The physical climate scenario

Among the climate projections developed by the IPCC on a global scale, the Group has selected three representing a specific level of emissions connected with the so-called Representative Concentration Pathway (RCP):

Scenario Average temperature increase compared with pre-industrial levels (1850-1900)
RCP 2.6 ~ +1.5 °C by 2100 (the IPCC estimates a 78% probability of staying below +2 °C).(1) This scenario is used by the Group to assess physical phenomena and perform analyses that consider an energy transition consistent with ambitious mitigation objectives
RCP 4.5 ~ +2.4 °C by 2100. This scenario has been identified by Enel as the most appropriate representation of the current global climate and political context and consistent with the temperature increase estimates that consider current policies announced globally(2)
RCP 8.5 ~ +4.3 °C by 2100. Compatible with a worst case scenario where no particular measures to combat climate change are implemented

(1) IPCC Fifth Assessment Report, Working Group 1, “Long-term Climate Change: Projections, Commitments and Irreversibility”.
(2) Climate Action Tracker Thermometer, estimates of global heating at 2100 considering existing “pledges & targets” (December 2020 update).

In the RCP 8.5 climate projections, the Mediterranean and Central/South America will experience an impact in terms of an increase in average temperatures and a decline in precipitation. These effects will probably become more pronounced in the 2nd Half of the century, with the impact increasing up to 2100. In the RCP 2.6 scenario, the effects will be similar but less intense, with the trend slowing in the 2nd Half of the century, thereby producing a substantial differential between the two scenarios by 2100.

The climate scenarios are global in nature. Accordingly, in order to determine their effects in the areas of relevance for the Group, a collaborative initiative has been started with the Earth Sciences department of the International Centre for Theoretical Physics (ICTP) of Trieste. As part of this collaboration, the ICTP provides projections for the major climate variables with a grid resolution varying from about 12 km2 to about 100 km2 and a forecast horizon running from 2030 to 2050. The main variables are temperature, rainfall and snowfall and solar radiation. Compared with the analysis conducted in 2019, the current study is no longer based on the use of a single regional climate model (that developed by the ICTP) but rather on the union of three models, selected as being representative of the ensemble of climate models currently available in the literature. This technique is usually used in the scientific community to obtain a more robust and bias-free analysis, mediating the different assumptions that could characterize the single model.
In 2020, future projections were analyzed for Italy, Spain and Brazil, obtaining – thanks to the use of the set of models – a more highly defined representation of the physical scenario.
The analyses carried out for the physical scenarios considered both chronic and acute phenomena. Some of these phenomena require an additional level of complexity, as they depend not only on climate trends but also on the specific characteristics of the territory and require further modeling to obtain a high resolution representation. For this reason, in addition to the climate scenarios provided by ICTP, the Group also uses natural hazard maps.
This tool makes it possible to obtain, with a high spatial resolution, recurrence intervals for a series of events, such as storms, hurricanes and floods. As described in the section “Strategic risks and opportunities connected with climate change”, this tool is widely used within the Group, which already uses historical data to optimize insurance strategies. In addition, work is under way to be able to take advantage of this information developed in accordance with climate scenario projections.

Italy

Acute phenomena: heat waves were defined in collaboration with the ICTP and Infrastructure and Networks to obtain the most appropriate description of the climate phenomenon for characterizing this critical event for the business. The conditions identified (persistence of high temperatures for at least five consecutive days with no precipitation)

AVERAGE NUMBER OF HIGH TEMPERATURE DAYS IN THE VARIOUS RCP SCENARIOS COMPARED WITH HISTORIC VALUES (1990-2017)

 

were sought in the projections to 2030-2050 provided by the ICTP, finding an increase in both the frequency and geographical distribution of such events in all the scenarios analyzed. In particular, there was a significant deterioration in the RCP 8.5 scenario, especially in the islands and in the southern regions of the country.

In such scenarios, the intensity of rainfall and extreme snowfall will increase, but their frequency will decline compared with historical data.
Fire risk can also be affected by climate change. The Group has analyzed it using the Fire Weather Index (FWI), which takes account of factors such as relative humidity, precipitation, wind speed and temperature. Days at extreme risk(1) were selected in the 2030-2050 period and compared with those in the 1990-2010 period. In all the scenarios analyzed, the number of days at extreme risk increases compared with historical levels, with different intensities at the geographical level. In some regions, the RCP 2.6 scenario shows a slightly higher number of extreme risk days than the other scenarios (RCP 4.5 and RCP 8.5) due to factors such as lower humidity, contributing to the fire risk assessment.

Chronic phenomena: the average annual temperature is expected to increase over the 2030-2050 period in all scenarios analyzed. In particular, an average temperature increase of around 1.4 °C is expected in 2030-2050 compared with the pre-industrial period, falling with a range of between 1.1-2.0 °C for the RCP 8.5 scenario. In the RCP 4.5 scenario, on the other hand, an increase of between 1.0-1.7 °C is expected with an average value of about 1.3 °C, while for the RCP 2.6 scenario the interval is 0.9-1.5 °C with an average value of around1.2 °C. The differential between the RCP 2.6 scenario and the RCP 4.5 and 8.5 scenarios will grow significantly in the 2nd Half of the century. Chronic temperature changes can be analyzed to obtain information about the potential effects on the cooling and heating demand of local energy systems. The indicators used to measure the thermal requirement are Heating Degree Days (HDDs), i.e. the sum, for all days of the year with a Taverage ≤ 15 °C, of the differences between the internal temperature (with Tinternal assumed to be 18 °C) and the average temperature, and Cooling Degree Days (CDDs), i.e. the sum, for all days of the year with Taverage ≥ 24 °C, of the differences between the Taverage and the Tinternal (assumed to be 21 °C), respectively, for heating and cooling requirements. In 2030-2050, the heating requirement is expected to decrease by 17% compared with 1990-2017, which is constant in all scenarios, while CDDs are always greater than historical data, with an increasing trend going from the RCP 2.6 scenario (+55%) to RPC 8.5 (+91%).

Note that compared with the analysis performed in 2019, the RCP 4.5 scenario was introduced and the ensemble of several models was used as a database, as described above. In addition, to give greater weight to the most populated areas, HDDs and CDDs were calculated as an average over the country, weighting each geographical node by population thanks to the use of the Shared Socioeconomic Pathways (SSPs) associated with each scenario.

Spain

Acute phenomena: over the 2030-2050 period, heat waves are expected to increase appreciably in frequency, with their geographical spread expected to expand, especially in the southern area of the country. Extreme rainfall will increase in intensity but its frequency will decline. At the same time, extreme snowfalls will largely remain located in the current geographical areas but their frequency and intensity could decline sharply. As regards fire risk, the number of days at extreme risk is higher in the RCP 8.5 scenario than in the RCP 2.6 scenario, and is always greater than the historical average.

Chronic phenomena: the average annual temperature is expected to increase over the 2030-2050 period, with increases in all RCP scenarios considered. In particular, average temperature is expected to increase by about 1.4 °C compared with the pre-industrial period (within a range of between 1.2 and 1.8 °C) for the RCP 8.5 scenario. In the RCP 4.5 scenario, the average increase is forecast to be about 1.2 °C (in an interval of between 1.0 and 1.5 °C), while for the RCP 2.6 scenario the average increase is expected to be around 1 °C (in an interval of between 0.8 and 1.3 °C). The differential between the RCP 2.6 scenario and the RCP 4.5 and 8.5 scenarios grows significantly in the 2nd Half of the century. In terms of Heating Degree Days (HDDs) and Cooling Degree Days (CDDs), we expect a reduction of 13% in HDDs in 2030-2050 compared with 1990-2017 and an increase of 41% in CDDs in the RCP 2.6 scenario, and changes of -17% and +64% in HDDs and CDDs, respectively, in the RCP 8.5 scenario.

Brazil

Acute phenomena: the trend in acute phenomena in very large countries such as Brazil can differ significantly in the various areas of the country. Our analyses focus on the areas of interest for the Group. For example, the first studies carried out for the state of São Paulo show an increase in heat waves. In Brazil, climate projections point to a larger average reduction in precipitation in the north, with extreme phenomena to be explored on the local scale. According to the initial analyses, the number of days at extreme fire risk are projected to increase in both the RCP 8.5 scenario and the RCP 2.6 scenario compared with the historical average, with the most critical differences coming in the center-west and north-east areas of the country. As with precipitation, fire risk will also need to be investigated further on the local scale based on the needs of the Group. Note that these conclusions are the result of analyses carried out using a single climate model, not an ensemble of multiple models, as was done for Italy and Spain.

Chronic phenomena: the average annual temperature in the 2030-2050 period is expected to rise from pre-industrial levels in each scenario. More specifically, average temperature is expected to increase by about 1.6 °C in 2030-2050 compared with 1850-1900 (within a range of between 1.2 and 2.1 °C) for the RCP 8.5 scenario. In the RCP 4.5 scenario, the average increase is forecast to be around 1.3 °C (within an interval of between 1.0 and 1.7 °C), while for the RCP 2.6 scenario the average increase is expected to be about 1.1 °C (within a range of between 0.8 and 1.4 °C). In terms of Heating Degree Days (HDDs) and Cooling Degree Days (CDDs), HDDs decrease by 7% and CDDs increase by 13% in 2030-2050 compared with 1990-2017 in the RCP 2.6 scenario, while changes in HDDs and CDDs in the RCP 8.5 scenario come to -27% and +31%, respectively.

The transition scenario

The transition scenario refers to the description of how energy production and consumption evolve in the various sectors in an economic, social and regulatory context consistent with different greenhouse gas (GHG) emission trends correlated with RCP climate scenarios.

As for the global horizon, the literature contains abundant publications produced by institutions, international organizations and private companies. The panorama is varied and presents scenarios, sometimes from the same provider, which cover most of the spectrum delineated by the potential temperature increase linked to the different RCP trajectories: each scenario is associated, more or less strictly, with a specific RCP and consequently with a range of temperature increase.
The scenarios can be divided into two macro-categories: those that, in accordance with the Paris Agreement, seek to limit the temperature increase compared with the pre-industrial period to less than 2 °C, and those that describe developments in systems that will lead to higher temperatures. In general, a systematic analysis of the different sources found that the response to the most challenging scenarios for climate change mitigation efforts involves the strong penetration of decarbonized electricity.

Global transition scenarios to 2040-2050 and temperature increase

The available evidence, including the scenarios developed by the leading global agencies, indicates that the policies implemented by governments around the world are currently not sufficient to achieve the Paris objectives.(2) The most likely global climate pathway under existing policies, i.e. those declared by individual countries, is a RCP 4.5 scenario lying between RCP 2.6 and 8.5. Although it is a less ambitious path than the RCP 2.6, it is consistent with the policies approved or announced and which are unlikely to be disregarded.

The transition scenarios used by the Group globally are the result of the benchmark analysis of external scenarios and currently known policy objectives. For the main countries in which it operates, the Group develops consistent transition scenarios using system energy models. Where internal models are not available, risks and opportunities are assessed through the analysis of scenarios produced by third parties, as described above.
The main assumptions considered in developing the transition scenarios concern:

  • local policies and regulatory measures to combat climate change, such as measures to reduce carbon dioxide emissions, increase energy efficiency, decarbonize the electricity sector and reduce oil consumption;
  • the global macroeconomic and energy context (for example, gross domestic product, population and commodity prices), considering international benchmarks including those produced by the International Energy Agency (IEA), Bloomberg New Energy Finance (BNEF), the International Institute for Applied Systems Analysis (IIASA) and others. As regards the IIASA, for example, we have considered the fundamentals of commodity demand and the population underlying the “Shared Socioeconomic Pathways (SSPs)”, which project different scenarios describing socioeconomic developments and policies consistent with climate scenarios. The information from the SSPs is used, together with the internal modeling, to support long-term forecasts, such as those for commodity prices and electricity demand;
  • the evolution of energy production, conversion and consumption technologies, both in terms of technical operating parameters and costs.

On the basis of the framework described, the transition scenario framework with which the Group conducted the impact analyses relating to the risks and opportunities inherent in climate change envisages two scenarios: an “inertial” (Reference) scenario, constructed mainly on the basis of existing or announced policies and specific internal assumptions for the evolution of individual variables, and a more ambitious scenario (Brighter Future), consistent with the achievement of the Paris objectives, which presupposes more stringent targets for reducing carbon dioxide emissions or increasing energy efficiency, as well as a possible acceleration in the reduction of the costs of certain technologies. This second case assumes incremental growth in renewable generation and greater demand for electricity due to the greater electrification of final consumption, mainly driven by more ambitious objectives in terms of energy efficiency and decarbonization.
Of course, if the countries with the highest emissions do not adopt effective decarbonization policies, remaining on inertial or deteriorating paths, any particularly ambitious transition trajectories defined at the local level could coexist with climate change scenarios that are worse than the Paris scenarios. In fact, the ambitions of individual countries for mitigation actions are not sufficient on their own to determine the long-term trajectories of emissions and the consequent RCP pathways.
To develop the transition scenarios for the countries under analysis, the Group has equipped itself with quantitative tools that, given the assumptions regarding the evolution of policies, technologies and other contextual variables, produce the corresponding projections for energy demand, electricity demand, electricity production, penetration of renewables, electric vehicles, etc. In other words, all the relevant variables that characterize a national energy system with respect to the Group’s activities.

Once the medium/long-term transition scenarios have been determined, the scenario framework makes it possible to conduct analyses of the longer-term chronic physical effects determined locally by the climate pathways considered. One example is the analysis of the impact of the change in temperature on electricity demand. For this purpose, the Reference and Brighter Future scenarios for Italy and Spain have been supplemented with the Heating Degree Days and Cooling Degree Days under RCP 4.5 and RCP 2.6 respectively. It was thus possible to quantify the effect that the change in temperature will have on energy demand (total, not just electricity) for cooling and heating in the residential and commercial sectors. The time horizon of the analysis is 2030-2050, where the current policies of the European Union connected with the carbon neutrality objective, in both the Reference and Brighter Future scenarios, converge towards decarbonized and electrified energy systems in 2050.

The use of integrated energy system models makes it possible to quantify the individual service demand of a country. This level of detail therefore makes it possible to discriminate the specific effects that a change in temperature can have on energy requirements. Considering the entire time horizon analyzed, the greater speed of the Brighter Future scenario in achieving carbon neutrality makes it more efficient and electrified than the Reference scenario. This difference in the speed of the transition leads to an average increase of between 3% and 4% in electricity demand in the Brighter Future scenario compared with the Reference scenario in the 2030-2050 period. When the effect of temperature is also considered and the differences between the two scenarios associated with RCP 4.5 and 2.6 are analyzed, the average increase in electricity demand is less than 1% in both the Reference and Brighter Future scenarios. In the most extreme years, this impact can reach 2%. Considering the integrated view, the potential effect of more ambitious transition scenarios has a more significant impact on electricity demand than the increase in temperature resulting from climate change.

In order to investigate the effect of temperature on transition scenarios further and at the same time expand the range of assumptions regarding climate change, a sensitivity analysis was carried out by associating the Reference scenario with RCP 8.5, in addition to RCP 4.5. Assuming this additional increase in temperature, with the same energy transition, leads to an increase of less than 1% in demand in the RCP 8.5 Reference scenario compared with the RCP 4.5 Reference scenario.

Average impact on electricity demand (2030-2050) comparing RCP 2.6 and RCP 4.5

While on the one hand the trends in degree days are similar, the substantial difference between Italy and Spain concerns the energy system in 2030. For the latter, in fact, the Reference scenario is very similar to the Brighter Future scenario, in line with the national energy plan, which is already very challenging. It follows that the temperature effect between RCP 2.6 and 4.5 remains small as with Italy, less than 1% and in the same direction, and the transition effect is negligible.(3)

While the role of temperature is small for Italy and Spain, Brazil, another country of particular interest for the Group, could experience a more marked increase in demand in response to the increase in temperature, equal to a few percentage points of total demand. This would be driven by the higher cooling demand expected in the country. However, these estimates are subject to a significant degree of uncertainty, given the significant volatility of Brazilian economic growth.

(1) The value of the FWI considered to identify extreme risk days is based on an analysis of historical data and information provided by the European Forest Fire Information System (EFFIS).
(2) Consider for example “UNEP Emissions Gap Report 2020” and “IEA World Energy Outlook 2020”.
(3) Significant electrification of heating in the residential sector in future years could change the sign and order of magnitude of the climate change effect for both Italy and Spain.