July 15, 2022

Extreme Heat and Electricity Demand

A roundup of Summer 2022 at the midpoint

Clare Trinity, Climate Resilience Analyst

Record-breaking heat in Texas during the first half of July has strained the state’s power grid, putting millions across the state at risk of outages. Texas power has been in high demand this summer. An early-summer heat wave in June pushed power usage to an all-time record high and, on July 12, that record was broken again.

Just last year, however, record-breaking cold in February shut down power for 4.5 million Texans. Extreme temperature events are an example of changing weather patterns, as well as the risks associated with extreme temperature.

Right now in Texas:

  • Austin and San Antonio are experiencing their hottest summer on record (as measured in June-July-August).
  • Amidst record-high electricity demand, residents and businesses have been asked to voluntarily curb their power usage to conserve energy. Cutting power during the hottest hours of the day, turning up thermostats, and postponing the use of major appliances are primary methods for conservation.
  • Stagnant winds under the heat dome have left wind generation in the state at less than 10 percent capacity, making it difficult for the grid to keep up with power demand.
  • ERCOT, the state’s power grid operator, has initiated rarely used emergency measures to avoid blackouts.

Texas’ extreme heat fits into an unusually hot summer across several continents. Temperatures so far this summer have reached record levels in many places across North America, Europe, and Asia:

  • Japan experienced a national record high temperature of 104.4°F
  • Northern India saw temperatures rise past 110°F degrees.
  • In France, more than a dozen all-time heat records were set.
  • Rome recorded its highest temperature on record at 105°F.
  • In the United States, 113 new all-time high temperatures were set in the latter half of June.
Above-average heat covered much of the U.S during June 2022, with top-10 warmest Junes on record in several states. Texas experienced its fifth warmest June on record. Source: NOAA.

The National Oceanic and Atmospheric Association (NOAA) reported above-average June temperatures in most of the United States. In the mid-Atlantic region, the June heat was so extreme that schools closed. Businesses closed in other areas:

  • Restaurants in South Bend, Indiana shut down for the first time ever due to hot weather. Barb Court, the owner of Maxi’s Food & Spirits in South Bend, told reporters she was concerned about refrigeration and struggling with air conditioning. She made the decision to close for at least two days.
  • A heat wave in June disrupted restaurants in Madrid as scorching temperatures left tables empty in the capital city. Daniel Benito, manager of Terrazo Colon in the heart of Madrid, said that “June is one of the best months for us, so a heat wave right now is no good for business… It’s just impossible to plan and run a business with such extreme weather.”
  • Heat waves can make transportation dangerous, and Amtrak announced an extreme weather warning in the Northeast region that can lead to train delays if temperatures are too high. These service pauses are pricy: U.S. rail network delays will cost an estimated $20-$60 billion by 2100.

Climate change has altered the character of heat waves. Scientists estimate that global heat waves occur five times more often than they would without the effects of climate change. This effect is projected to intensify: by the 2040s, heat waves are projected to occur 12 times more frequently.

In the U.S., the average number of heat waves has tripled since the 1960s. In this period, the average number of heat waves increased in every decade, along with the length of individual heat waves, the average length of heat wave season, and the average temperature above the local threshold during heat waves. The average number of heatwaves jumped from two per year in the 1960s to six per year in the 2010s.

Heatwaves in the US between 1961 and 2019 have increased in frequency, duration, intensity, and length of heat wave season. Source: NOAA

Extreme heat strains electrical grids and raises out-of-pocket costs for residents and business owners. For business owners like Barb Court in Indiana, a heat wave can introduce difficult trade-offs between serving customers and paying bills.

  • In Texas, the state’s grid operator paid suppliers a high of $5,000 per megawatt hour to keep generators on and running through the current heat wave.
  • In June, electricity in areas like Chicago and Washington, D.C. reached their highest price since 2018.
  • Citing energy costs as a source of increasing inflation, Axios reported a 13.7% increase in electric prices from last June.
  • The U.S. Energy Information Administration projects a 5.5% total increase in 2022 U.S. residential electricity prices as compared to last year.
Rising energy costs, including gasoline prices, have contributed to growing inflation rates. Electric costs are up 13.7% from June of last year. Source: Axios.

Demex: Driving Resiliency for Extreme Heat

Demex focuses on building financial solutions for extreme weather events like heat waves. As weather patterns shift and the nature and frequency of extreme weather events change, Demex aims to help businesses become climate-resilient through reliable assessments of climate conditions, appraisal of climate risk, and climate risk management strategies.

Demex models climate conditions like extreme heat across client portfolios at the hyper-local level.

  • The Demex Climate Center, a free resource, presents trends and variability for weather conditions like extreme heat, cold, rainfall, and snowfall at locations across the world.
  • Demex clients receive more sophisticated and localized data analysis calibrated to each specific business or industry.
The Demex Climate Center’s map allows for quick visualization of locations with specific changing weather patterns. Source: Demex Climate Center

Demex assesses a client’s changing exposure to conditions like extreme heat. Then those exposures are calibrated to client financials. Demex appraises the dollar value at risk from extreme weather across a few scenarios. Baseline scenarios describe the observed impact across recent history then climate-adjusted scenarios demonstrate forward-looking risk. Climate Appraisals quantify the dollar impact of changing climate risk.

  • The Demex Solutions Center is a web-based platform for clients to interact with their climate assessment.
  • Assessments are customized and localized for each client.
  • Climate Risk Appraisals put a dollar value on extreme weather risks as linked to business performance.

Climate resilience becomes practical with risk transfer solutions that manage the appraised risks. Tech-enabled, data-driven, risk transfer is highly efficient, localized, and easy to implement. Programs like parametric insurance are fully customizable with automated claims processes.

  • Demex’s empowered insurance products are tied to a weather parameter of interest, e.g. temperature. Claims are automatically triggered at a pre-defined temperature threshold, and claims are often calculated per unit of measurement (e.g. per degree) up to the policy limit.
  • In response to the February 2021 cold snap that cost an estimated $20.8 billion in economic damages across the Great Plains and Texas, Demex developed embedded parametric extreme temperature insurance with partner Vave for commercial properties across the U.S. When temperatures reach extreme high or low measurements, these policies automatically trigger claims for policyholders, protecting them from potential losses.
  • “The addition of Demex parametric weather cover to the Vave Commercial Property Product will give small businesses increased peace of mind that they can continue to operate following extreme weather. Our collaboration with Demex continues the Vave tradition of finding innovative ways to offer consumers enhanced coverage,” said Vave Head of Product Robert Porter.

Demex’s climate risk products have been developed to meet clients’ range of needs. We aim to deliver climate resilience at scale, so that clients understand their risks in the face of extreme weather events, and policyholders can be appropriately compensated for potential losses in the wake of the same extreme weather events.

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