Page 63 - AGL Sustainability Report 2011

This is a SEO version of AGL Sustainability Report 2011. Click here to view full version

« Previous Page Table of Contents Next Page »
Sustainability Performance Report 2011 61
Climate change risks
Climate change and climate change mitigation policies,
such as carbon pricing, bring a number of risks to AGL’s
operations and investment strategy.
Extreme weather events and changes in weather patterns present
risks to AGL’s business, in terms of physical impacts to energy
infrastructure as well as financial risks associated with changes in
energy demand.
Categories of climate change risk
Energy demand
Demand for electricity in Australia is correlated to both economic
growth and temperature. As the economy grows, so does demand
for energy. As temperatures rise, so too does the demand for
electricity because of higher utilisation of air conditioning. Wholesale
electricity prices at peak demand times can often increase by several
thousand percent. Electricity demand is likely to become peakier
with increased summer air conditioning load. Peakier characteristics
of the electricity sector require retailers and integrated energy
companies such as AGL to devote significant resources to
managing price volatility. AGL’s recent acquisitions and investments
demonstrate strategic efforts to manage price volatility. These
commercial risks are being managed by consistently updating
forecasts of energy demand based upon the latest temperature and
other weather data; and investing in assets that provide profitable
solutions, such as gas and hydro peaking generation and gas
storage capabilities.
Physical risks to infrastructure
AGL owns a number of power stations and gas production assets
in the eastern states of Australia. The risks to AGL include both
physical damage and reduced supply reliability. Physical damage
could result from extreme weather events and bushfires which may
reduce operating capacity. In turn, reduced supply reliability could
potentially impact AGL’s ability to cost-effectively supply retail
customers. AGL has examined the proximity of its assets
to coastlines and does not believe that sea level rise poses a
significant threat.
Water availability risks
AGL owns a number of hydro electricity generation assets. When
these assets were acquired, a key element of the due diligence
work undertaken involved long-term hydrology considerations.
AGL engaged experts in this field and considered the risks associated
with reduced rainfall and changes in rainfall patterns.
Regulatory risks
AGL has identified climate change, and the changing regulatory,
economic and social environment impacts associated with the
introduction of a carbon price, as a key risk.
AGL seeks to help its customers use energy more efficiently to
lower their energy costs and to reduce their own greenhouse gas
emission footprints. The Energy Services business unit provides
strategic consulting advice on climate change risks/opportunities
to customers, implements projects that reduce a customer’s
carbon footprint, and assists in managing exposure to increased
costs related to climate change policy responses. Preparatory work
undertaken in the latter half of last decade advising customers of
the need to understand energy efficiency opportunities is beginning
to lead to significant project opportunities. AGL has published
research for use by customers to understand their exposure to
carbon pricing impacts. This research has a ‘checklist’ for companies
to utilise to understand how carbon pricing will impact on their
bottom line. Working with customers in this way is critical to AGL’s
long-term success.
Actions taken in FY2011 to address climate change risks
Vulnerability assessment of electricity assets
AGL has continued to update physical vulnerability assessments
of critical infrastructure. This ongoing assessment is based on
key Australian publications by the Commonwealth Scientific and
Industrial Research Organisation (CSIRO) and Bureau of
Meteorology (BOM).
The CSIRO/BOM report in February 2010 concluded that:
Australia may become hotter in coming decades:
average temperatures could rise by between 0.6 and 1.5 ºC by
2030. Warming would be lower near the coast and in Tasmania
and higher in central and north-western Australia. These changes
would be experienced through an increase in the number of
hot days.
Much of Australia may become drier in coming decades:
Compared to the period 1981–2000, rainfall may decrease in
southern areas of Australia during winter, in southern and eastern
areas during spring, and in south-west Western Australia during
autumn. An increase in the number of dry days is expected across
the country, but it is likely that there will be an increase in intense
rainfall events in many areas.
The vulnerability assessment considered the potential risks emerging
from issues of water availability, interrupted access to market
through transmission being compromised and reliability of plant.
Potential opportunities were also evaluated, in particular the value
of peaking plant in meeting peakier electricity load at times of high
Project Carbon Price Implementation
In June 2011, AGL established Project Carbon Price Implementation.
This cross business unit project will ensure that AGL’s systems,
processes and business culture is prepared for the introduction
of carbon pricing from 1 July 2012.