Evaluating Climate Risk in the Energy Sector: A Comprehensive Approach

In the face of increasing billion-dollar disasters and growing concerns about power deliverability, a new framework has emerged to help utilities navigate the challenges posed by extreme weather and the saturation of power systems with renewables.

The Climate READi framework, developed by the Electric Power Research Institute (EPRI), aims to provide a consistent approach for utilities to evaluate and plan for the power system's environment over the next 20, 30, or 40 years. This initiative was launched in 2022 to improve resiliency planning and operation in the power sector.

The framework consists of four key components: the hazard itself, the exposure of assets to the hazard, the vulnerability associated with that exposure, and the response. It includes an online asset vulnerability and adaptation database and an analytical risk tool to put climate data into the form needed for power system analysis.

The Climate READi framework was released last week and has garnered input from over 40 power companies and various other organizations. It boasts members from the United States, Canada, the United Kingdom, and France.

However, the federal government's approach to climate resiliency planning seems to be taking a step back. The National Oceanic and Atmospheric Administration (NOAA), a nonpartisan scientific agency responsible for research on the atmosphere and oceans, will no longer update its billion-dollar disaster data due to "evolving priorities, statutory mandates, and staffing changes" under the Trump administration.

This decision could have a significant impact on climate and energy decision-making, as Rhizome, a climate resiliency planning platform, relies on NOAA projections for its work with utilities. Elon Musk and his Department of Government Efficiency targeted NOAA in February 2024, proposing a 27% cut to NOAA's budget in April 2024.

The power sector has been lacking a consistent approach to evaluating climate risk. Proactive investment in resiliency is less costly than responding and repairing after an event, according to Morgan Scott, director of EPRI's Climate READi program. Investor interest in climate adaptation is surging across all sectors, with over 2,100 companies generating a combined revenue of over $1 trillion in 2024.

Each power company's vulnerability will depend on the assets they have and the investments they have made. The U.S. government's step back from investment and research in this area could complicate planning for extreme weather events.

On a positive note, the Utility-Initiative Climate READi, established by the International Renewable Energy Agency (IRENA) in 2022, is also working to improve resilience planning and operational management in utilities. Members include countries such as India, with companies like Adani Energy Solutions part of the initiative.

As the power sector and governments grapple with the challenges of climate change, initiatives like Climate READi and Utility-Initiative Climate READi offer a glimmer of hope for a more resilient future.