Climate Adaptation Unlocking Value Chains with the Power of Technology 2025

Energy systems power nearly every essential service in our modern societies. As with food systems, they are vulnerable to physical climate risks (extreme heat, cold, precipitation and wind) due to their reliance on immoveable, heavy assets and infrastructure such as power plants, grids and pipelines. Conventional energy sources will continue to play a part in electricity generation in the near future, but by 2050, solar and wind are projected to account for 60% of global electricity generation – a significant increase from just 13% in 2023. Electricity demand will continue to rise because of economic development, population growth and expanding electrification. According to the International Energy Agency (IEA), electricity demand surged by 6% in 2021, the largest increase in over a decade36 and is projected to nearly double by 2050. To meet this additional demand, electricity generation will need to increase by up to 92% by mid-century, driven largely by renewable energy sources such as solar and wind.37 Financial toll of climate change on energy systems In 2023, extreme weather events caused significant disruption to energy infrastructure. For example, the cost of meeting rising global demand for cooling systems during heatwaves climbed from $10 billion per annum in the 1990s to nearly $30 billion. At the same time, the output of hydropower has declined globally due to changing precipitation patterns and physical damage from extreme weather, costing around $18 billion annually to compensate for lost generation.38 Between 2000 and 2021, about 83% of the power outages reported in the US were attributed to weather-related events.39 For instance, during the winter storm in Texas in February 2010, nearly 10 million people lost power when the traditional energy infrastructure was unable to handle freezing temperatures. Despite efforts from utility companies and government agencies, restoring power took weeks, resulting in over $10 billion in insured losses and an estimated $80 to $130 billion in total economic impact.40 By 2050, physical climate risks could put up to 16% of yearly annual profits (EBITDA) at risk in the energy sector under a 3.0°C scenario.41 As climate impacts intensify, energy assets will face faster depreciation and loss of value, leading to supply disruptions, increased prices and added strain on global supply chains. As a result, the energy sector’s physical assets are estimated to be overvalued by 3-10% due to insufficient consideration of climate risks.42 In the US, annual costs from extreme weather- related power outages are projected to escalate, requiring a total of $500 billion in utility investments by 2050 to build resilience and mitigate potential disruption.43 Moreover, societal costs will rise significantly unless energy companies proactively address climate risks. Energy supply disruptions have cascading effects on essential services such as healthcare, emergency responses, transportation, communication and computing. Power outages put lives at risk, particularly for vulnerable populations such as the elderly or the ill. In US rural areas, where energy costs can account for up to 15% of household incomes,44 climate-driven increase of energy costs disproportionally burdens low-income families. Adaptation as a guardrail for energy systems On the other hand, the benefits of adaptation are substantial. Investments in climate-resilient infrastructure help energy companies withstand climate impacts, minimize disruptions, lower maintenance costs and ensure that energy systems work during crises. As a result, energy companies report perceived benefit-to-cost ratios ranging from 2:1 to 14:1 on their adaptation investments.45 Despite the clear financial and operational benefits of adaptation, the ability to implement these strategies varies significantly across the energy value chain. Many companies lack access to the data and capabilities required to deploy advanced technologies and enable efficient adaptation approaches. Without data to inform decision- making and optimize operations, even well- funded energy companies will struggle to deploy adaptation systems. Small energy companies, such as local utilities, face bigger challenges. These operators, essential to maintaining grid stability in rural and underserved areas, lack both the financial capacity and access to cutting-edge technologies, thus remaining vulnerable to climate risks. Technology to anchor adaptation in energy companies Energy systems are built on a complex network of public-private collaborations, involving stakeholders from resource providers and energy producers to distributors, storage managers and consumers.1.2 Energy systems By 2050, solar and wind are projected to account for 60% of global electricity generation – a significant increase from just 13% in 2023. Energy companies report perceived benefit-to-cost ratios ranging from 2:1 to 14:1 on their adaptation investments. Climate Adaptation: Unlocking Value Chains with the Power of Technology 18