PCRAM uses new methods to help infrastructure stakeholders evaluate physical climate risks (PCRs) to infrastructure and analyze their long-term impact on asset performance. It is also novel in that it utilizes climate data providers, resilience practitioners, asset managers and investors to assess and quantify PCRs.
This four-step process is flexible for any asset type at any stage in development, in any ownership model and incorporates different performance indicators.
The first step identifies the key motivations and desired outputs behind the assessment and defines the scope of the work and the risk assessment, including climate hazards, relevant assets and components and the commercial/financial elements. This is followed by data collection.
The second step puts the collected data through a materiality assessment to determine if the PCRs are relative to the asset in question, based on the previously identified key performance indicators (KPIs).
A risk assessment develops a range of scenarios that can link climate change hazards to loss, increased maintenance, temporary or permanent downtime or a reduction in productivity.
If the PCRs are deemed to be material to the infrastructure asset, then the third step has specialist teams identify potential resilience options that can build resilience into the asset against these material risks.
The fourth and final step compares the benefits of the interventions with the costs of implementing them and the downsides of doing nothing, which will determine if there is a case for investing in resilience.
This will produce a set of “climate cases” that incorporate the impacts of PCRs on forecasted cash flows, which are compared to the set of “resilience cases” from step three that capture the costs and benefits of each resilience option. The two sets are then compared by analyzing changes in project internal rate of return and other KPIs, including total life cycle costs.
The methodology has been tested on real-world infrastructure assets, including a nearshore wind farm in Southeast Asia and a hydropower plant in Africa, and each case delivered a “resilience dividend,” according to a CCRI press release.
“We set out to create a framework that enables public and private sector infrastructure investors to assess their exposure to PCRs, quantify this exposure and improve their asset performance,” said Denise Bower, executive director at Mott MacDonald.
“Put simply, PCRAM presents a compelling business case for resilient investment, unlocking the finance needed to protect vulnerable communities from the impacts of climate change,” she continued. “PCRAM is a result of close collaboration that has brought together a wide range of disciplines, sectors and organizations. It is only through this way of thinking — systemwide, connected and collaborative — that we will meet the challenges posed by our changing climate.”