The Financial Times has published an opinion piece reflecting on how natural disasters, made worse by climate change, are making once-safe investments in utilities much less attractive.

As the piece states, consumer power prices “are set by regulators with the aim of producing solid returns”, but climate disasters “risk becoming annual events that dictate expensive remediation and retrofitting” that may be “beyond the capacity of any private business”. Following the tragic Maui wildfires that devastated the town of Lāhainā (resulting in at least 115 deaths and many hundreds more missing as of the time of writing), the share price of Hawaiian Electric Industries has fallen 70%, presumably on the expectation of major payouts to come.

Recent precedents have been set. Northern Californian utility PG&E made a US$13.5 billion settlement in 2019 related to four major fires between 2015-2018, in which the utility’s own equipment was found to have contributed to the disaster; half of the settlement came in the form of shares in PG&E. PacifiCorp, active in California, Washington and Oregon, recently lost a legal case related to a fire in 2020, as did Xcel Energy, which operates in Colorado, and both are expected to have to pay substantial settlements. The damage to human life and the natural world are the chief concern in all of these fires, yet the costs associated with legal damages and restoration also present significant issues.

Power seems set to become more expensive, in a direct way because of these costs, but also in that financing may become more costly because of higher risks, while more stringent asset assessments and maintenance practices may also be required. Unfortunately, utilities are probably only at the beginning of facing these issues.