survey results...survey results: hydropower and climate resilience hydropower.org respondent...

CLIMATE CHANGE

As the impacts and risks associated with climate change become more evident, stakeholders are seeking information on how hydropower assets will withstand changing conditions and how owners, operators and developers are addressing risks within their corporate processes and decision-making.

In light of this, the International Hydropower Association (IHA) undertook a survey of more than 50 companies active in the hydropower sector to determine how they view climate risks and what actions they are or are not taking to address those risks.

Climate resilience, while not clearly defined for the hydropower sector, is a concept that allows us to consider the vulnerability of a company, asset or set of assets to climate change. It also helps us to examine how the associated risks to these assets and to corporate performance can be managed.

Furthermore, hydropower systems are characterised by their longevity, and are traditionally designed on the basis of historical hydrological data. However, under climate change, the past is no longer a reliable indication of the future. Decision-makers must consider how to prepare for potential impacts of climate change through the development of systems – both physical and corporate – that are capable of absorbing change.

In particular, decision-makers must act today with data and information that may or may not prove reliable over the longer term.

Although all risks are characterised by a level of uncertainty, climate change brings an unfamiliar set of risks and limited experience in how to address them.

Through the IHA survey on climate resilience, we sought to gain a better understanding of how hydropower companies view climate threats and opportunities, as well as the actions companies are taking to address those risks.

Survey methodology

IHA, with the support of Mott McDonald, prepared a range of questions with multiple choice and free form answer options.

The survey questions were reviewed by experts from the World Bank, the University of Massachusetts, the University of Manchester and Industrial Economics.

The survey was sent to 100 companies working in the hydropower sector around the world. It remained open for a period of two weeks, after which 56 responses were received. Five survey responses were deemed to be duplicate or incomplete and were discarded, leaving 51 completed surveys to analyse.

HYDROPOWER AND CLIMATE RESILIENCE

International Hydropower Association

Chancery House, St Nicholas Way, Sutton, London SM1 IJB, United Kingdom

T: +44 20 8652 5290 F: +44 20 8643 5600 E: [email protected]

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SURVEY RESULTS

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SURVEY RESULTS: HYDROPOWER AND CLIMATE RESILIENCE

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Respondent demographics

The majority of respondents (57%) were owner/operators, followed by consulting companies (17%). Those responding “Other” (6%) described themselves as owner/operators and developers (Fig 1).

IHA uses six regions in its statistical research and reporting, all of which were well represented among survey respondents (Fig 2). Note that South and Central Asia includes Russia and Turkey.

Respondents also represented a mix of job types and levels (Fig 3), with those in senior leadership positions (CEO/Director/VP – 23%) responding in the greatest number.

Defining climate resilience

In the survey it was proposed to define climate resilience as ‘the capacity of a facility or system to withstand or rapidly recover from the possible impacts of climate change and other external shocks’, inviting feedback on how this definition could be improved. Comments received tended to centre around three themes:

• Respondents felt the word ‘rapidly’ was not appropriate given the gradual nature of climate change and some of its impacts.

• The reference to ’other external shocks’ was too generic and could include issues unrelated to climate change.

• Some respondents felt that there was no need to rapidly ‘recover’ from impacts of climate change; it was possible to adapt and respond to a new normal, rather than fully recover to a prior state.

In light of the above comments, the following alternative is proposed: ‘the capacity of a facility or system to withstand or adjust to the possible impacts of climate change’.

Fig 1. What is the core business of your organisation?

Fig 3. Which of the following best describes your job role:

Fig 2. In which region(s) is your organisation active?

SURVEY ANALYSIS: HYDROPOWER AND CLIMATE RESILIENCE

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Climate change impacts

The majority of respondents (63%) stated that the main impacts of climate change are already being felt by their organisation, with a further 36% stating that impacts will be felt within the next 30 years (Fig 4).

Given the long lifespan of the average hydropower station, these expectations imply that current investment decisions should factor in climate change.

Given that 63% indicated that the impacts of climate change are already being materially felt by their organisation, it’s interesting to see that only 22% have already started taking steps with regards to climate resilience (Fig 5).

Assessing climate risks

In the survey we also asked: “Has your organisation ever carried out a climate change risk assessment?” The responses for “yes” and “no” were both 44%, with 12% responding “don’t know”.

Again, given the high numbers of respondents indicating that climate change is already affecting their organisation, it’s interesting to see that less than half of respondents had definitely carried out a climate change risk assessment.

We asked the respondents whose organisations have carried out a risk assessment to give further details.

Respondents indicated varying levels of risk assessment or similar activities. These included permanent, ongoing detailed assessments of the climate system taking into account energy production, environment issues, social issues and dam safety. Other examples were SWOT analyses and more limited high-level reviews of potential impacts and preparedness.

Fig 4. When do you think that the main impacts of climate change will start to be materially felt by your organisation?

Fig 5. The need to take action to increase resilience to the impacts of climate change is under increasing discussion. Would you say that:

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Predicting and assessing future risk

Respondents indicated that they use a range of information to help predict or assess future risks associated with climate change (Fig 6).

The prevalent use of media reports and internet sources implies that research is only in the early stages. There is further evidence in Fig 13 that suggests companies are not yet certain how to react.

However, similar numbers of respondents also indicated the use of academic literature, regional climate model outputs and analysis of the energy system and/or market demand, potentially indicating a shift toward more sophisticated analysis over time.

Fig 6. What type of information does your organisation utilise in order to predict the future risks associated with climate change? Please pick all those that are relevant.

Fig 7. Do you have access to government support in any of the following areas? Please select any that apply.

Government support

Survey responses indicate available, but limited*, guidance from government entities with regards to climate change information (Fig 7).

* See further evidence in Fig 15

SURVEY ANALYSIS: HYDROPOWER AND CLIMATE RESILIENCE

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Corporate guidelines

Fig 8 again highlights that although a majority of respondents reported that they were already experiencing material impacts from climate change (see Fig 4), very few (10%) had or knew about company guidelines.

Some organisations are taking action on the impacts of climate change, but the survey responses seem to point to a lack of systematic internal approach.

Weighting the potential impacts

Changes to flow variability, extreme weather events, and changes to mean flow were viewed as a moderate or significant risk by the largest number of respondents (Fig 9).

Precipitation patterns, temperature change, and market dynamics were also indicated as high-risk impacts. Sea level risk was considered a high risk by the fewest number of respondents.

Fig 8. Does your organisation have existing guidelines on climate risk/resilience?

Fig 9. When thinking of your organisation, please indicate the level of risk associated with each of these potential impacts of climate change:


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Main areas of impact

Operational risks were identified as the main type of climate risk for hydropower companies by 31% of respondents (Fig 10). Operational risks include damage to physical assets, failure of assets due to environmental conditions, complete loss of assets (buildings or stock) due to damage, and reduced reliability of power production caused by increased hydrological variability.

Financial risk was also identified as a main area of climate impacts by 28% of respondents. Financial risks include changes to the market for your products/services, changes to customer base, competitors’ advantage, reduced income or increased costs, and new investment requirements. Only 10% of respondents indicated social risks (staff and public safety) as a main concern.

Fig 10. What are the main areas of impact for a changing climate on your organisation? Please select all that are relevant.

Fig 11. Do you see any potential opportunities related to a changing climate for your business?

Opportunities related to climate change

70% of respondents felt there were potential opportunities for their organisation that may come from climate change (Fig 11).

However, in South and Central Asia, a noticeably smaller proportion of respondents indicated potential opportunities related to climate change.

We asked respondents who had indicated that opportunities do exist to give details. Opportunities noted across the regions include: offering adaptation services (flood protection and drought management), expanded role in energy system balancing, increased need for reservoir services including water and energy services, and increased power generation.


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Influence on internal processes

In terms of business internal processes, climate change is already having an impact on engineering and structural design, with close to 40% of respondents indicating this was either completely or to a large extent the case (Fig 12).

By contrast, planning and decision-making appears to be least incorporated into business processes among respondents.

Fig 12. In your opinion, to what degree is expected climate change already influencing your organisation’s:

Fig 13. Does your organisation have any of the following?Measures in place

Results indicate that many respondent organisations have acted to develop collaborative partnerships with research organisations (60%) or have trained staff (52%) to better understand climate diagnostics; however, corresponding risk screening programmes, risk management strategies and climate-proofing are still to be undertaken more extensively (Fig 13).


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Measures under consideration

As indicated in previous questions, respondents appear to be more comfortable investing in data analysis regarding climate data, rather than more concrete measures such as improving the resilience of physical infrastructure (Fig 14).

This could also indicate that respondents are taking the first steps to understand the problem at this point in time, and that further action related to physical infrastructure will follow.

Fig 14. Has your organisation considered, or is it considering, any of the following as resilience measures? Please select all that apply.

Fig 15. In your experience what has been, or what do you foresee as, the biggest challenges of integrating climate change considerations into the management of your operations. Please select any that apply.

Operational challenges

While much is reported on the costs of climate change, including both mitigation and adaptation measures, it is worth noting that relatively few survey respondents cited high costs as one of the biggest challenges of integrating climate change considerations into their activities (Fig 15).

The most frequently cited main challenges relate to a lack of information on the actual effects of climate change, and the response from governments.


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Measuring impacts

Loss of production was the most frequently selected indicator of whether or not climate change can impact the organisation, followed by loss of profit and then increased maintenance costs (Fig 16).

It is clear that the bottom line impact is at the forefront of organisational concerns in measuring the effects of climate change.

Fig 16. Which of the following will your organisation use to measure the impacts of a changing climate on your business? Please select all that apply.

Fig 17. What would be needed to make a business case for investing in resilience to climate change? Please select any that apply.

Business case for resilience measures

For items that would best support a business case for investing in climate resilience, ‘cost-benefit analysis on resilience investments’ was the clear leader in all regions (Fig 17), correlating with the responses to the previous question (Fig 16).

Overall, regulatory mandate was the second strongest driver; however, in Europe, Africa and East Asia more respondents placed “being convinced of the risks” as an equal or higher driver to regulatory mandate.

These results show that risk validation and risk management are at the core of building a succesful business case.


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Investment plans

"Risk assessment” was most frequently cited as included in investment plans (59%).

The results of the survey point to the need for further investigation regarding the types of risk and their corresponding validation.

A large majority of those responding ‘other’ indicated that none of the response options were included in their investment plans (i.e., none of the above).

Fig 18. In your investment plans, do you do any of the following? Please select all that apply.

Fig 19. Have you already experienced climate resilience-related scrutiny or requirements from external stakeholders? Please select all that apply.

Scrutiny from stakeholders

External scrutiny related to climate change from regulators, lenders and insurers is taking place but this is limited (Fig 19). However, is it clear that more respondents indicate they are receiving some external scrutiny than those indicating no external scrutiny.

As a group, European respondents were most likely to have received external scrutiny.


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Sector guildelines

Respondents indicated overwhelmingly that sector guidelines on climate risk /resilience would be useful (Fig 20). While these results were fairly consistent across regions, Europeans responded with “no” in the highest percentages, and East Asian organisations responded with “don’t know” in the highest percentages (below 15% for each of the above).

These results are unsurprising given the number of respondents indicating concerns and impacts with climate change, relative to clear responses to those risks within their own business and operational processes.

Discussion/conclusionsThese survey results appear to indicate the sector is aware of the emerging risk of climate change, but at the same time, it is not clear on how best to respond.

Aside from the strong indication from survey respondents of a desire for sector guidelines, the lack of consistent activities among the sector, and the often early stage analysis-type of activities among respondents suggests that the sector is taking some steps to better understand the issue, and the related risks and opportunities.

Other notable results of the survey include:

• There is a lack of consensus on the definition of climate resilience, although a workable definition is in sight.

• There is clear agreement that climate change is already impacting operations. Yet, hydropower companies as a group have not yet broadly internalised this risk systematically into their operations, decision-making processes and management strategies. However, it is clear that the sector is taking steps to address climate resilience, with some more advanced than others.

Fig 20. Do you think sector guidelines on climate risk / resilience would be useful?

• Several individual companies have identified opportunities related to climate change. While opportunities may not be possible at all locations, considering them in any climate risk evaluation is an appropriate activity that can positively affect the bottom line.

• Cost was not seen as the highest barrier to addressing climate resilience, suggesting that demonstrated need for action and tested/accepted responses are more pressing concerns.

• Outside pressure related to addressing climate resilience exists, but is still limited and varied (i.e., no one group is dominating pressure related to climate resilience on hydropower companies).

• Overall, there were no significant differences in how the various world regions responded to the survey.

Opportunities for further workWhile this survey is the first to examine the hydropower sector’s views on climate resilience from the company perspective, further research could examine how governments view this risk and how they are responding to it.

A likely next step among partners working in this space is to work toward hydropower sector guidelines for climate resilience. While the path toward this is not yet defined and agreed, any guidelines will need to be developed through a process that includes research, analysis, openness, transparency and consensus-building.

IHA, in conjunction with partner organisations, will continue to examine climate resilience in the hydropower sector, and will engage with international organisations such as the World Bank Group, the European Bank for Reconstruction and Development and others who are active in this space.

survey results...survey results: hydropower and climate resilience hydropower.org respondent...

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