As utilities become increasingly aware of the threat they pose to the environment, they need to rapidly shift focus to climate change to make the world a safer place for future generations.
This means reducing investment in fossil fuels, improving grid resiliency and tapping renewable energy. According to the International Energy Agency, for the world to hit net-zero emissions targets by 2050, grid investments need to triple to USD 2.2 trillion by 2030. This requires building a robust risk mitigation strategy through digitalization and artificial intelligence, along with increasing renewable energy use in total power production. This paper focuses on how utilities can reduce their impact on climate change and enable sustainable electricity generation from clean renewable sources leveraging digital technologies, to build a carbon-neutral future.
Adapting to climate change: Key risks for electric utility companies
Electric utility companies deal with an abundance of inherent risks because of the hazards associated with power generation and distribution.
Electric utilities contribute to climate change by emitting hazardous substances as a by-product of electricity generation. Burning fossil fuels, which today accounts for 65% of power generation, leads to the release of toxic combustion gases into the atmosphere. Nuclear power generates radioactive waste materials that can remain in the environment for a long period. Climate change heavily affects the businesses of utilities. Firms need to actively manage climate change-related risks to mitigate environmental disasters, boost vegetation management, and reduce emissions. Failure to manage such risks not only results in significant financial liability but also hampers customer experience. For instance, in January 2019, PG&E filed for bankruptcy and paid out USD 25.5 billion to resolve its wildfire-related liabilities.
In fact, it is expected to spend USD 11.7 billion on strategies to mitigate wildfire risk between 2019 and 2022. One of the key reasons for wildfires is the snowballing demand for electricity due to rising global temperatures. The US Energy Information Administration predicts that the consumption of electricity in the US will increase by 1.6% in 2021.
The increased demand for power for cooling, as well as the decreased demand for power for heating, combined with the demand for reduced dependency on electricity generated from thermal power plants, are pushing organizations to identify risks related to climate change such as alteration in precipitation and wind speed and rising sea levels. For instance, rising carbon dioxide levels have increased cloudiness, affecting the availability of solar radiation for solar power systems. On the other hand, changing wind speed has affected the potential of wind power. Floods and storms can possibly damage large parts of a power utility infrastructure, resulting in outages and blackouts. In August 2020, more than two million people were left without power due to tropical storm Isaias. In fact, in 2020, western parts of the US were in the grips of a climate change-induced megadrought.
What utilities need is a two-pronged risk mitigation strategy, one that helps proactively identify and minimize climate-related risks while ensuring environmental sustainability.
Mitigating the risk: Shifting to renewable energy
In recent years, power companies have moved towards sustainable or green energy as a risk mitigation strategy. Leveraging green energy is crucial to reducing fuel costs, environmental emissions, and improving compliance.
The US leads the world in investment in renewable energy, followed by Germany, China, France, and Spain. In the US, California is one of the first states to pass an executive order to achieve carbon neutrality by 2045, and utility companies in the state have drawn out their plans to meet this objective. For example, Southern California Edison has published its Pathway 2045 program, with a well laid-out approach to achieve carbon neutrality. This requires a complete shift to renewable energy focusing on solar and wind generation, investment in the grid, electrification of transportation and buildings, and sequestration of the remaining carbon. California has encouraged consumers to install photovoltaic or solar energy units on their rooftops by providing associated tax breaks. These innovative shifts will empower utilities to drive greater efficiency and improve potential for energy savings.