The most significant challenge facing power companies

The transformation of core activities of power companies towards an efficient reaction to climate risk should be classified as the most significant challenge facing power companies. Thus, power companies have to work out a long-term approach to re-designing their operational activity securing both, physical assets responsible for the continuity of their operations, and hedging future profits against transition risk. The manifestation of physical risk destroys fixed assets as a result of floods, hurricanes, fires and droughts that limit the production possibilities of hydroelectric plants. Transition risk arises from increasing pressure placed on power companies by investors, industry and societies that require them to take action to mitigate climate change. Hence, climate risk directly affects the directions of capital allocation, the development of products and services, as well as, finally, the shape of the global power sector. The identification of such a high climate risk exposure makes it necessary to take preventive measures, which must be reflected in a fundamental change of the core activities of power companies. Power companies must also find ways to fund new investments, which should limit the impact of extreme weather conditions on the infrastructure, and to comply with new climate neutral regulations. Hence, there is an observable process of changing the profitability of value chains in the power industry, customers defining their new needs, and pre-existing assets starting to lose value as well as their potential to remain profitable in the future. Climate risk requires power companies to change their mindsets, to use new operating models, tools and processes in order to integrate physical risk and transition risk into their decision-making process. The analysis of long-term impact of climate risk on the operations of power companies influences decisions concerning technology and the location of power plants, the selection of suppliers of construction materials, smart grid development and the digitalization of their operational activity. Steps taken in reaction to climate risk will create a fundamental change in the power sector, and lead to the creation of a system based on RES and emission-free production technologies, which will replace pre-existing ones based mainly on fossil fuels. However, one can expect that the change caused by this process will deepen in the coming years, significantly changing the conditions of management activities in power companies. That is why the authors argued that power companies should prepare for a strategic change of their core activities, redefining their operations and the way in which they meet customer needs, towards ensuring the profitability of their future operations. The authors indicted the potential direction of the necessary changes of the operational activities of power companies, which can secure their future market success. This change is also the determinant of future success of particular economies, because the scope of carbon footprint reduction will be a determinant of their competitiveness in the global environment.