Solar Storm Could Cause $330 Billion Loss by University of Cambridge & AIG

H/T Artemis

Helios Solar Storm – Stress Test Scenario – Executive Summary

The study of solar eruptive phenomena has progressed over the centuries from scholarly recordings of astronomical events, such as sunspots, to advanced modelling of how solar activity may drive geophysical planetary responses, e.g., geomagnetic disturbances. However, there is still a great deal of uncertainty around the potential economic impacts of extreme space weather on modern society.

In this report, we provide a catastrophe scenario for a US-wide power system collapse that is caused by an extreme space weather event affecting Earth: the Helios Solar Storm Scenario.

This scenario is a stress test for managers and policymakers. Stress tests are important for understanding risk exposure across a spectrum of extreme systemic shocks such as those proposed in the Cambridge Taxonomy of Threats, which encompasses a dozen major classes of catastrophes. A suite of scenarios can be used as a basis for calibrating an organisation’s inherent risk, vulnerability and resilience.

Helios Solar Storm Scenario

This scenario describes how an extreme space weather event can cause direct damage and indirect debilitation of high voltage transmission grids in the USA, resulting in power blackouts along with consequential insurance claims and economic losses. Over the past decade, there have been a number of analyses of the potential effects of extreme space weather on the electricity transmission network. This report adds to this literature by providing a transparent economic analysis of the potential costs associated with such an event.

We estimate a range of US insurance industry losses resulting from three variants of the scenario which explore different damage distributions and restoration periods, culminating in losses between $55.0 and $333.7 billion. At the low end, this is roughly double the insurance payouts of either Hurricane Katrina or Superstorm Sandy, and similar to the total insured losses from all catastrophes in 2015.

Overall economic losses are evaluated from two perspectives. First, we estimate global supply chain disruption footprints that stem from suspended business and production activity directly caused by power outages in the US. This perspective provided a detailed industry sector breakdown of potential economic losses but does not account for the dynamic response of the economy. Global supply chain disruptions are conservatively estimated to range from $0.5 to $2.7 trillion across the three scenario variants.

Second we employ a global integrated economic model to estimate losses in global GDP over a five year period relative to a baseline projection – our standard loss metric referred to as [email protected] Importantly, this perspective accounts for post-catastrophe dynamic responses in the global economy, including, for example, changes in monetary policy. For this reason our [email protected] estimates are lower than our estimated static losses from supply chain disruptions. The Helios Solar Storm has a global [email protected] ranging from $140 to $613 billion across the three scenario variants (representing between 0.15% and 0.7% of global GDP over the projected five year period).

Selection of a space weather scenario as a disruptor of infrastructure

Anomalous behaviour of US telegraph operations in the mid-1800s, especially during the 1859 Carrington Event, brought about the recognition that solar activity can affect human technology.

Although extreme space weather events include a variety of phenomena like Solar Particle Events (SPEs) and bursts of electromagnetic radiation from solar flares, it is very fast Carrington-sized Coronal Mass Ejections (CMEs) which are mostly associated with the geomagnetic disturbances (GMDs) that are severe enough to cause power grid failure. A severe CME has the potential to generate geomagnetically induced currents (GICs) that could cause permanent damage to Extra High Voltage (EHV) transformers. Such high value assets are not easy to procure and replace in the short-term.

Failure in these critical assets could cause system-wide instability issues leading to cascading failure across the electricity system, passed on to other critical interdependent infrastructures such as  transportation, digital communications and our vital public health systems. This disruption could also cause considerable
disruption to business activities.

Our impact analysis is underpinned by some key methodological contributions which include deriving bottom- up, state-level restoration curves, which show how long it takes to restore the supply of electricity after the extreme space weather event, based on key risk factors including geomagnetic latitude and deep-earth ground conductivity.

Disruptions in electricity supply are mapped to state-level industrial output by industrial sector, and are aggregated to the US national level. This yields direct economic loss estimates that are then fed into a global multi-regional economic input-output model to assess domestic and international supply chain disruptions. These estimates are themselves a basis for applying a dynamic economic equilibrium model to gauge how the USA and its trading partners recover from this shock over time.

Variants of the scenario

The Helios Solar Storm Scenario depicts a geomagnetic disturbance that generates GICs capable of damaging or even destroying EHV transformers. Through direct damage and indirect debilitation of the power grid, an extreme space weather event can cause immediate blackouts, leading to insurance payouts and supply chain interruptions. For the purposes of this report we only account for the impact directly on the USA and indirectly on major trading partners.

Beyond appealing to the scientific and industrial literature, the scope of the extreme space weather event and its expected consequences are based on workshops and interviews with subject matter specialists in space physics, economics, catastrophe modelling, actuarial science, and law; insurance specialists in property, casualty and space insurance; and key representatives from utility companies, government agencies, industry bodies, and engineering consultancies. However, the analysis and determination of impacts is our own and does not imply endorsement of these views by the specialists consulted.

This report proposes three scenario variants (S1, S2 & X1) to span the evidence and expert opinion on electrical damage inflicted by extreme space weather. The S1 variant is considered our basic or baseline scenario. It involves limited damage to EHV transformers in the US, with only 5% of those units suffering any damage, and restoration periods of moderate length. S1 represents an optimistic view that a massive geomagnetic storm would cause limited damage due to an initial grid collapse. This would isolate any further damage to the transmission network, allowing the grid to be re-started after the storm passes. The S2 variant assumes greater damage levels but similar restoration times, reflecting uncertainty about how much damage the components of a power grid might be exposed to in extremis. The X1 scenario is deliberately extreme, and reflects the Kappenman (2010) perspective, with similar damage levels to the S2 scenario but with longer restoration periods.2 The scenario is used to explore the upper bound for the economic and insurance loss estimates. Indeed, this is considered by some to reflect an overly pessimistic view of vulnerability of the electricity transmission system to GICs. Opponents of this perspective do not necessarily disagree with the long replacement times for damaged EHV transformers, but instead disagree with the severity of the damage distribution to the assets themselves.

This is a stress test, not a prediction

This report is one of a series of stress test scenarios that have been developed by the University of Cambridge Centre for Risk Studies to explore management processes for dealing with extreme shocks. It does not predict when a catastrophe may unfold. Indeed, it does

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