According to some scientists, climate change is going to usher in warmer, more Mediterranean-like, weather in the UK, but for now at least that is not what is happening. If anything the weather has become more extreme and unpredictable, making the task of keeping the country’s infrastructure functioning around the clock a lot harder. Utilities are very much on the front line of that struggle.
This is not just a UK phenomenon and it has generated a lot of interest in hedging weather risk from utilities across the world. The insurer Swiss Re reported an increase in interest for cold weather protection by north European utility companies after bitterly cold weather in 2009/10 and 2010/11.
Many of the products designed to hedge against plant shutdowns or non-delivery on electricity contracts have been around for years, but there is a growing demand for more sophisticated and tailored weather-related insurance products. Many of them are aimed at the renewables sector. This has seen the rise of specialist insurance providers such as Marsh, CelsiusPro and eWeatherRisk.
“We tailor insurance products for windfarm operators looking for hedges against wind speed, for instance, so they can get compensated if it is below their projections,” says Quentin Hills, global head of financial risk products with Marsh’s renewable and clean technology practice.
Hills says there is also a growing insurance market covering the construction phase of renewables projects. Delays in completing a project and delivering power on time can incur penalties for the operator, and that can be insured against. “Payouts are payable based on measurable events, such as having to pay for replacement electricity due to a problem relating to extreme weather,” says Hills. He adds that these insurance products can be tailored to a range of different types of renewable energy but notes that flood risk is difficult to insure against due to difficulties in measuring it.
However useful these products are, they can only act as safety net when things go wrong. Most utility groups will already have taken practical steps to keep functioning during periods of extreme weather. “The winter of 2010/11 did make us reconsider some of our procedures,” says Steve Waygood, head of environmental chemistry with RWE Npower. That involved, for example, looking at how to get key staff to the sites, bringing in flexible work arrangements, providing appropriate transportation and in some cases arranging accommodation near the power plants.
Extreme cold also creates problems for water treatment plants, which are part of the cooling process for power generators. “The performance of reverse osmosis membranes deteriorates as temperatures drop,” says Waygood. This means hiring heating equipment and making sure it is available to deal with future cold snaps.
For water companies, extreme cold means burst pipes and threats to security of supply. Stuart Henderson, head of water and wastewater solutions at Scottish water retailer Business Stream says: “There are basically two aspects to this problem: preventative and quick reaction.” In the case of power stations, customers are advised to have back-up water tanks in case of burst pipes, or have an alternative supply pipe. “A lot of it is about contingency planning and prevention,” Henderson says. “And a lot of that can be down to self-help.”
Gregg Edeson, a partner with PA Consulting Group, agrees. With reference to electricity transmission and distribution, he says: “Preparation is very important, from investing in hardening circuits and tree trimming where they threaten power lines, through to staff training.” He says that in the US, which sees everything from Arctic weather through to hurricanes, extreme heat and flooding surpasses anything the UK suffers. It is routine for utility companies to put crews through emergency drills, sometimes as often as once a month, to ensure their skills are up to scratch.
“It’s also a case of co-ordinating with the local police and fire brigade,” says Jeff Lewis, practice head, global energy consulting, PA Consulting Group. He says that borrowing staff from unaffected utilities and requiring staff to work very long shifts, even seven days a week, is common practice in the US.
Preventative measures are not always enough, and there must also be a capability to respond quickly. Technology developments are helpful here. Henderson cites the example of meters with automatic meter reading (AMR) in the water sector. “AMR meters can provide early warnings of a problem, such as when they register a sudden spike in water usage. Otherwise the leak may not be known about until the customer notifies us, and there can be a problem of knowing exactly where the leak is,” he says. Ground penetrating radar is increasingly being deployed to locate the leaks more precisely.
In the electricity sector, smart grids and smart meters will play a role because they offer flexibility and can more easily re-route power when parts of the network are damaged. Smart meters can also help to precisely locate where a power line has gone down and alert the utility immediately.
Another solution pioneered in South Africa involves utilities turning to Twitter to help locate trouble spots on the network. People tend to complain by tweeting via their mobile phones about power outages. By triangulating the location of where these complaints are originating, a utility can get an idea of where the problem lies. It is a technique also increasingly being used by US utilities.
Justin Pugsley is a freelance journalist
This article first appeared in Utility Week’s print edition of 28th September 2012.
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