Assessing climate risks and vulnerabilities of Albania’s energy sector 12 March 2009

1. Assessing climate risks and vulnerabilities of Albania’s energy sector 12 March 2009 Dr Richenda Connell Chief Technical Officer & Co-founder, Acclimatise

2. Overview of presentation • Aims of World Bank assignment • Introducing the team • Aims of 10 March workshop • Overview of climate change • Decision-making in the face of climate risks and uncertainties

3. Aims of World Bank assignment • Overall aims: to help support the development of robust energy sector policies and projects, in the face of changing climate risks • 10 March workshop: to help develop understanding of climate vulnerabilities and risks to Albania’s energy sector • Second workshop (April 2009): to help identify priorities for climate change adaptation and undertake rapid cost benefit analysis

4. Acclimatise • Acclimatise helps governments and businesses assess and manage the risks and opportunities of inevitable climate change by: • Bridging the gap between the scientific community and the corporate world, reviewing the latest climate change science, providing guidance on the potential business and financial impacts. • Working with our clients to understand direct and indirect climate change impacts for their strategies and business models.  • Assessing the implications for financial performance, as well as brand, reputation and litigation risk. • Advising on the climate change strategies being developed by our clients' key stakeholders, including governments, regulatory agencies, investors, banks, insurers, analysts and NGOs. • Advising on robust strategies to manage risks and uncertainties and realise business opportunities.

5. WorleyParsons WorleyParsons is a leading provider of professional services to the resource & energy sectors and complex process industries Infrastructure & Environment Complete solutions for the transportation, coastal & marine, water & wastewater, resources & energy, municipal and urban infrastructure sectors Power Renewable energy, clean coal, nuclear and natural gas generation, transmission networks and retrofit project solutions from pre-feasibility to asset operation and maintenance Hydrocarbons Full-scope global project delivery in deepwater, floating, subsea & conventional structures, topsides, onshore oil & gas, pipelines, LNG, and refining & petrochemicals Minerals & Metals Delivering comprehensive “mine to market” projects and solutions in base metals, alumina, aluminium, coal, iron ore, steel and chemicals across the world A range of services and technologies that profitably embed environmental, social and financial sustainability into all aspects of the project life-cycle.

6. Albanian experts • Prof Dr Eglantina Demiraj Bruci, National Project Coordinator, UNDP/GEF Climate Change Programme • Dr Besim Islami, Expert on Energy and Climate Change • Both are lead authors of Albania’s First and Second National Communication to the United Nations Framework Convention on Climate Change (UNFCCC)

7. Overview of 10 March workshop Working sessions discussed: • Overall context, objectives and strategies for Albania’s energy sector – for existing and planned future energy assets • Albanian experts’ experience of energy sector climatic vulnerabilities, sensitivities and critical performance thresholds • Albanian experts’ views of the risks posed by changing climate conditions

8. Overview of climate change Decision-making in the face of climate risks and uncertainties

9. Most escapes to outer space and cools the earth... SUN Sunlight passes through the atmosphere.. but some is trapped by water vapour, and keeps the earth warm enough for us infra-red “heat” radiation is given off by the earth and warms the earth. The natural greenhouse effect

10. The enhanced greenhouse effect Some escapes to outer space and cools the earth, . A NEW BALANCE IS ACHIEVED AT A HIGHER TEMPERATURE SUN Sunlight passes through the atmosphere.. but some is trapped by water vapour, and keeps the earth warm enough for us. But now, more is trapped by greenhouse gases, and heats the earth further, until… infra-red “heat” radiation is given off by the earth. and warms the earth;

11. Carbon dioxide concentrations in the atmosphere are higher now than at any time during the past 650,000 years Man-made emissions have already increased CO2 concentrations by 1/3 compared to pre-industrial levels By mid-century, concentrations are expected to be 2x pre-industrial levels Carbon dioxide levels are rising fast Source: IPCC

12. Climate is changing This map shows observed changes in physical and biological systems from 1970-2004 Source: IPCC

13. Inevitable climate change Climate change can not be stopped • Changes until about 2040 are already inevitable • Changes later in the century will depend on greenhouse gas emissions in the next couple of decades • We need both to reduce greenhouse gas emissions (‘mitigation’) and adapt to inevitable climate change • Adaptation strategies need to be robust to climate uncertainties Annual average global temperature increases to 2100 under different greenhouse gas emissions scenarios, relative to 1980-1999 baseline

14. Higher confidence Europe summer 2003: US$15bn economic losses, ca. 35,000 deaths Lower confidence Hurricane Katrina: US$40bn-60bn insured losses, ca. 2,000 deaths Assets designed based on historic climate data may no longer be robust • Increasing CO2 concentrations • Increasing temperatures over land and sea • Increasing risk of heat waves • Rising sea levels • Changing precipitation patterns - increasing drought and flood risks • Possible increasing storm intensities & storm surge heights

15. European summers like 2003 will be considered ‘normal’ by 2040 and ‘cool’ by 2060 Summer 2003

16. Climate change projections for Albania Annual increase in temperature: 1.0, 2.0 and 4.1°C by 2025, 2050 and 2100 Decrease in annual precipitation: 3%, 6% and 12% by 2025, 2050 and 2100 Decrease in summer precipitation: 10%, 22% and 42% by 2025, 2050 and 2100 [Source: E. Bruci]

17. Effects of climate change on space heating and space cooling energy demand in Shkoder region - Alternative energy scenario [Source Besim Islami]

18. Climate risks, uncertainties and decision-making There will always be natural climate variability Climate change trends will be superimposed on natural variability The effects of natural variability may dominate climate change effects for several decades • We need to make decisions that are robust to climate variability and future climate change • This is particularly important for long-lived assets, which need to perform for decades into the future Variability and trends in precipitation for Durres and Tirana (Source: E. Bruci, HMI, 2008)

19. Albanian power system (GWh) [Source Besim Islami]

20. “The World Bank Group will give considerable attention to strengthening resilience of economies and communities to increasing climate risks and adaptation… Adaptation will require more resilient infrastructure, broader disaster relief and preparedness measures, and new agricultural technologies and practices to counter increased climate risks.” European Commission: “Climate-proofing must be integrated into the Environmental Impact Assessment (EIA) Directive and the Strategic Environmental Assessment (SEA) Directive.” Investors: “To help investors analyse these risks, investors encourage companies to analyse and disclose material, physical effects that climate change may have on the company’s business and its operations, including their supply chain.” Banks: Starting to incorporate climate risk screening into credit risk assessments and due diligence processes Insurers are voicing their concerns – some now refuse to insure in vulnerable locations Stakeholders are concerned about climate change and adaptation

21. Changing climate risks can be incorporated into financial models Importance of cash flow forecasting Impact on profit of small % increase in operating costs Impact on profit of decrease in income No provision for unplanned additional investment Effect on investor confidence Cost & income pressures on free cash if climate risks are ignored

22. Climate risk management can be integrated into the asset lifecycle For new assets, changing climate risks should be considered at the ‘feasibility’ and ‘front end engineering design’ stages There may be low cost opportunities to build in resilience for climate change For existing assets, building in resilience for climate change should be considered as part of major refurbishments and upgrades

23. Key messages from 10 March workshop