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By John MillerVP and ESG Senior Research Analyst, Calvert Research and Management

Washington - Within the past six months, utility customers in California and Texas - the two most populous U.S. states - have experienced unprecedented levels of supply disruption and disconnection. Lives have been lost as a direct consequence. Parallels in the sequence of events leading to those widespread disconnections are striking and serve as a wider warning to critical electric, gas and water infrastructure globally. In all instances, damage is most acute in low income areas and communities dominated by people of color. This stratified punishment is unsustainable and set to accelerate trends toward environmental justice and increased equity in utility and energy outcomes.

Utility infrastructure at risk

In August 2020 and February 2021, extreme and sustained weather events covering an unprecedented geographic footing proved the weakness in current electrical system planning. In Texas, the primary grid operator had anticipated winter 2020-2021 demand to peak below 58 GW.1 On the evening of February 14, demand in Texas approached 70 GW due to extreme cold, snow and ice before the operator was forced to deliberately disconnect customers to protect the grid. California, which relies upon imports of electricity from a range of Western states to meet system demand, found those imports drastically reduced on key hours through August 13, 14 and 15, 2020, as a sustained heat wave blanketed not only California, but the bulk of its neighboring states.2

Both events, in addition to recent flooding in France, and extreme cold across Europe and North Asia, highlight the inherent weakness within utility planning processes, which are dependent on backward-looking risk assessment frameworks. While these models do identify risk, the proposed mitigation solution is often to simply build more legacy infrastructure. Having more natural gas-fired power plants in Texas that are unable to source fuel during a blizzard does not improve resiliency, just as having more transmission lines into California during a heat wave does not benefit the importer if there is no additional power to source.

Forward-looking model needed for risk mitigation

To meet challenges presented by climate change and a growing demand for electrification through the energy transition, public utility planning and investment must pivot to a forward-looking risk assessment model based on the concepts of resiliency and equity. Resiliency is multifaceted, with investment in deeper and wider system interconnections in addition to clearing cost barriers around decentralization, islanding and behind-the-meter technologies. Also included within resiliency is upgraded system awareness and hardening to prevent the freezing or melting of critical components during extreme weather.

Expanded resiliency efforts will fail unless deployed with a deliberate focus on equity and environmental justice. While corporations and affluent households have the resources to deploy many of the behind-the-meter and islanding technology discussed above, these resources are currently out of grasp for wide segments of society. This have-and-have-not structure is unsustainable and likely set for consideration through public policy and deliberate public utility investment. A focus on equity offers a win-win outcome which both protects utility customers from outages and simultaneously rapidly scales the addressable market for technology solutions providers.

Bottom line: The time for public utilities to prepare for extreme weather events is now. Making forward plans with a deliberate focus on resiliency and equity avoids unsustainable societal outcomes, aides in the acceleration of the energy transition and offers an appealing responsible investment opportunity.