All posts in Energy

Small and young businesses disproportionately bear the costs of climate change

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Report provides eye-opening new insights into the demographics of commercial victims of climate change. Young firms, which comprise not only the lifeblood of many communities but are central to national economies, do not insure against what they consider to be less frequent, extreme events, and are therefore, disproportionately bearing the costs of the vagaries of weather resulting from climate change.

With the frequency and severity of extreme weather events and unseasonal weather increasing as a result of climate change, Weather & Economics has reported on the far-reaching effects to a wide range of sectors, including agriculture (particularly for farmers of citrus fruits, avocadoes, cocoa, viticulture, and cereals) as well as for the sectors of finance, sporting events, travel, transport, automobile parts, fashion and apparel, construction, food and beverages, and snow removal, to name but a few.

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Transformation of global power markets led by renewables

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In 2015, renewables surpassed coal to become the largest cumulative share of global power capacity, and this impressive growth will continue over the next five years. Despite lower fossil fuel prices, renewable power expanded at its fastest-ever rate in 2015. Enhanced policy support in key markets, technology improvements and sharp cost reductions all contributed to renewables now accounting for more than half of the world’s additional electricity capacity. Yet, wind and solar energy producers and distributors face unique challenges in both volumetric and price risks. The remarkable progress being made in renewables requires innovative risk mitigation solutions in order to ensure that the pace of investments continues.

The International Energy Agency (IEA) announced this week that renewables have now surpassed coal as the largest source of installed power capacity in the world. Renewable energy now represents more than half the new power capacity around the world, reaching a record 153 gigawatts (GW), 15% more than the previous year. Record additions in both onshore wind and solar photovoltaics (PV), include approximately a half million solar panels being installed every day around the world last year, and in China, two wind turbines installed every hour in 2015. Contributing to the growth of renewables has been the sharp decline in costs. Average global generation costs for new onshore wind farms fell by an estimated 30 percent in the last five years, and costs for large solar panel plants fell by two-thirds.

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Paradigm Change: The Weather is Manageable

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Historically, companies lost money as a result of the weather, sometimes a significant percentage of their profit margins, and it was generally accepted that there was little to nothing they could do about it. But recently, the outlook has changed, and there is an unprecedented increase in the number of companies who insure, or are about to insure, against the consequences of unfavourable weather. Long confined to the ranks of fate, the consequences of weather on a business’s profits are now manageable like all other risks. Many understand and welcome this development, while others struggle.

Over the last ten years, we have met many business leaders, treasurers, CFOs and marketing analysts seeking to better understand the vulnerability of their business to the daily vagaries of weather. In most cases, the a priori assumption was that whilst weather was affecting sales, production costs, yields, prices or results, it was an external factor not worth attention, investigation or the allocation of resources. Whether the agricultural sector, manufacturing, transport, tourism, retail, mining, or beverages, the conclusion was always the same: these companies had always lived with the weather, and accepted its effects, and there was no reason to change that.

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Measuring and Managing Weather Variability: Protecting Businesses from WeatherRisks

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Download the White Paper

A new white paper has been released today by the researchers of Meteo Protect exploring the impact of changes in weather to find the maximum potential loss caused by adverse weather for any business. This innovative approach allows risk managers to have a full understanding about the impact of daily deviations from expected or seasonal weather and to be able to evaluate, for the first time, the total extent of their exposure to the weather.  In turn, they may determine how much of this risk should be hedged in order to secure their sales and EBITDA, and to assess the changes they need to make to their operations and business practices to mitigate risks attributed to climate change.

Given the heightened attention to the effects of climate change on all sectors of society at the recent Cop21 climate conference in Paris at the end of the year, businesses are facing increased scrutiny of their contribution to climate change by governments needing to meet emissions targets. At the same time, the effects of climate change are already impacting business profits, and investors and shareholders alike are also applying pressure, demanding climate vulnerability assessments to study the weather risks to which the business in which they have invested is exposed, and how the company is mitigating these risks.

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