13 November 2023
Zurich Financial Services Australia (Zurich) and Mandala Partners (Mandala) today released Australia’s first Climate Risk Index for the national energy generation sector.
Utilising Zurich’s global exposure analysis capabilities, the report analyses the location of every energy generation asset across the country to form insights on the impact of climate to the grid under different Intergovernmental Panel on Climate Change (IPCC) scenarios.
The index – the first comprehensive, quantitative climate assessment of its kind for an entire critical infrastructure asset class – found that under a likely intermediate climate scenario that assumes two degrees Celsius of warming by 2041-2060:
- Currently more than a quarter of Australian energy generation is in the three highest climate risk categories;
- This is set to rise to around 35 per cent of generation capacity by 2050; and
- Nearly 40 per cent of generation assets will experience increased climate risk over this period.
Under a more extreme climate scenario that assumes four degrees Celsius of warming over the same period, 43 per cent of Australia’s generation capacity will fall in the three highest risk categories by 2050, including 11 per cent of generation in the highest risk category.
The analysis also reveals that risk varies significantly by geography and generation type.
Western Australia and the Northern Territory, whose electricity grids run separately from the National Electricity Market, are particularly vulnerable. Based on the Index, 96 per cent of generation in the NT is in the three highest risk categories, including 85 per cent of generation in risk category four. Similarly, WA and Tasmania were found to have 70 per cent and 52 per cent in the three highest risk categories, respectively. Across the eastern and southern States, the risks were relatively lower.
By generation type, solar power and natural gas face significantly higher climate risks than other generators. The index found that 95 per cent of dedicated solar generation sites – due to their susceptibility to perils such as storms and hail – and 54 per cent of natural gas plants were in one of the three highest risk categories. Other forms of renewable energy like wind and biogas/biomass sat alongside coal with relatively low risk.
Justin Delaney, Chief Executive Officer, Zurich Australia & New Zealand, said: “Australia’s energy generation assets underpin almost every aspect of economic and social interaction in the 21st century, however, much of the focus to date has centered on the risk of the energy grid to climate change, rather than on the risk of climate change to the grid.”
“Insurers are on the front line of risks relating to climate change, including natural disasters and extreme weather events. Undoubtedly therefore, the planet’s sustainability and actions to transition to renewable energy sources remain a critical priority.”
“This analysis hopefully represents a constructive input into achieving an appropriate and resilient energy transition. More broadly, it also serves to highlight the quantum of data and quality of insights that are now available to understand the prevailing risk environment so we can shape and prepare our collective response,” Mr Delaney said.
Adam Triggs, Partner, Mandala Partners, said: “This report reminds us that there is no part of our economy or society not impacted by the effects of climate change. Successfully navigating the energy transition is essential for our economy and our environment, but it will also be complex and uncomfortable.”
“As our report shows, our energy grid needs to be more resilient to climate events. Proper site selection and planning for new generation is critical given variability in hazard type and severity is significantly impacted by geography and topography. Beyond this, adaptation measures are also important for building resilience, particularly for existing sites.”
“Mandala is proud to have partnered with Zurich to produce this report, in what we see as an important contribution to the growing evidence base in how to support the energy transition and ensure it is as effective and efficient as possible,” Mr Triggs said.
A full version of the report is available at: https://www.zurich.com.au/content/dam/au-documents/news/the-mandala-zurich-climate-risk-index-assessing-the-risk-of-climate.pdf