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Utilities and adaptation

Utilities and climate change

This briefing note focuses on the utilities sector - electricity, gas and water - specifically the management of large or extensive assets and infrastructure. Climate change will increase the risks and costs associated with asset design, construction, performance, maintenance and value.

The Intergovernmental Panel on Climate Change (IPCC) states that floods tend to induce more physical damage to energy and water utilities’ infrastructure, whereas temperature changes affect operational aspects of utilities.

Legal considerations

  • There is a competitive energy market in the UK, which means that, ultimately, the availability of sufficient electricity and gas to meet demand is left to market forces. As a result, consumers generally have limited recourse against their supplier or the operator of the network to which they are connected in the event of disruptions to supply.
  • There are, however, statutory schemes that impose guaranteed and overall standards of performance on electricity and gas distributors, gas transporters and electricity and gas suppliers, which, if not met, can lead to set compensation payments being made to affected consumers. These schemes include standards for the time taken to restore lost power supplies and avoiding supply interruptions without sufficient notice. (See: Electricity (Standards of Performance) Regulations 1993, applying to electricity suppliers; Electricity (Standards of Performance) Regulations 2005, applying to electricity distributors; and the Gas (Standards of Performance) Regulations 2005, applying to gas transporters and suppliers.)
  • As a result of the interconnectivity of electricity and gas assets and infrastructure across the UK, industry participants are largely protected from claims against each other for consequential and most other losses following negligence and contract breach by standard limitation of liability clauses in industry documents (which generally restrict claims to property damage only).
  • Although water supplies are ultimately a natural resource, water undertakers are required (by the Water Industry Act 1991) to ‘develop and maintain an efficient and economical system of water supply’ and also ‘to ensure that all such arrangements have been made for providing supplies of water to premises within [their] area and for making such supplies available to persons who demand them’ as are necessary for ensuring continued compliance with their obligations under the relevant parts of that act. In particular, the Act places water undertakers under a duty to prepare and maintain water resource-management plans as to how they will manage and develop water resources.
  • These broad statutory obligations are given practical effect through minimum service standard protections for water consumers. Under a guaranteed service scheme, water and sewage companies are required to make compensation payments to affected consumers where specified service levels are not met, including loss of supply due to disconnection or drought, and internal and external sewage leaks due to flooding. (Water Supply and Sewerage Services (Customer Service Standards) Regulations 2008)
  • The Floods and Water Bill (a new bill proposed in 2008) aims to create a simpler and more effective regime for flood and coastal erosion management, and to improve the sustainability of water resources.

Companies Act 2006 - Requirements on corporations regarding the environment

As corporate entities, utilities are required to take account of all risks to business and are under a legal obligation to consider the environment when taking business decisions; see section on UK Companies Act 2006 (Financial briefing note).

Climate Change Act 2008 - Adaptation reports

The Climate Change Act 2008 gives the government the power to:

  • issue statutory guidance to certain organisations regarding the assessment of the impacts that climate change will have on certain of its functions and the preparation of proposals and policies for adapting to these impacts, and
  • require those organisations to prepare reports including such assessments, proposals and policies with regard to those functions.

While these measures are primarily aimed at public-sector organizations, they will also apply to gas transporters, water and sewage undertakers and those holding a licence to generate, transmit or distribute electricity.

According to Defra, the statutory guidance is likely to include:

  • background on adaptation to climate change and national policy on adaptation
  • general sources of advice and information, for example from the UK Climate Impacts Programme (UKCIP), and the Environment Agency
  • information on assessing risks and vulnerabilities, developing possible adaptation responses and evaluating progress
  • details about the expected scope of the report, and
  • the principles of sustainable development and the need to take into account risks and opportunities from climate change for the natural environment and social and economic wellbeing.

Water Framework Directive - Management of natural aquatic environments

The directive aims to improve and integrate the way water bodies are managed, by:

  • enhancing the status and preventing further deterioration of aquatic ecosystems and associated wetlands
  • promoting the sustainable use of water, and
  • reducing pollution, ensuring progressive reduction of groundwater pollution.

Although the directive deals mainly with the management and protection of natural water features and groundwater, there are some requirements regarding the economic analysis of water usage, including usage related to water abstraction for domestic and industrial purposes, and the identification and monitoring of waters from which drinking water is abstracted.

Civil Contingencies Act 2004 - Contingency planning for climate change

The Civil Contingencies Act 2004 includes provisions that certain organisations, including some utilities companies, assess possible emergencies that would affect their functions, and prepare and maintain plans to ensure that, in the case of such emergency, the organisation can continue to perform those functions.

These provisions apply to those holding licences for transmitting or distributing electricity or operating an electricity interconnector, gas transporters, water and sewage undertakers, and those providing public electronic communications networks. These utilities firms should consider the effects of climate change when formulating their plans under the Act.

Produced in association with Ecofys UK Ltd