Reflecting on the Texas freeze: Why 'winterization' of assets matters | Insurance Business America
There’s a perception that climate change will only lead to more extreme heat events. But extreme cold is also a significant risk of the shifting climate.
Recent cold outbreaks in the US are sharp reminders of the damaging impact of snow, ice, and sub-zero temperatures.
Almost exactly two years after the historic deep freeze in Texas and the resulting power crisis, a cold snap left tens of thousands of homes and businesses in the state without power earlier this month.
At the same time, a blast of Arctic air blew deadly weather across north-eastern states and brought a record-breaking wind chill of -108 degrees Fahrenheit to New Hampshire’s Mount Washington.
Energy business must learn the lessons from the 2021 Texas deep freeze by rigorously “winterizing” their properties, according to Patrick Hauser (pictured), head of energy property North America at Swiss Re Corporate Solutions.
“The 2021 Texas freeze event was unique as it was triggered by a series of winter storms hitting a wide area within a short time, this led to extreme cold temperatures over an extended period and unforeseen high electricity demand,” Hauser told Insurance Business.
“The lack of winterization of power generation assets and fuel supply issues led to numerous generation outages – Texas and other south-central US states rely heavily on natural gas to meet peak electricity.
“The severe weather and power cut-off impacted natural gas producing, processing, and transporting infrastructure at the same time.”
Are states ready for another deep freeze event?
The 2021 Texas freeze event exposed the inability of the state’s energy supply chain to withstand extreme cold temperatures, according to the Federal Research Bank of Dallas.
Two years on, energy infrastructure remains hugely vulnerable despite new regulations, operational changes, and efforts to “winterize” the grid. Businesses that provide critical services to communities must find a way to harden themselves financially against extreme weather events, Hauser urged.
“It took 138 days for permanent power to be restored to Grand Isle, Louisiana after Hurricane Ida,” the Swiss Re executive said.
“The late January 2023 ice storm led to over 500,000 customers in the central US without power in the height of winter due to ice-laden tree limbs taking down powerlines, or powerlines themselves being overwhelmed by ice accumulation.”
But some improved outcomes have also shown that companies are learning important lessons from the 2021 Texas freeze event.
"The cold spell in December 2022 led to some forced outages, but a higher reserve margin helped to avoid widespread outages,” Hauser said.
How can businesses ‘winterize’ their energy generating assets?
The winterization of assets for power generation and natural gas production and transportation is key to reduce widespread damage in extreme winter weather.
“There is an interdependency between natural gas and electric reliability,” said Hauser. “Improved standards and coordination are important to prevent future widespread power outages.
“As we see extreme weather events occur more frequently, preparedness becomes critical, and businesses must consider both risk prevention and risk transfer.”
From a risk prevention standpoint, protecting just four types of power plant components from icing or freezing could have reduced outages by 67% within the Electric Reliability Council of Texas, or ERCOT during the 2021 deep freeze.
Fuel supply is a critical element of winterization planning. "Fuel issues account for roughly a third of outages or derates, which means regional transmission organizations must thoroughly assess their reserve margins of power capacity,” rather than the businesses themselves who are just consuming the power.
Diversifying energy generation assets and adapting new technologies such as battery energy storage systems can also have a positive impact on resilience.
And for risks that cannot be prevented, a robust insurance strategy could involve a combination of traditional and parametric products.
“Risk transfer is critical to jumpstart recovery efforts and a faster return to normal,” Hauser said.
Winterization will come at a cost for companies. In the energy industry, this cost will ultimately be reflected in consumers’ bills. Hauser advocated for a “considered” approach to bolstering and protecting energy infrastructure.
“It may not make economic sense, for example, to fully winterize southern plants or build them similar to plants in the northern states as implementing these cold-weather enhancements can reduce the plants’ efficiency during warmer seasons, which is the bulk of their use,” he said.
How can energy businesses “winterize” themselves amid climate change? Leave your thoughts in the comments below.