Lights Out: Why U.S. Utility Companies Must Do More To Manage Climate Risks

The U.S. relies on electricity and has a long history of electricity generation. It lights homes, schools and businesses across the nation. It is essential.

In 2022, roughly 4,243 billion kilowatt-hours (kWh) (or about 4.24 trillion kWh) of electricity was generated at utility-scale electricity generation facilities in the U.S. (Figure 1), showing how there is a constant greater demand for electricity. About 60% of this electricity generation was from fossil fuels — coal, natural gas, petroleum, and other gases.

The U.S. energy grid infrastructure is a complex web of power generation facilities, transmission lines, and distribution networks.

The grid comprises over 10,000 power plants, 650,000 miles of high-voltage transmission lines, and over 6.3 million miles of distribution divided into sub-regions with individual grids (Figure 2 highlights the climate risks of summer 2023 to the regional grids).

This fragmented energy grid is old and wearing, primarily built to accommodate coal and gas plants. The country constructed most of its transmission system in the 1950s and 1960s. Approximately 70% of power transformers and transmission lines are 25 years old at a minimum, leaving them in a spot of trouble.

The design of specific components relies on assumptions about precipitation derived from actuarial tables reflecting rainfall patterns of 60 or 70 years ago. However, the designers initially intended these components to last 50 years or less. Consequently, the current system was built to withstand the climatic conditions of the past of the 1960s and 1970s. While it experienced variable extreme weather events, climate change remained in its infancy with limited localised climate impacts for the U.S.. The existing grid must prepare to handle the increased stresses and demands of more frequent and intense weather events.

In 2022, it was reported that power outages have increased by more than 100 times a year in the last five years - double the approximately 50 times a year in the early 2000s.

Climate change has accelerated this with rising temperatures, amplifying energy demands, notably as air conditioners are utilised more extensively to combat heat conditions. This heightened need for electricity can strain the electric grid, posing an increased climate risk and potentially resulting in outages, underscoring the vulnerability of the U.S. energy infrastructure to changing environmental conditions.

Disruption to the grid is complex in a system where no single entity is responsible for implementing a comprehensive approach to grid resilience. Although private companies predominantly own the U.S. electricity grid, the federal government promotes grid resilience — a system's ability to adapt to changing conditions, endure potential disruptions like power line losses, and swiftly recover if impacted.

Regarding regulation, the electricity industry is divided between the states and the federal government.

National policies and preparedness efforts have highlighted the importance of enhancing the resilience of the country's critical infrastructure, including the electricity grid. But given the nature of the existing ageing system, there is no way outages can be avoided entirely, no matter how much time and money is devoted to such an effort.

Extreme weather events have been and continue to contribute to increased U.S. power outages. Between 2000 and 2021, weather-related events of flooding, hurricanes, wildfires and flooding have caused more than 80% of power outages that vary among U.S. states.

The Southeast had the most weather-related outages at 474, with the Midwest second in total weather-related outages at 363.

This is mainly on the U.S. coastline, which is especially vulnerable to climate risks with rising sea levels invigorating storm surges and erosion, which houses a significant portion of the country's energy infrastructure, including power plants, refineries, and critical energy facilities.

Examples of recent power outages are showcased by July 2019; a heat wave in the Northeast contributed to two power outages and resulted in over 100,000 customers in New York City losing power. The outages disrupted commercial activities, transportation systems, and traffic control operations.

Furthermore, a catastrophic outage was the winter storm of 2021 that hit Texas and inflicted 4.5 million homes to lose electricity, resulting in $195 billion of real estate damages. ”We are facing an absolute step-change,” NERC’s Director of Reliability Assessment and Performance Analysis John Moura claimed.

Over the past five years, NERC has seen a “steady deterioration in the risk profile of the grid.” The U.S. grid faces complex transformations and challenges, including a changing mix of power generation, growing penetration of variable energy generation, and an ageing infrastructure.

As climate risks become more frequent and severe, the infrastructure without adaption will face more significant pressures to inflict more frequent and severe outages as well, ultimately.

Climate risks can negatively impact grid infrastructure in 3 ways: Generation, Transmission and Distribution (Figure 4).

Generation:

The effects of climate change could impact the efficiency of power plant operations and the ability to generate power. For example, storms can disrupt operations; extreme heat can affect the efficiency of power plant operations; and changes in the availability of resources needed to generate electricity, such as water, can affect the ability to generate power.

Climate change is expected to increase hurricane intensity and rainfall. With more significant rainfall, rising sea levels, and larger storm surges, future hurricanes may increase the risk of coastal flooding.

Transmission:

Climate change could also affect the ability of grid operators to transmit electricity. Climate risks of higher temperatures cause the expansion of transmission line materials, and sagging lines can cause permanent damage to power lines, increasing the likelihood of power outages when the lines contact other power lines, trees, or the ground.

In addition, warmer temperatures and drier conditions associated with climate change are projected to increase wildfire activity in the Northern Great Plains, Northwest, and Southwest regions of the United States.

Distribution:

Climate change could affect the ability of utilities to distribute electricity to customers. For example, higher temperatures could increase the likelihood of damage to power transformers on hot days when electricity demand is at its highest.

As more frequent and intense weather events are forecasted, grid infrastructure and distribution capacities are significantly threatened.

As the world is transitioning to renewable energy sources, at the same time, the U.S. is tapping into the nation’s wind and solar energy supplies to meet demand and provide reliable energy services as a critical step towards building a more resilient power system.

Many alternative energy options are inexpensive and fast, especially when constructing large, conventional power plants.

The construction of fresh interregional transmission projects can effectively diminish overall expenses, facilitate the seamless integration of renewable resources more economically, and mitigate the likelihood of costly outcomes and power disruptions during severe weather conditions. Furthermore, interregional transmission yields extensive benefits beyond delivering renewable resources to load areas.

These advantages encompass enhanced reliability, resiliency, market efficiency, and resource adequacy. Although renewable energy technologies offer a more reliable solution to existing energy infrastructure problems, many spots most applicable for technologies are far from urban infrastructures and the existing grid. New infrastructure requires miles of high-voltage transmission lines to span multiple grid regions.

To comprehend the scale of the task at hand, let's compare today's renewable energy and transmission system to the estimated requirements for achieving the Biden administration's ambitious goal of 100% clean electricity generation by 2035.

To meet this target, the transmission capacity must double within a decade. There are enormous challenges ahead towards building this large-scale transmission to fit these targets, but the problems commence with planning.

"It's very different from how we do other types of national infrastructure," said Michael Goggin, vice president at Grid Strategies, a consulting group. "Highways, gas, pipelines — all that is paid for and permitted at the federal level primarily."

A lack of transmission capacity means a pipeline of renewable energy projects faces multiyear delays and rising costs to connect to the grid. Nearly 1,400 GW of solar, wind and energy-storage projects are backed up in U.S. transmission interconnection queues, unable to deliver clean electricity and limiting capacity to transfer power between regions when climate-related disasters strike certain areas, as evident by the potential for Texas to suffer from fewer blackouts during the winter storm in 2021 if its isolated grid had more cross-regional connections.

The Federal Energy Regulatory Commission seeks ways to encourage grid operators' long-term planning and regional ties.

As part of developing climate resilience plans and following the Department of Energy's recommendations to minimise the occurrence of power outages, utilities and government entities are investing in resilience measures by modernising the existing power grid and improving a distributed infrastructure.

Leading U.S. energy utility company ConEdison has already invested more than $1 billion on storm-hardening infrastructure since 2012 to avoid nearly 683,000 customer interruptions and protect assets across the U.S.; other utility companies like Southern Company are aiming to invest with the future in mind with $17 billion across our electric transmission and distribution (T&D) systems, including smart grid infrastructure, energy storage, microgrids, and demand response technology between 2022-2026 planning period.

Investments in resilience-enhancing measures can be costly.

Xcel Energy has recently cut a resilience program that planned to invest $9 million to create energy resilience stations at three community centres serving diverse neighbourhoods in Minneapolis due to economic inflation that led to the project’s cost increasing by 70%.

Utilities often require support to calculate their return since the benefits are usually realised during major events threatening service reliability. Consequently, justifying these investments becomes challenging as utilities balance resilience needs with potential customer rate increases.

Earmarked by Erik Takayesu, Southern California Edison (SCE), vice president for Asset Strategy and Planning, who stated that utility companies cannot do this all alone, “We need similar studies done by local and regional planning agencies to understand how to look at resilience overall and come up with better solutions that don’t just make utilities more resilient but also make our communities more resilient. This is about public safety”.

Partnerships are prospering between utility companies and other stakeholders to expand capabilities, including reinsurers to underwrite climate risks and other technology companies.

Duke Energy Sustainable Solutions (DESS), a nonregulated subsidiary of Duke Energy, and Honeywell Building Technologies have collaborated to offer community microgrids to cities and towns across the U.S. to enable climate-controlled facilities during power outages for greater energy security. Still, more initiatives are needed to prepare for oncoming climate risks.

Ultimately, the slow transition to renewable energy infrastructure prolongs a reliance on the existing energy infrastructure vulnerable to climate-related risks and higher investment expenses on resilient infrastructure, pressuring costs for utility companies and, in turn, could increase electricity rates charged to customers.

Especially critical for customers in the depths of a cost-of-living crisis and facing hiking energy prices to disproportionately negatively affect low-income populations that spend a more significant portion of their income on energy expenses even more.

“How do you ensure energy bills are lower in the long run? We are very focused on the price of action, but we must also consider the price of inaction” claimed Shinjini Menon, SCE Managing Director of State Regulatory Operations.

The impact of climate risks on energy infrastructure has implications for energy utility companies and insurance and banking entities that face escalating costs of climate-related events, leading to higher premiums and losses on assets.

It is a systemic problem across the globe and in many other parts of the world that must be addressed before too much damage is inflicted.

The vulnerability of the U.S. energy infrastructure to climate risks is a pressing concern that demands immediate attention as essential to the American economy.

A reliable flow of electricity touches vital elements of the U.S. economy, whether transport, waste management or healthcare, it is fundamental.

Southern Company Chief Economist and Director of Planning and Regulatory Support Kenneth Shiver agreed, emphasising the need for a resilient electric grid. "If we don't have electricity, the economy stops," said Shiver. "From our perspective, electricity is more than a commodity".

Addressing the vulnerabilities in coastline energy facilities, upgrading the grid setup, and implementing climate-responsive measures are critical to ensuring a resilient energy future.

Collaborative efforts between government and private sector stakeholders are essential to protect the energy infrastructure and mitigate the adverse effects of climate change on the nation's energy security and economic stability.

Energy providers have reported they face challenges evaluating investments in resilience and understanding climate risks because of an absence of climate resilience metrics and analytical frameworks. Hence, energy utility companies must utilise critical climate data to make strategic decisions.

Although already using data in several different ways, including Xcel Energy needing to search for further wildfire risks using high-resolution cameras and laser radar, known as Light Detection and Ranging (LiDAR), after Xcel's distribution line came loose from high winds and started a wildfire in Colorado, destroying 1,000 Boulder County homes and businesses, tallying $2 billion in damages.

Collecting data for emerging technologies, like LiDAR, is crucial for utility companies. Drew McGuire, director of research and development at the nonprofit Electric Power Research Institute, said these applications are emerging technologies. "Not all LiDAR is created equal," he said. "They're easy to use, but tricky to get 'accurate' data".

Climate X is that tool with our climate analytics platform, Spectra, we enable organisations to embrace climate-resilient strategies by providing reliable and granular climate data to allow the U.S. to take significant strides towards building a sustainable and secure energy system for future generations.

Figure 8 below compares how we can accurately display the climate risks of specific zones for organisations to understand what is next compared to existing energy utility company overlays.

Data is fundamental for energy utility companies to prepare for climate-related physical risks.

Whether with existing infrastructure or new transitional infrastructure in place to mitigate blackouts and infliction of costs to a range of stakeholders relying on electricity across the U.S.. With the right tools, it is a manageable task to get everything out of resilience planning for utility companies.

Book a demo with us today to further explore how we can help you plan climate resilience against climate risks.