Hurricane season is at its peak, but that hasn’t made the dramatic pictures of Hurricane Harvey and Irma any easier to digest. Hurricane Harvey was the first devastating cyclone to reach the USA at the end of August, slamming into Texas and the Gulf of Mexico. Hot on its heels is the current category-four storm, Irma, raging across Florida, Miami and parts of the Caribbean.  

In tandem with the recent hurricanes coming in from the Atlantic Ocean, monsoon rain has stuck northern parts of India, Bangladesh and Nepal, displacing tens of millions, with the International Federation of Red Cross and Red Crescent Societies (IFRC) estimating that at least 1,200 have subsequently lost their lives.

Meteorological experts have calculated that almost a week's worth of rainfall normally experienced during the summer season fell across parts of Bangladesh in the space of a few hours.

These recent events are examples of freak weather patterns and extreme storms impacting various regions across the globe. All have been catastrophic for the populations affected, but what have been the wider economical and societal affects?

Hurricane Harvey, USA

Harvey was the first major hurricane to make landfall in the USA, since Wilma in 2005. What hasn’t gone unnoticed is the fact that the storm struck at the heart of America's oil and gas industry, at one stage knocking a third of US production offline, forcing the closure of multiple refineries around the Gulf Coast and disrupting a number of major fuel pipelines.

Petrol prices increased in anticipation of the storm, with shortages reported at gas stations in Texas, and as far away as the UK.

Goldman Sachs, the multinational finance company, estimates that the hurricane is anticipated to become one of the costliest disasters in postwar US history. Sachs has reported that up to one percentage point of third-quarter GDP will be deducted from US economic growth as a result of the storm.

Monsoon floods, South East Asia

Villagers have described the recent rains across parts of Northern India, Bangladesh and Nepal as the ‘worst in living memory’.

UNICEF has estimated 31 million people have been affected by the floods, with a further eight million affected in Bangladesh and over one million in Nepal. Aid agencies have also stated that out of the 1,200 plus who have lost their lives, 30 to 40 per cent are children.

Such flooding is catastrophic for rural areas around the world. Whilst these areas are used to seasonal flooding, the impact of recent events is unprecedented, with cattle, homes, crops and food supplies wiped out in many cases. What’s more, reconstruction efforts invariably take longer in developing countries than in wealthier economies.

Hurricane Irma, USA

Making landfall on the first weekend of September, Irma has steadily caused destruction across the Caribbean, Florida and Miami. At the time of writing, over 68 people had lost their lives.

In Florida and the Gulf Coast, where winds reached over 135 mph, coastal waters rose up to 10 to 15 feet above normally dry land, inundating homes, businesses and roads.  Less than one week after the storm hit, authorities in Florida reported a $250 million spend against various recovery efforts.

Elsewhere, several Caribbean islands have been devastated, with insurance experts already estimating the cost at more than US$10bn (AED 36bn). The island of St Martin had more than 60 per cent of its homes ripped apart, with no electricity, gas or drinking water.

Climate change to blame

Scientists and climate experts have widely attributed the severity of the recent storms to climate change, arguing that the warming of both the ocean’s surface water and the world’s atmosphere are exacerbating extreme weather.

Climate change and resource scarcity will be issues in focus at Abu Dhabi Sustainability Week 2018. In January, we’ll be inviting world leaders, global experts and business leaders to further examine climate change and its impact on world communities, as well as the practical steps that can be taken to mitigate the effects of our warming planet.     

Latest big name in solar storage: Ikea teams up with solarcentury to sell homeowners solar battery packs

Speaking of big solar: India adds more solar capacity in the first half of 2017 than in all of 2016

This ingredient is key to unlocking clean energy: It’s innovation

The future is blockchain: Read up on how the likes of Bitcoin are going to impact several industries, from Airbnb to the decentralized grid

Are utility PPAs a thing of the past? Utility companies are increasingly looking to own renewable energy assets outright

We look forward to convening discussions on these topics and more at ADSW2018

LCOE has reached its limits 

We regularly read about new record lows for the Levelized Cost of Energy (LCOE); such as US$ 1.79 ct/kWh for solar photovoltaic (PV) projects in the Kingdom of Saudi Arabia or US$ 1.97 ct/kWh in India. Those who are more familiar with the subject know that these numbers sometimes represent the levelized cost of energy, and at other times they indicate the anticipated levelized revenues for the energy sold under the terms of an auction. If you dig deeper, you start to understand that this number is based on multiple assumptions: not only about Capex and Opex but also debt and equity levels, the cost and term of financing, the life time of the asset, availability, wind speed and solar irradiation, the period and method of depreciation, residual value, and the exchange rate. Where the number represents levelized revenues, you also need to factor in assumptions about how the offtake agreement is adjusted over time and what the market price for energy will be after this agreement expires.

With all these considerations in mind, you may wonder what the value is of an LCOE? Can you rely on the figure; or should you only trust LCOEs when they come from one source, because then at least you can compare one LCOE with another? Or is the LCOE about as insightful as the typical statement in a press release where the new owners proudly announce that their project will supply so and so many households with electricity?

Let’s take a step back and ask ourselves if cost per kWh is the right number to look at? Is the underlying assumption that every kWh has the same value correct? Can I use the LCOE index in a world where storage is becoming more and more prevalent? Batteries typically increase the LCOE, but perhaps these higher costs increase the value of the system at the same time? And if so, by how much?

We all like a method that allows us to compare different solutions and technologies in a simple way. As long as LCOEs are calculated using the right assumptions, then they provide a straightforward comparison. But we should be cautious. There is an old saying, “what gets measured gets done”. But is a low LCOE what we want to get done, or would we rather demand and supply are matched at the lowest possible cost? Do we want to have security of supply that is sustainable environmentally? If the answers to these three questions are ‘yes’, or even if it is ‘yes’ to just the first question, then we need to go beyond a simple LCOE number.
In future, we need to work with a “function” rather than with a single “index”. Our new Cost of Energy Function (COEF) needs to start by capturing the system cost of power generation, and then progressively show how this cost changes, typically increasing, if the generation (supply) profile is adjusted to a demand profile. The resulting curve may well end before full adaptation has been reached as this amount of flexibility may not be possible technically. The demand profile will be a new assumption that is factored into our equations. We may also need to accept that two demand profiles are necessary: one for summer daily demand, another for winter. We will also need to include whether we are considering a base load or a peak load generation source.

In addition to generation curves, we can construct demand curves that start with demand today. By creating two curves, we can show the cost of energy efficiency (how much investment would be needed to reduce energy consumption) and the cost of flexibility (how much it would cost to move the point in time when energy is consumed by 30 minutes or one hour, for example).

Moving from a LCOE index to a function is not an easy undertaking, and it may well progress in stages. The car industry currently measures gas consumption using different driving profiles, depending on whether it’s in the city, on country roads, or on the highway. Regardless of the question, if we use a function or a group of values that are profile-based, we need to ensure that we all mean the same thing. Here, an independent body or workgroup could play an important role in developing and codifying a workable framework: a framework that captures the complexity of demand and supply, that captures the value of storage, and that helps regulators to set policies because it measures what needs to be done.