introduction 1 2 Climate change is underway 2 3 The energy revolution 4 4 What are the impacts for the 9 electricity sector? Extreme events and incremental 10 change Change drivers for corporate 11 action How are companies 13 responding? 5 What actions should 15 companies take? Developing an integrated 16 approach Prepare-Adapt: 10 questions 17 for senior executives in the electricity sector Appendix 1: The future 19 electricity sector value chain Appendix 2: Examples of 21 the impacts of inevitable climate change for the electricity sector References and 25 further readingv
  7. 7. 1 IntroductionIn this report we explore the issues Those companies focussing their The Information Request was sentthat electricity companies are climate change activities exclusively on to the world’s largest 218 electricbeginning to face in response to a reducing GHG emissions (and many utilities globally (based on marketchanging climate and the actions companies have yet to understand capitalisation). Acclimatise hasbeing taken. the urgency for action in this area) analysed the responses to assess are only considering half the picture. the business resilience of companiesThe report draws upon an analysis of By failing to build resilience they will to a changing climate. A separatethe responses from global electricity miss significant business opportunities technical appendix is available onlinecompanies to the 2008 Carbon created by the energy revolution. at with theDisclosure Project (CDP). Examples results from the analysis.of actions and issues taken from the The report includes a series ofresponses are provided. Prepare-Adapt questions prepared Acclimatisation Index by Acclimatise and IBM to help The analysis of the responses to theAs the most carbon intensive industry senior electricity company executives CDP Information Request has beenin the world, the electricity sector is identify the steps they need to take undertaken using our Acclimatisationsimultaneously a significant contributor towards building corporate resilience Index methodology. This enablesto and victim of climate change. to inevitable climate change. a semi-quantitative analysis of theReducing the greenhouse gas (GHG) responses recognising the scopeemissions of the sector is central to The Carbon Disclosure Project of the questions. The Index canachieving a low-carbon economy7 take into account information from CDP is an independent not-for-profitand requires “nothing short of other sources to provide a more organisation which holds the largestan energy revolution.”8 Ensuring comprehensive analysis. database of corporate climate changethe resilience of the generation, information in the world. The data istransmission and distribution obtained from responses to CDP’s The Acclimatisation Index hasnetwork and shifting the focus to annual Information Requests, issued been used to analyse the resiliencerenewable sources of energy, low on behalf of 475 institutional investors, of global electricity companiescarbon generation and more dynamic to more than 3,700 corporations to climate change in response tobalancing of supply and demand will across the globe. Since its formation questions contained within sectionsrequire levels of investment that will in 2000, CDP has become the gold 1 and 49 of the CDP questionnaire.transform the industry. standard for carbon disclosure methodology and process, providingMany of the climate changes that we primary climate change data to thewill see over the next 30 to 40 years global market place. CDP plays aare already built into the climate vital role in encouraging companiessystem due to GHG emissions. to measure, manage and reduceMitigation efforts to reduce emissions emissions and climate change impacts.are vital if we are to keep climatechange from surpassing a dangerous The CDP Information Requestsand rapidly approaching threshold. include a series of questions seekingThis has been called avoiding the disclosure on the physical impactsunmanageable. However the effects of climate change on existing andof climate change are already upon us future company performance andand are growing rapidly. A significant the management responses. (A copyreduction in emissions is essential, of the questions is available on thebut, we must also prepare for and CDP website: www.cdproject.netrespond to the impacts – we must together with a list of the investors).adapt to manage the unavoidable.7 IEA, 2008.9 Excluding question b ‘Individual Performance’ of section 4 which focused on performance towards GHG targets. 1
  8. 8. 2 Climate change is underway There is scientific consensus that the The IPCC has recommended that“Even with drastic cuts in emissions world’s climate is changing due to urgent action is required to limit in the next 10 years, our results human activity and that whatever steps the concentration of GHG’s in the project that there will only be around we take to limit GHG emissions we atmosphere and prevent global a 50% chance of keeping global are now faced with several decades of average temperatures rising above temperature rises below 2°C. If the increasing global temperatures and a 2°C. A temperature rise above 2°C will world fails to make the required far longer period of rising sea levels. be difficult for contemporary societies reductions, it will be faced with to cope with, and will cause major adapting not just to a 2°C rise in social, economic and environmental temperature but to 4°C or more In 2007, the Intergovernmental Panel on Climate Change (IPCC) – the most disruptions through the rest of the by the end of the century.” A 2°C century and beyond. There are also increase in global temperatures will authoritative scientific body on climate change – confirmed the scientific concerns that increases above 2°C create severe stress in many parts significantly increase the risk of large of the world.” evidence that climate change is already under way10 : scale, irreversible system disruption.11 Dr Vicky Pope, Head of Climate Change Advice • “Warming of the climate system Limiting temperature rise to 2°C is at the UK Met Office is unequivocal, as is now evident looking increasingly challenging and if from observations of increases we fail we are faced with further rises in global average air and ocean in temperature and an even greater temperatures, widespread melting adaptation challenge. of snow and ice, and rising global mean sea level.” (see Figure 1) • “At continental, regional, and ocean“Climate change is increasingly basin scales, numerous long-term recognised as a key strategic issue changes in climate have been for the electricity generation sector… observed. These include changes in Arctic temperatures and ice, The opportunities and compulsion widespread changes in precipitation for carbon reduction and adaptation amounts, ocean salinity, wind strategies for this sector are patterns and aspects of extreme therefore considerable and warrant weather including droughts, heavy particular attention from investors.” precipitation, heat waves and the intensity of tropical cyclones.” Global Climate Disclosure Framework for Electric Utilities, Institutional Investors Group for Climate Change 10 IPCC ‘Climate change 2007: synthesis report’. 11 Scientific Symposium on Stabilisation of Greenhouse Gases – Avoiding Dangerous Climate Change Exeter February 2005.2 Executive Summary of the Conference Report.
  9. 9. Carbon Disclosure Project Report Global Electric UtilitiesFigure 1: Comparison of observed continental- and global-scale changes in surface temperature with resultssimulated by climate models using either natural or both natural and anthropogenic forcings12 Europe Temperature anomaly (˚C) 1.0 North America Asia 0.5 Temperature anomaly (˚C) Temperature anomaly (˚C) 1.0 0.0 1.0 0.5 0.5 1900 1950 2000 Year 0.0 0.0 1900 1950 2000 Africa 1900 1950 2000 Temperature anomaly (˚C) Year Year 1.0 South America Australia 0.5 Temperature anomaly (˚C) Temperature anomaly (˚C) 1.0 0.0 1.0 0.5 0.5 1900 1950 2000 Year 0.0 0.0 1900 1950 2000 1900 1950 2000 Year Year Global Global Land Global Ocean Temperature anomaly (˚C) Temperature anomaly (˚C) Temperature anomaly (˚C) 1.0 1.0 1.0 0.5 0.5 0.5 0.0 0.0 0.0 1900 1950 2000 1900 1950 2000 1900 1950 2000 Year Year Year Models using only natural forcings Models using both natural and anthropogenic forcings Observations12 IPCC ‘Climate change 2007: synthesis report’. 3
  10. 10. 3 The energy revolution It is important that any consideration Challenges Increasing temperatures will increase of the impacts of climate change be the demand for energy and place National energy security concerns. set against the context of the other great pressure on existing assets. Secure long-term access to fuel and challenges already faced by the global Companies will be faced with more energy supplies is a key element of electricity sector. difficult supply reliability issues. Figure energy policies for most developed 2 shows averaged European summer countries and increasingly for the Whereas the eighteenth century temperatures as observed (black line), emerging economies. may have been characterised by the and simulated by the Hadley Centre industrial revolution and the twentieth Model (red line) from 1900 to 2100. Supply reliability. Failure in the security The observed average European century by globalisation, this century of supplies to customers, interruptions summer temperature for 2003 is will see unprecedented urbanisation, and longer term outages cause major marked with a black star. The return shortages of food and water and financial losses not to mention adverse period for the 2003 heatwave under intense competition for scarce social impacts and constraints on climate change increases from a 1 in resources, driven by population growth economic prosperity and growth. In 500 year event in 2003 to a 1 in 2 year and economic development. Climate the USA it has been estimated that the event by 2040. 2003 will be a normal change is being driven by the use of annual cost to the economy arising summer in the 2040s and a relatively fossil fuel based energy sources to from power interruptions is $80 billion. cool summer by the 2060s. meet these challenges. A large proportion of these costs are attributable to the combined effect The responses to these challenges of asset age and the impacts of will require a revolution in energy weather events. generation, supply and demand. The challenges and how they will be affected by a changing climate are considered in the following section. Figure 2: Observed and modelled changes in temperature in Europe13 8 50N 45N 6 40N 35N 30N 10W 0 10E 20E 30E 40ETemperature anomaly (K) 4 0 1 2 3 4 2 0 -2 1900 1950 2000 2050 2100 Year 13 Stott, P.A., Stone, D. A. and Allen, M. R. (2004) Human contribution to the European heatwave of 2003. 4 Nature, Vol 432, pp 610-614.
  11. 11. Carbon Disclosure Project Report Global Electric UtilitiesFigure 3: Increasing energy demands from emerging economies16 “Besides the efforts of reducing greenhouse gas emissions from its Exhibit 1 End-use energy demand by region,1 quadrillion British thermal units (QBTUs) operations to limit climate change Higher energy E.ON acknowledges and plans for productivity Potential 25% decline in energy CAGR,2 CAGR,2 both the effects of gradual warming, demand in 2020 from base 2005-20, 2005-20, as well as an increased frequency case – larger than todays total % base case % with energy energy demand in China productivity of extreme weather events. We 380 93 capture expect that these seasonal and } 27 10 5 weather-related fluctuations 14 7 11 in revenues and demand will 29 +3.4 +1.4 14 continue. As a response we will 32 45 287 improve our grid management and 22 +3.7 +2.3 36 29 optimize the usage of our power 231 +3.6 +1.6 Africa 16 stations. We have also undertaken 30 +4.5 +1.8 India 23 42 operational and infrastructure 30 +2.3 +0.9 Middle East 23 52 improvements to increase the 31 Southeast Asia 26 +3.2 +1.1 resiliency of our generating assets Latin America 26 38 +1.4 -0.7 and transmission and distribution Eastern Europe3 42 networks to these extraordinary 138 106 +4.2 +2.4 conditions. E.ON has made these China 74 mitigation and adaptation efforts a part of its Business Continuity 2005 energy Projected Demand Potential lower Management processes.” demand 2020 energy abatement energy demand demand, opportunity in 2020 base case from energy Matthias Hansch, productivity investment VP Climate Protection and Environment, 1 Figures may not sum to totals, because of rounding 2 Compound annual growth rate E.ON AG 3 Includes Belarus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Russia, and Slovakia. Source: McKinsey Global Institute analysisIncrease in global demand for energy. Energy underpins our social andEnergy demand is expected to grow economic systems. Access to reliable “People really need to understandby 1.6% per year on average between and increased supplies of low-carbon that the average global surface2006 and 2030, an increase of electricity are essential to meet the temperature is like the temperature45%14. Although the current financial adaptation needs arising from, for of your body – and if you havecrisis has affected energy demand, example, increasing urbanisation, a fever of 40.5°C, even thoughthe underlying growth in demand agriculture (to improve yields and that’s only three and a half degreesis expected to continue over the manage drought), transportation, the above normal, it’s potentially fatal.medium-long term. Between 2007 built environment (to cool buildings), Everything that is expected toand 2030, around 13.2 trillion US$ of potable water supplies, drainage and result from global climate changecumulative investments are forecasted waste water treatment. driven by greenhouse gases is notto be required in the power sector to only happening, but it’s happeningmaintain supply and respond to the It is not clear from the scenarios faster than anybody expected.”increased demand for electricity15. developed by organisations suchThe increasing energy demands from as the International Energy Agency Dr. John Holdren,emerging economies and developing if these additional energy needs Chief Scientific Advisercountries, relevant to that from the driven by climate change impacts to President Obama,OECD countries, is a key challenge and adaptation responses have been 6 February 2008(see Figure 3). included in demand estimates.The direct and indirect impacts of The IPCC Synthesis Report providesclimate change (see Figure 4) will examples of the impacts associatedincrease the demand for electricity and with global average temperatureaffect the resilience of assets to meet change (see Figure 4). The blackthe changing demands. The impacts lines link impacts; broken-line arrowswill also increase the competition indicate impacts continuing withfor water resources between the increasing temperature. Entries areelectricity sector and other users (for placed so that the left-hand side ofexample, agriculture, fisheries, drinking text indicates the approximate levelwater, industry, and natural habitats). of warming that is associated with the onset of a given impact.14 International Energy Agency World Energy Outlook 2008. Paris.15 CDP, 2008.16 Farrell D. And Remes. J (2009) Promoting energy efficiency in the developing world. McKinsey Global Institute. 5
  12. 12. 3 The energy revolution High rate of asset retirement. In of which 40% (65GW at a cost of $155“Climate change is a significant global developed countries with ageing billion) was in renewables (excluding challenge and its solution will have a generation, transmission and large hydro).19 profound effect on how we produce, distribution assets, many assets distribute and consume energy in are nearing their design life and the future. But the challenge before Lead time for new assets. The investment is required now to maintain appraisal, design and construction of us is not solely about greenhouse supplies. Many existing nuclear and gas emissions. Physical risks from major assets can take many years. fossil fuel power stations are due for Securing regulatory consents is changes in climate such as potential retirement creating a supply demand water scarcity that impedes our becoming increasingly difficult in many gap. Asset retirement is also driven areas of the world as environmental ability to produce electricity and by pollution legislation, for example changing temperatures that increase and sustainability concerns become in the European Community by major political issues. Building new our summer peak demand for the Combustion Directive17. Asset electricity could significantly affect power stations can be difficult in retirement rates are high in many countries with high environmental our business. We are addressing developed countries (including the these issues by studying our water standards, active NGOs, and complex U.S., UK and Germany). In the UK regulatory and consenting processes. needs to ensure we are using this alone, a generation shortfall of 20% precious resource most efficiently. Political issues regarding the building is predicted by 2015.18 of new nuclear and fossil fuel power And we are seizing the opportunity to advance technologies that improve stations, and the right financial our own use of energy and help our Development of new assets with new conditions for the development of customers to manage theirs. As the technologies (including a growing alternative renewable energy sources largest coal consuming electric utility renewable energy sector). Significant create further delays. in the western hemisphere, we have investment is required in new assets a responsibility to lead on this issue.” to meet the growing energy demands Reducing GHG emissions. Current from the developing and transition actions to reduce emissions are Dennis E. Welch, countries, replace ageing assets in the insufficient to limit average global Executive Vice President, OECD countries and meet emissions temperature increase due to Environment, Safety & targets. $250 billion was invested anthropogenic climate change to 2°C. Health and Facilities, globally in 2008 constructing 157GW American Electric Power of power generation from all sources, Figure 4: Examples of impacts associated with global average temperature change Global average annual temperature change relative to 1980-1999 ( °C) 0 1 2 3 4 5° C Increased water availability in moist tropics and high latitudes WGII 3.4.1, 3.4.3 WATER Decreasing water availability and increasing drought in mid-latitudes and semi-arid low latitudes 3.ES, 3.4.1, 3.4.3 Hundreds of millions of people exposed to increased water stress 3.5.1, T3.3, 20.6.2, TS.B5 Up to 30% of species at Significant † extinctions 4.ES, 4.4.11 Increasing risk of extinction around the globe T4.1, F4.4, B4.4, Increased coral bleaching Most corals bleached Widespread coral mortality 6.4.1, 6.6.5, B6.1 Terrestrial biosphere tends toward a net carbon source as: 4.ES, T4.1, F4.2, ECOSYSTEMS -15% -40% of ecoystems affected F4.4 4.2.2, 4.4.1, 4.4.4, Increasing species range shifts and wildfire risk 4.4.5, 4.4.6, 4.4.10, Ecosystem changes due to weakening B4.5 of the meridional overturning circulation 19.3.5 Complex, localised negative impacts on small holders, subsistence farmers and fishers 5.ES, 5.4.7 Tendencies for cereal productivity Productivity of all cereals 5.ES, 5.4.2, F5.2 FOOD to decrease in low latitudes decreases in low latitudes Tendencies for some cereal productivity Cereal productivity to 5.ES, 5.4.2, F5.2 to increase at mid-to high latitudes decrease in some regions Increased damage from floods and storms 6.ES, 6.3.2, 6.4.1, 6.4.2 About 30% of global coastal 6.4.1 COASTS wetlands lost ‡ Millions more people could experience coastal flooding each year T6.6, F6.8, TS.B5 8.ES, 8.4.1, 8.7, Increasing burden from malnutrition, diarrhoea, cardio-respiratory and infectious diseases T8.2, T8.4 8.ES, 8.2.2, 8.2.3, Increased morbidity and mortality from heat waves, floods and droughts 8.4.1, 8.4.2, 8.7, HEALTH T8.3, F8.3 Changed distribution of some disease vectors 8.ES, 8.2.8, 8.7, B8.4 Substantial burden on health services 8.6.1 0 1 2 3 4 5° C † Significant is defined here as more than 40% ‡ Based on average rate of sea level rise of 4.2mm/year from 2000 to 2080. 17 EC Directive 2001/80/EC. 18 Hewer, 2006. 19 Global Trends in Sustainable Energy Investment 2009, UN Environment Programmes (UNEP) Sustainable Energy6 Finance Initiative.
  13. 13. Carbon Disclosure Project Report Global Electric UtilitiesReducing the GHG emissions of therefore becoming largely an urbanthe electricity sector is central to phenomenon concentrated in the “Cemig has developed strategiesachieving a low-carbon economy and developing world. and undertaken projects torestricting global average temperature minimize impacts on its businessincreases. Electricity companies related to extreme climate events The trend for increasing urbanisation caused by global warming. Aboutare faced with implementing new is expected to be accelerated asgeneration technologies, energy 97.0% of Cemig’s electric energy people move from failing rural areas generation system is composedefficiency and demand management under increasing pressure from climatemeasures to meet emissions targets. of hydroelectric plants. Therefore, change to cities. Urban areas already extreme droughts or heavy rainsInvestments are needed in new face power shortages in many areasassets, retrofit technologies to clean may result in alterations in the of the world. Electricity companies generation, transmission andlegacy assets, transmission and will face major challenges in providingdistribution strengthening for resilience distribution of energy and impact new generation capacity and supply the company. With this issue inand distributed generation, and reliability within urban areas to meetcontrol technologies (smart grid, mind, Cemig has been working to the increased demands from domestic improve its initiatives in respect tosmart metering, distributed/micro customers, essential urban utilitiesgeneration, virtual power plants, both monitoring and communicating (for example water and sewerage), hydrometeorological events anddemand management). and the technological changes in atmospheric discharges and has transportation (for example the been studying and simulating raised-Increasing urbanisation. More than increased use of electric vehicles). flow events in order to guarantee thehalf of the world’s population now Ability to pay by an increasing security of its generation system andlives in cities. According to the proportion of urban populations of the surrounding communities.”2008 Revision of the official United who are poorer and disadvantagedNations population estimates and will become a significant issue for Djalma Bastos de Morais,projections, the world population is electricity companies, particularly CEO, Cemig, Brazilprojected to reach 7 billion early in in emerging economies.2012, up from the current 6.8 billion,and surpass 9 billion people by Water resources. Global fresh water205020. The population living in urban resources are under increasing stress.areas is projected to gain 3.1 billion, Less water, declining water quality,passing from 3.3 billion in 2007 to and growing water demand are6.4 billion 2050. The urban areas of creating immense challenges to thethe world are expected to absorb all electricity sector which is a major userthe population growth expected over of water (see Figure 6). The sector hasthe next four decades while at the historically taken clean, reliable andsame time drawing in some of the inexpensive water for granted. Theserural population. trends are creating operational issues, restrictions on abstractions, moreFurthermore, most of the population stringent water quality regulations,growth expected in urban areas will pressure to move towards full-costbe concentrated in the cities and water pricing, and increased publictowns of the less developed regions. scrutiny of corporate water practices.21Asia, in particular, is projected to The electricity sector requires asee its urban population increase by consistent supply of water – in the1.8 billion, Africa by 0.9 billion, and USA it accounts for 39% of totalLatin America and the Caribbean freshwater abstractions.22by 0.2 billion. Population growth isFigure 5: Population change and urbanisation 9.0 8.0 7.0 Population (billions) 6.0 5.0 4.0 3.0 2.0 1.0 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 World Rural Population World Urban Population World Total Population20 United Nations (2008) Department of Economic and Social Affairs. Population Division. World Urbanization Prospects: The 2008 Revision. United Nations 2008.21 Ceres, Pacific Institute ‘Water scarcity and climate change: growing risks for businesses and investors’ 2009.22 Energy Demands on Water Resources: Report to Congress on the Interdependence of Energy and Water,” U.S. Department of Energy, December 2006.