Nature Risk Pricing

Dr. Chiara Colesanti Senni is a post-doctoral researcher at the University of Zurich in the fields of environmental risks, financial supervision, and monetary policy. During her PhD at ETH Zurich, she focused on the transition to a low-carbon economy, including the possibility for central banks to adopt emission-based interest rates in their lending facilities. 

Now focusing on the intersection between nature-related risks, the economy and the financial system, Chiara focuses her research on measuring nature-related risks and how these affect economic activities. ​

In her latest research paper “Economic and financial consequences of water risks: The case of hydropower” Chiara, together with Skand Goel and Adrian von Jagow, looks into how water risks affect hydroelectricity generation in Europe and the US.  ​

​These past summers of intense droughts have exposed a hidden vulnerability: the reliance of hydropower, a crucial clean energy source, on consistent water availability. Droughts crippled hydropower generation in China, Italy, France, and Portugal, highlighting the potential impact of water scarcity on our energy future. ​

Through this study, the researchers investigated two crucial points: ​

• How severely does drought impact hydropower generation? ​

• Are investors aware of these "water risks" when valuing hydropower companies? ​

The findings were sobering. They discovered that droughts could have a significant impact, potentially slashing hydropower generation by a staggering 9% compared to historical averages. Even more concerning, their analysis suggests that financial markets may be oblivious to this threat, potentially leading to an inflated price tag on these assets.  ​

This research serves as a stark reminder that the path to a clean energy future is not without its challenges. Recognizing and addressing water risks is critical, not just for the sake of sustainable energy generation, but also for ensuring the financial stability of a sector increasingly essential for our planet's well-being. By acknowledging the limitations of hydropower and fostering a more diversified and water-resilient energy system, we can navigate towards a future where clean energy truly lives up to its promise. ​

Paper
Economic and Financial Consequences of Water Risks: The Case of Hydropower
Chiara Colesanti Senni, Skand Goel, Adrian von Jagow
SSRN (2023)

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