Climate Risk in the US Electric Utility Sector: A Case Study

27 Pages Posted: 1 Apr 2019

Date Written: March 6, 2019

Abstract

We investigate the impacts of climate change on equity investments in US Electric Utilities by evaluating market reactions around extreme weather events. We hypothesize that investment risk from climate change is already present in the market and that extreme weather events evidence this risk through price and risk dislocations. From the geolocation of power plants, we build up the exposure of parent company securities to hurricanes, wildfires, floods, droughts and temperatures to arrive at a combined climate change exposure score. We find price reactions of up to 1.5% and rise in volatility of 6% in the 30-day period after a hurricane make landfall. We then determine the extreme weather exposure for each power plant location and aggregate these exposures to the publicly traded parent company for a climate risk exposure score.

Keywords: Climate Risk, Physical Risk, Extreme Weather Events, Utilities, Geolocation, Hurricanes, Wildfires, Floods, Droughts, Temperatures

JEL Classification: Q40, Q51, Q54

Suggested Citation

Bertolotti, Andre and Basu, Debarshi and Akallal, Kenza and Deese, Brian, Climate Risk in the US Electric Utility Sector: A Case Study (March 6, 2019). Available at SSRN: https://ssrn.com/abstract=3347746 or http://dx.doi.org/10.2139/ssrn.3347746

Andre Bertolotti

BlackRock, Inc

55 East 52nd Street
New York City, NY 10055
United States

Debarshi Basu

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Kenza Akallal (Contact Author)

BlackRock, Inc

55 East 52nd Street
New York City, NY 10055
United States

Brian Deese

BlackRock, Inc

55 East 52nd Street
New York City, NY 10055
United States

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