Electricity, water and telecoms assets are owned and operated separately, but they form an interconnected system. This means that the failure of one asset, for example in the event of a flood, can cause assets of other operators to fail. For example, electricity substations provide power to water and wastewater pumping stations and telephone exchanges; cooling water systems can be used to remove waste heat from telephone exchanges; and telephone lines are installed at electricity substations where a mobile telephone signal cannot be received.
Flooding can cause failures to utility assets, which can propagate through the system. This results in costs to asset operators as well as service interruptions and associated costs for customers. For example, the Environment Agency estimated that the total economic damage of the winter floods of 2015 and 2016 to asset operators (electricity and water) and their customers was more than £100m.1 Because of climate change, the likelihood of these potentially damaging floods is expected to increase over the next century.
CReDo can help address a key information barrier preventing investment in system resilience
Asset operators invest in their assets to ensure that they are resilient to climate change, including floods. Asset operators understand their own networks and, when deciding whether and how to invest in resilience, they take account of a number of factors. These include how critical each asset is for their networks and the financial resources they have available for resilience investment.
It is unlikely that asset operators have complete information on 1) the resilience of other operators’ assets on which their assets depend or 2) how critical their assets are for other operators. For these reasons, investment decisions may not be as cost effective across the system as they could be. For example, an asset operator may decide not to invest in a specific asset because it is not critical for its network, not knowing that it may be critical for another asset operator’s network. It may also decide to increase the resilience of one of the assets which is critical for its network, not knowing that the other asset operators’ assets on which its assets depend are already resilient. Hence, there is an information barrier that prevents asset operators from assessing the resilience of the whole system and making investment decisions accordingly.
The combination of a system-wide view of infrastructure resilience provided by CReDo and improved information management is expected to lower the information barrier. Frontier Economics was commissioned by CDBB to identify the expected impacts of CReDo and provide a simulation of the subset of potential social benefits related to flood resilience.