1. Carbon Disclosure
Project Report
Global Electric Utilities
Building business resilience
to inevitable climate change
The Adaptation Challenge
Report prepared by: Report sponsored by:

2. Acclimatise reference CDP001/02
This document should be referenced as:
Acclimatise (2009). ‘Building Business Resilience to Inevitable Climate Change’.
Carbon Disclosure Project Report. Global Electric Utilities. Oxford
Project Manager
Jean-Christophe Amado
Approved by
John Firth, CEO and co-founder
Acclimatise
Hexgreave Hall,
Upper Hexgreave,
Farnsfield,
Nottinghamshire,
NG22 8LS
T: +44 (0) 1623 884347
E: enquiries @ acclimatise.uk.com
W: www.acclimatise.uk.com
Acknowledgements
The authors would like to thank the following organisations and individuals
for their guidance, advice and support in the preparation and publication
of this report:
Daniel Turner Carbon Disclosure Project
Joanna Lee Carbon Disclosure Project
Matt King Acclimatise
Clephane Compton Acclimatise
David Beer Acclimatise
Jon Bentley IBM
Cathy Pickering IBM
Graham Butler IBM
Gavin Jones IBM
John Juliano IBM
Peter Richardson IBM
The IBM Viewpoint was written by Graham Butler, Executive Partner,
Utilities Sector, Global Business Services, IBM UK & Ireland

3. IBM Viewpoint
IBM believes the electricity industry is Energy Agency1. This is due not only So, the industry is both a major
central to addressing world concerns to population growth, urbanisation greenhouse gas emitter and one of
about 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 are
adapting to the climate change already electric vehicles and the substitution promoted by many as the best
underway 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 this
concert. 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 exacerbate
Throughout history major problems The industry faces major challenges some existing industry challenges
have 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; inadequate
suggest we are rapidly approaching Climate change problems and
investment returns and out-dated
such a critical moment. So, a look solutions are intertwined
economic incentives that are now
back to the lessons from previous unhelpful; and the supply of natural The two core focus areas in addressing
large scale infrastructural changes resources. Climate change concerns climate change come together for the
might 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 greenhouse
Victorian London endangered not only Taking just one example, electricity gas emissions to limit the impact
people’s health but also the political companies face major financing of climate change in coming
and commercial well-being of the city. challenges. With an urgent demand decades will require changes in
The result was major expenditure on for more capacity, the industry must consumption behaviour and new
a new infrastructure, the sewerage raise capital for these projects. This supply side technologies
system. The difficulty in transporting is particularly difficult because of
people and goods over large distances the size of the investment (in the UK, • Adaptation: addressing the risks
in 19th century USA, was a major the industry requires an estimated and opportunities resulting from the
inhibitor to growth removed by £233.5 bn investment2 over the inevitable climate change – occurring
massive 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 are
Key to both examples is that a household), the desire from investors changing demand patterns and
completely fresh approach was for a short return on investment and placing operational and resource
taken and the investment made the general lack of funding available constraints on supply.
for the future rather than repairing due to the current global financial
existing 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 work
A crisis of energy demand
of the technologies central to these underway here, with investment
and supply
projects. to reduce emissions from existing
We now face a series of major infrastructure, the development of
problems relating to the generation, Any growth in energy supply must new technologies such as wind and
transmission and consumption of be achieved in a low carbon way. solar, and the deployment of smart
energy, all of which are essential to Power generation creates 25% of the grids and smart meters. But there is
the commercial world, the way we world’s CO2 emissions, the largest much still to do and it is vital that
live 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 analysis
The world is demanding more and energy is currently wasted. According in this report, has not had the same
more 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 effects
36.8% 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 the
1
International Energy Outlook 2008. usage information. next few years – and what steps the
2
3
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: http://www.oeb.gov.on.ca/OEB/Industry+Relations/OEB+Key+Initiatives/
Regulated+Price+Plan/Regulated+Price+Plan+-+Ontario+Smart+Price+Pilot ii

4. IBM Viewpoint
Scientists inform us that climate systems means more dynamic control To achieve this, we need the
change is underway and the of the flows of power, information and consumer to become part of the
direct effects of increasing global money; new sources of ‘supply’ and electricity management and efficiency
temperatures, changes in precipitation ‘demand’; and changed relationships story. Examples of this type of
and rising sea levels are becoming between the two. engagement include:
more evident. The indirect impacts
on social, environmental and economic
Many opportunities exist to optimise • Encouraging people to use less
systems are also beginning to come
and grow existing capabilities and energy, differently. This can help
into view. For the electricity industry,
accelerate emerging technologies to to lower energy usage directly and
these effects are likely to bring
commercial scale. lower and spread peak usage. A
increasing 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 time
There is a confluence of conflicting approach to the challenges of the
maintaining options that allow further
pressures: a variety of restrictions energy revolution, reducing emissions
adaptation actions in the future.
to generating additional supplies of and adapting to climate change.
Examples could include: carbon
electricity; a growing demand for They will use the lessons gained from
capture and storage, deep-water
more 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, waste
reduce greenhouse gas emissions.
and bio; various forms of storage;
electric vehicle infrastructure; and The industry must behave differently
Consumers must help with intelligent home devices. Other to address pro-actively the immediate
the supply side and utilities industries will need to transform the and longer term impacts of inevitable
with demand energy efficiency and demands of climate change while continuing to
the products and processes both deal with today's immediate pressures.
Electricity is a complex system-of- to ease pressure on the electricity
systems and it requires an integrated industry and reduce their risks to
approach to fundamentally redesign Senior executives in the sector
increasingly stressed supply. must take the lead and drive
the way the industry works if it is to
meet the challenges of a changing their companies towards this
climate. Optimising this system-of- transformation.
iii 5 The Climate Group and McKinsey & Co., “Smart 2020 Report”.

5. Executive Summary
Electricity companies must assess • Reductions in agricultural and The present financial crisis is driving
the risks and opportunities arising fisheries yields many companies to take stock and
from inevitable climate change as revisit their business models. This
• Increasing stress and competition
well as taking essential action to provides the ideal opportunity for
for water resources
reduce emissions. The focus so far, companies to look at the strategic
as evidenced by responses to the • Enhanced migration to urban areas and operational issues they will need
Carbon Disclosure Project, has been to address if they are to become
primarily on electricity companies • Changing disease patterns climate resilient.
reducing emissions and secondarily • Geo-political risks.
on understanding the risks posed by The successful electricity companies
climate change. Companies should of the future will be those that act
recognise the need for action in the These impacts add up to significant
changes in the demand for electricity now upon the clear signals that
near term to build business resilience climate change is underway. They
to manage the risks and capitalise against a backdrop of supply
challenges, ageing assets, new will have a fully integrated approach
on the opportunities that inevitable to the challenges of the energy
climate change brings. technology, prescriptive regulation
and impacts on asset performance revolution, reducing emissions and
and efficiency. adapting to climatic change. They
This century will see unprecedented will use the lessons gained from the
urbanisation and intense competition present financial crisis to avoid the
for scarce resources, driven by Although there is uncertainty in the even greater and entirely ‘predictable
population 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 jointly
generation, supply and demand there is sufficient information to assess prepared a set of Prepare-Adapt
is needed with companies taking impacts on business models and questions to help electricity companies
an integrated approach to the enable robust decisions to be taken take the right steps towards building
challenges 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 for
There is scientific consensus that changes to their business models.
the world’s climate is changing due
to human activity and that whatever Consumer preferences and needs
steps we take to limit GHG emissions will change; markets will open up in
we are now faced with several new locations and for new products
decades of increasing global and services. Those businesses
temperatures and a far longer period that do not respond will lose out
of rising sea levels. We are already to their competitors, whilst those
seeing the impacts of these and other that recognise the opportunities will
climatic changes on social, economic become electricity sector leaders.
and environmental systems. The
impacts will become more severe
over 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. 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 reading
v

7. 1 Introduction
In this report we explore the issues Those companies focussing their The Information Request was sent
that electricity companies are climate change activities exclusively on to the world’s largest 218 electric
beginning to face in response to a reducing GHG emissions (and many utilities globally (based on market
changing climate and the actions companies have yet to understand capitalisation). Acclimatise has
being taken. the urgency for action in this area) analysed the responses to assess
are only considering half the picture. the business resilience of companies
The report draws upon an analysis of By failing to build resilience they will to a changing climate. A separate
the responses from global electricity miss significant business opportunities technical appendix is available online
companies to the 2008 Carbon created by the energy revolution. at www.acclimatise.uk.com with the
Disclosure Project (CDP). Examples results from the analysis.
of actions and issues taken from the The report includes a series of
responses are provided. Prepare-Adapt questions prepared Acclimatisation Index
by Acclimatise and IBM to help
The analysis of the responses to the
As the most carbon intensive industry senior electricity company executives
CDP Information Request has been
in the world, the electricity sector is identify the steps they need to take
undertaken using our Acclimatisation
simultaneously a significant contributor towards building corporate resilience
Index methodology. This enables
to and victim of climate change. to inevitable climate change.
a semi-quantitative analysis of the
Reducing the greenhouse gas (GHG) responses recognising the scope
emissions of the sector is central to The Carbon Disclosure Project of the questions. The Index can
achieving a low-carbon economy7 take into account information from
CDP is an independent not-for-profit
and requires “nothing short of other sources to provide a more
organisation which holds the largest
an energy revolution.”8 Ensuring comprehensive analysis.
database of corporate climate change
the resilience of the generation,
information in the world. The data is
transmission and distribution
obtained from responses to CDP’s The Acclimatisation Index has
network and shifting the focus to
annual Information Requests, issued been used to analyse the resilience
renewable sources of energy, low
on behalf of 475 institutional investors, of global electricity companies
carbon generation and more dynamic
to more than 3,700 corporations to climate change in response to
balancing of supply and demand will
across the globe. Since its formation questions contained within sections
require 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, providing
Many of the climate changes that we primary climate change data to the
will see over the next 30 to 40 years global market place. CDP plays a
are already built into the climate vital role in encouraging companies
system due to GHG emissions. to measure, manage and reduce
Mitigation efforts to reduce emissions emissions and climate change impacts.
are vital if we are to keep climate
change from surpassing a dangerous
The CDP Information Requests
and rapidly approaching threshold.
include a series of questions seeking
This has been called avoiding the
disclosure on the physical impacts
unmanageable. However the effects
of climate change on existing and
of climate change are already upon us
future company performance and
and are growing rapidly. A significant
the management responses. (A copy
reduction in emissions is essential,
of the questions is available on the
but, we must also prepare for and
CDP website: www.cdproject.net
respond to the impacts – we must
together with a list of the investors).
adapt to manage the unavoidable.
7
http://www.eurelectric.org/CEO/CEODeclaration.asp
8
IEA, 2008.
9
Excluding question b ‘Individual Performance’ of section 4 which focused on performance towards GHG targets. 1

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. Carbon Disclosure Project Report Global Electric Utilities
Figure 1: Comparison of observed continental- and global-scale changes in surface temperature with results
simulated 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
Observations
12 IPCC ‘Climate change 2007: synthesis report’. 3

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 40E
Temperature 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. Carbon Disclosure Project Report Global Electric Utilities
Figure 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 today's 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 analysis
Increase in global demand for energy. Energy underpins our social and
Energy demand is expected to grow economic systems. Access to reliable “People really need to understand
by 1.6% per year on average between and increased supplies of low-carbon that the average global surface
2006 and 2030, an increase of electricity are essential to meet the temperature is like the temperature
45%14. Although the current financial adaptation needs arising from, for of your body – and if you have
crisis has affected energy demand, example, increasing urbanisation, a fever of 40.5°C, even though
the underlying growth in demand agriculture (to improve yields and that’s only three and a half degrees
is 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 to
and 2030, around 13.2 trillion US$ of potable water supplies, drainage and result from global climate change
cumulative investments are forecasted waste water treatment. driven by greenhouse gases is not
to be required in the power sector to only happening, but it’s happening
maintain supply and respond to the It is not clear from the scenarios faster than anybody expected.”
increased demand for electricity15. developed by organisations such
The increasing energy demands from as the International Energy Agency Dr. John Holdren,
emerging economies and developing if these additional energy needs Chief Scientific Adviser
countries, 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 provides
climate change (see Figure 4) will examples of the impacts associated
increase the demand for electricity and with global average temperature
affect the resilience of assets to meet change (see Figure 4). The black
the changing demands. The impacts lines link impacts; broken-line arrows
will also increase the competition indicate impacts continuing with
for water resources between the increasing temperature. Entries are
electricity sector and other users (for placed so that the left-hand side of
example, agriculture, fisheries, drinking text indicates the approximate level
water, 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. 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 Programme's (UNEP) Sustainable Energy
6 Finance Initiative.

13. Carbon Disclosure Project Report Global Electric Utilities
Reducing the GHG emissions of therefore becoming largely an urban
the electricity sector is central to phenomenon concentrated in the “Cemig has developed strategies
achieving a low-carbon economy and developing world. and undertaken projects to
restricting global average temperature minimize impacts on its business
increases. Electricity companies related to extreme climate events
The trend for increasing urbanisation caused by global warming. About
are faced with implementing new is expected to be accelerated as
generation technologies, energy 97.0% of Cemig’s electric energy
people move from failing rural areas generation system is composed
efficiency and demand management under increasing pressure from climate
measures to meet emissions targets. of hydroelectric plants. Therefore,
change to cities. Urban areas already extreme droughts or heavy rains
Investments are needed in new face power shortages in many areas
assets, retrofit technologies to clean may result in alterations in the
of the world. Electricity companies generation, transmission and
legacy assets, transmission and will face major challenges in providing
distribution strengthening for resilience distribution of energy and impact
new generation capacity and supply the company. With this issue in
and distributed generation, and reliability within urban areas to meet
control technologies (smart grid, mind, Cemig has been working to
the increased demands from domestic improve its initiatives in respect to
smart metering, distributed/micro customers, essential urban utilities
generation, virtual power plants, both monitoring and communicating
(for example water and sewerage), hydrometeorological events and
demand 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 the
half of the world’s population now Ability to pay by an increasing security of its generation system and
lives in cities. According to the proportion of urban populations of the surrounding communities.”
2008 Revision of the official United who are poorer and disadvantaged
Nations population estimates and will become a significant issue for Djalma Bastos de Morais,
projections, the world population is electricity companies, particularly CEO, Cemig, Brazil
projected 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 water
205020. 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 are
6.4 billion 2050. The urban areas of creating immense challenges to the
the world are expected to absorb all electricity sector which is a major user
the population growth expected over of water (see Figure 6). The sector has
the next four decades while at the historically taken clean, reliable and
same time drawing in some of the inexpensive water for granted. These
rural population. trends are creating operational issues,
restrictions on abstractions, more
Furthermore, most of the population stringent water quality regulations,
growth expected in urban areas will pressure to move towards full-cost
be concentrated in the cities and water pricing, and increased public
towns of the less developed regions. scrutiny of corporate water practices.21
Asia, in particular, is projected to The electricity sector requires a
see its urban population increase by consistent supply of water – in the
1.8 billion, Africa by 0.9 billion, and USA it accounts for 39% of total
Latin America and the Caribbean freshwater abstractions.22
by 0.2 billion. Population growth is
Figure 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 Population
20 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.

14. 3 The energy revolution
Figure 6: Water consumption by type of energy generation23 Financing the energy revolution.
Power-sector investment in the
short-term is expected to be severely
Water consumption required
Total water consumed per megawatt for U.S. daily energy affected by the current financing
Energy type hour (m3/MWh) production (millions of m3)
difficulties. In the longer term the
Solar 0.0001 0.011 scale of the investment required
Wind 0.0001 0.011 to meet the energy challenge is
Gas 1 11 significant. A recent study by Ernst
Coal 2 22
Young26 concludes that £234 billion
of new investment is now required to
Nuclear 2.5 27.5
meet the UK’s energy goals. These
Oil 4 44 additional investments will double the
Hydropower 68 748 value of the UK’s total energy supply
Biofuel (1st generation) 178 1958 asset base (after taking into account
depreciation) by 2025.
A particular area of concern for the Delivering and treating clean drinking Clear national government policy.
electricity sector is the impact of water together with safe sewerage and In addition to the technological
climate change on water resources. waste water treatment systems to an challenges, the electricity sector
The IPCC Synthesis Report released increasing global urban population is faced with an uncertain regulatory
in 2007 states24: will create significant increases in landscape and in many cases a
the demand for electricity. vacuum in national government policy.
“Climate change is expected to Governments are slow to agree and
exacerbate current stresses on water Current global financial situation. The implement the policies needed to
resources from population growth International Energy Agency estimates create the certainty required by
and economic and land-use change, that global electricity consumption the companies and their investors.
including urbanisation. On a regional could drop by as much as 3.5% in The timelines do not match that
scale, mountain snow pack, glaciers 2009 – the first annual contraction required to close the growing
and small ice caps play a crucial role since the end of the Second World supply – demand gap.
in freshwater availability. Widespread War.25 There is a risk of complacency
mass losses from glaciers and creeping in as the recession decreases New regulatory landscapes. Although
reductions in snow cover over recent demand, obscures the greater new regulatory provisions are being
decades are projected to accelerate challenges from the energy revolution developed in many countries in
throughout the 21st century, reducing and climate change and delays action. response to these challenges, there
water availability, hydropower Investment is needed to invest in remains a great deal of uncertainty
potential, and changing seasonality of assets now during the downturn to regarding the scope, content and
flows in regions supplied by meltwater prepare for the future. A prolonged format of future legislation. Greater
from major mountain ranges (e.g. depressed financial situation will certainty about the future regulatory
Hindu-Kush, Himalaya, Andes), where delay investment and create further landscape is required to encourage
more than one-sixth of the world pressures for electricity companies companies to invest. New regulatory
population currently lives.” and for societies and economies. pricing structures will be required
in some countries to encourage
“Changes in precipitation and greater energy efficiency and demand
temperature lead to changes in management measures.
runoff and water availability. Runoff
is projected with high confidence to
increase by 10 to 40% by mid-century
at higher latitudes and in some wet
tropical areas, including populous
areas in East and South-East Asia,
and decrease by 10 to 30% over some
dry regions at mid-latitudes and dry
tropics, due to decreases in rainfall
and higher rates of evapotranspiration.
There is also high confidence that
many semi-arid areas (e.g. the
Mediterranean Basin, western United
States, southern Africa and north-
eastern Brazil) will suffer a decrease
in water resources due to climate
change. Drought-affected areas are
projected to increase in extent.”
23 Linking Water, Energy Climate Change: A proposed water and energy policy initiative for the UN Climate Change
Conference, COP15, in Copenhagen 2009,” DHI, Draft Concept Note, January 2008.
24 IPCC ‘Climate change 2007: synthesis report’.
25 OECD and IEA The impact of the economic and financial crisis on global energy investment May 2009.
8 26 Ernst Young (2009) Securing the UK’s energy future – meeting the financing challenge. London.