Printed from BusinessInsurance.com

Climate change puts electric grid at risk: Swiss Re

Posted On: Jul. 26, 2017 1:01 PM CST

The electric grid is one of modern society’s most critical infrastructure systems, but it is also one of the most vulnerable, Swiss Re Ltd. said in a report issued Tuesday.

In “Lights Out: The Risks of Climate and Natural Disaster Related Disruption to the Electric Grid,” the reinsurer warns that while cyber threats to the grid have received plenty of attention, ordinary physical threats, such as the weather, can be more damaging.

Nearly 25% of the 2,428 unplanned electric grid outages in the western United States in 2015, for example, were caused by extreme weather events and variability in environment, the report said, citing figures from the North American Electric Reliability Corp., an Atlanta-based nonprofit international regulatory authority. 

“Climate change is expected to increase the incidence and severity of extreme weather conditions, putting the structural integrity of America’s aging electric infrastructure under greater strain,” the report said. “A combination of higher average temperatures, more destructive storms and hurricanes, and increased risk of wildfire will ultimately worsen risk exposure for utilities.”

The report also the Asheville, North Carolina-based National Centers for Environmental Information said the U.S. has sustained 212 weather and climate disasters since 1980 where overall damages or costs reached or exceeded $1 billion. The total cost of these 212 events exceeds $1.2 trillion.

“Most utilities can only insure their generation stations, as transmission and distribution lines are too expensive to insure with commercial insurance,” the report said. “Some states’ regulatory compacts, the legal structures governing the relationship between customers and utilities, prohibit public utilities from encumbering ratepayers with the costs of prohibitively expensive insurance policies. Utilities must justify any planned investments, both to the public and to (public utility commissions).”

The Swiss Re study noted that the Pacific Northwest is prone to high-frequency, low-intensity natural disasters such as droughts and flooding, but is also at risk for catastrophes like the predicted Cascadian Subduction Zone event, an earthquake-tsunami combination that is expected to devastate the coastline from northern California to southern British Columbia.

“In the Pacific Northwest,” the report said, “low-intensity, high-frequency events include smaller earthquakes, droughts, landslides and floods, and threaten not only electric grid infrastructure, but can also lead to cascading effects on other lifeline services, such as water, oil, fuel, and sewage.”

The report credited Pacific Northwest states with demonstrating leadership in addressing climate and seismic risks.

“With active collaboration between federal, state, and local governments, utilities, and the insurance industry,” the report said, “leaders in the public and private sector have the opportunity to reassess resilience and sustainable electricity infrastructure.”

New and different climate exposures

Michael Korn, San Francisco-based property practice leader at Integro Insurance Brokers, said climate change will alter the types of exposures power companies will experience.

“So some places are going to have more drought, other places are going to have more water,” he said, “and whatever’s different from what you’re currently experiencing is going to be what the exposure is.”

Mr. Korn said that in California transmission and distribution lines run through forests, and if the temperature rises there will be less rain and more wildfires.

“That obviously is a huge threat for the grid,” he said. “On the flip side, if you’re in an area of the country that’s maybe going to see more water, well, maybe now you’ve got a flood exposure that you didn’t have before.”

Mr. Korn said that he believes that increased maintenance for machinery and equipment is probably going to be more important because it’s going to be taxed more as climate change continues.

“If we’re overtaxing the system, that’s inherently going to lead to more wear and tear,” he said, “so I think risk managers and utilities and underwriters are consequently going to be looking for more specialized and stepped-up maintenance programs to take care of that increased exposure.”

The report was written by students of the Washington-based Johns Hopkins University School of Advanced International Studies, with financial support from the Swiss Re Institute.