Power demands in a hotter world
Few sectors illustrate the compounding effects of global heating more clearly than energy and power. At the broadest level, higher temperatures are reshaping when and where energy is required: while milder winters may reduce heating demands in some areas, longer and more intense summers will increase reliance on cooling elsewhere. But regardless of the trajectory, power systems around the globe will need to accommodate new patterns of demand, including greater volatility, and ever more acute peaks.
At the same time, the energy sector is increasingly exposed to the very conditions to which it must respond. These exposures can take various forms. Higher temperatures can reduce the efficiency of generation, transmission, and storage infrastructure, while drought and water scarcity can threaten access to cooling resources relied upon by conventional power stations and data centers. Flooding, storm surges, and wildfires also create additional risks for substations, transmission networks, and other critical infrastructure.
The consequences of this can be far-reaching. If demand outstrips supply, it can lead to blackouts or ‘brownouts’, which describe a partial drop in voltage. At one level, this can cause subsequent damage to energy infrastructure, including transformers and substations. But their effects also extend well beyond the utilities sector, causing potential disruption across a wide range of industries. For instance, manufacturing facilities may be forced to halt production, temperature-sensitive products can spoil, and digital infrastructure can be impaired.
Planning for an uncertain future
One of the greatest challenges facing the industry is that energy infrastructure is built for the long term. Power stations, transmission networks, and grid infrastructure are expected to operate for decades. As a result, decisions that are taken today are necessarily based on assumptions about climatic conditions that may look very different in 20, 50, or even 100 years’ time.
Flood risk illustrates this problem. Across many parts of the globe, climate change is expected to bring wetter seasons and higher water levels. Yet, once a site has been selected for a power station or a major energy facility, it often becomes too valuable and strategically important to abandon. For operators, this creates a difficult choice: whether to invest heavily in resilience against future conditions or accept greater exposure down the line.
This picture is further complicated by a lack of certainty around how, precisely, global heating will take shape. Although temperatures are set to increase overall, individual outcomes will vary. For instance, a weakening of the Gulf Stream – which brings warm water from the Gulf of Mexico into the North Atlantic – could drive more severe winters in the UK and parts of Europe, and exacerbate flood risks along the US East coast. Energy systems must therefore prepare for more than just the threat of heat alone. Severe storms, flooding, prolonged drought, and cold-weather extremes all have the potential to disrupt generation and transmission, often at the moments when demand is highest.
Climate-related uncertainty is increasingly influencing corporate decision-making. When forging business strategies and deploying major capital expenditure, business leaders must factor in the potential impact of extreme weather. Organizations are committing substantial funds for data centres, manufacturing facilities, and other critical infrastructure, often with investment horizons spanning decades. Failure to identify and adequately incorporate climate-related risks into these decisions can expose directors and senior executives to significant liability. For example, approving the construction of a manufacturing plant in a flood-prone area could lead to regulatory scrutiny or litigation if foreseeable climate risks were not properly assessed during the due diligence process. As extreme weather events exert greater pressure on operational resilience and business continuity, directors and officers (D&O) claims may arise from allegations of inadequate risk management and weak corporate governance.
The thirst for data
Comprised of densely packed servers and operating continuously, data centres require substantial amounts of electricity and cooling to maintain suitable operating temperatures. Although many rely on water-based cooling systems, a significant proportion of planned developments are located in regions already facing water stress.
In the US, an estimated two-thirds of upcoming data centres are set to be built in drought-affected areas. Meanwhile, more than a third of Europe’s 3,000 data centres are in areas facing high or extremely high water stress, when the demand for water exceeds the available amount during a certain period, with the UK also faces a similar scenario. This is creating a growing tension between digital expansion, electricity demand, and long-term resource availability.
In response, operators are increasingly investing in closed-loop and non-water-based cooling systems, though questions remain around whether existing models can scale to meet future demand.
Energy infrastructure under pressure
The question, then, is how effectively the energy sector can respond. Just as the consequences of global heating will vary, so regions differ in their preparedness for change. Existing hot climates, such as parts of Southern Europe, the Gulf, and Australia, often already possess infrastructure designed to cope with sustained summer demand. In contrast, regions historically associated with milder conditions may find existing energy networks increasingly strained as temperatures rise.
At the same time, developers are contending with growing challenges around location and resilience. In many markets, access to the electricity grid remains the single most important determinant of whether a project can proceed. As the most attractive sites are developed, new projects are increasingly pushed towards marginal locations, which inevitably carry greater exposure to flooding and other hazards. Developers once again face a key cost-benefit decision: between the price of new transmission infrastructure on the one hand, and climate adaptation on the other.
Temperature tolerance presents another challenge. Battery Energy Storage Systems (BESS) are expected to play an increasingly important role in supporting electricity grids and balancing renewable generation. But these projects are themselves vulnerable to extreme heat, being reliant on technology that operates only within defined temperature limits, typically up to a maximum of 45°C. In parts of the southern and western US, home to many such projects, temperatures are already approaching these thresholds.
Power stations, transmission networks, and grid infrastructure are expected to operate for decades.
At the same time, it is when temperatures are highest that demand for electricity is greatest. Ironically, therefore, energy infrastructure is placed under its greatest environmental stress at precisely the moment it is needed most. For operators, lenders, and insurers, this raises questions about long-term reliability, asset degradation, and whether assumptions underpinning warranties, contracts, and performance guarantees will remain valid over the lifespan of a project. Repeated exposure to extreme temperatures may reduce performance, accelerate wear, and, in some cases, invalidate protections altogether.
Temperature tolerance presents another challenge. Battery Energy Storage Systems (BESS) are expected to play an increasingly important role in supporting electricity grids and balancing renewable generation. But these projects are themselves vulnerable to extreme heat, being reliant on technology that operates only within defined temperature limits, typically up to a maximum of 45°C. In parts of the southern and western US, home to many such projects, temperatures are already approaching these thresholds.
At the same time, it is when temperatures are highest that demand for electricity is greatest. Ironically, therefore, energy infrastructure is placed under its greatest environmental stress at precisely the moment it is needed most. For operators, lenders, and insurers, this raises questions about long-term reliability, asset degradation, and whether assumptions underpinning warranties, contracts, and performance guarantees will remain valid over the lifespan of a project. Repeated exposure to extreme temperatures may reduce performance, accelerate wear, and, in some cases, invalidate protections altogether.