19 March 2026
Why climate adaptation is key to US energy expansion
Are major US power producers prepared for climate physical risk?
By Lindsey Hall, Rick Lord, Matt Macfarland, Kuntal Singh, and Paul Munday, Ph.D.
This is a thought leadership report issued by S&P Global. This report does not constitute a rating action, neither was it discussed by a rating committee.
Highlights
US power producers face the challenge of meeting growing energy demand while preparing for how climate change will impact their assets.
Many companies are already engaging in adaptation and resilience efforts to prepare for the physical effects of climate change. In the absence of adaptation, our projections show that the companies in our analysis face nearly $68 billion in annual financial impact from climate physical risks by 2040. That projection rises to approximately $77 billion by 2050.
Despite these projected costs, some companies have yet to disclose plans that describe how they will adapt to the climate physical risks their power plant assets face.
Nearly one-third of planned US power generation capacity is being developed by companies that lack an adaptation plan, making a significant portion of energy expansion in the US more vulnerable to climate risk.
Climate physical risks are projected to have a significant financial impact on the largest US power producers — about $68 billion annually by 2040, according to our projections. Many companies are already engaging in adaptation and resilience efforts to strengthen power plants and infrastructure. However, our data suggests there is room for further climate adaptation planning.
Energy and sustainability are inextricably linked priorities shaping corporate strategies in 2026
On the energy front, worldwide demand is soaring due to a growing global population, the electrification of developing markets and the AI boom.
On the sustainability front, there is growing recognition that the world will overshoot the goal of the Paris Agreement on climate change to limiting global warming to 1.5 degrees C by 2050. Companies’ exposure to extreme weather events and chronic climate hazards such as extreme heat, water stress and drought has created significant financial costs across all sectors.
These costs are projected to continue climbing without steps to adapt to the changing climate. Yet data from the S&P Global Corporate Sustainability Assessment shows that the majority of companies worldwide do not have a climate adaptation plan. These plans represent a company’s efforts to adapt to, and cope with, the climate hazards it identifies as the most material to its operations. The utilities sector is a leader in climate adaptation and resilience, and it is standard practice for power producers to prepare for and respond to extreme weather impacts on their infrastructure. But not all major US utilities have disclosed adaptation plans that result from detailed climate assessments.
Methodology
The S&P Global Sustainable1 Climate Physical Risk data set models the financial impact associated with changing exposure to acute (e.g., floods and cyclones) and chronic (e.g., drought and extreme heat) climate hazards on a company’s assets. Financial impact is expressed as the annual average cost over each future decade, and realized costs will vary from year to year depending on whether and how severely events materialize, as well as the performance of existing or planned adaptation and resilience investments. The modeled financial impacts presented here do not reflect a company’s adaptation and resilience efforts and thus represent a “worst case” projection for climate financial impacts that could be offset, at least in part, by investments in adaptation and resilience. This analysis captures projected physical damages and disruptions associated with acute events such as major tropical cyclones, which can be readily identified in company filings, as well as the drag on business operations due to chronic hazards such as water stress and extreme heat, which are less readily identified and attributed in company reporting.
Adaptation and resilience take many forms, and for utilities, investment in strengthening assets and infrastructure against extreme weather is standard practice. In this analysis, we review S&P Global Corporate Sustainability Assessment (CSA) data on whether companies have disclosed a climate adaptation plan as defined by the CSA. The CSA defines a context-specific adaptation plan, in which a company assesses the adaptation and resilience needs of individual assets based on their local conditions, as follows: “A context-specific plan integrates physical and nonphysical measures aimed at reducing — to the extent possible and on a best-efforts basis — all material risks that have been identified through a climate risk assessment.” Thus, the typical resilience and risk management investments a utility makes may not qualify as climate adaptation planning unless they result from climate risk assessments.
These intertwined trends — the global energy expansion and the reality of physical climate risks — are especially apparent in the US, where AI development is driving rapid data center expansion and electricity demand is projected to increase 42% by 2050 in S&P Global Energy’s Base Case energy scenario. Electric utilities and power producers are playing an increasingly pivotal role in this environment, and their readiness to adapt to the changing climate is key to their ability to meet demand now and in the coming decades.
In this analysis, we identify the most material climate physical risks facing the 29 electricity producers in the S&P 500 index. These companies own 3,668 existing and 550 planned power plant assets, and we quantify the projected baseline costs they face from climate change if no adaptation action is taken. We then focus on companies that lack adaptation plans to highlight where risks to current operations may exist and how physical climate risks could affect US energy expansion.
Water stress and extreme heat are top climate physical risks
Over the coming decades, water stress — the ratio of all water withdrawals to total renewable water supply in an area — will be the biggest climate physical risk facing large US power producers. It will account for more than two-thirds of these companies’ costs in the 2040s and 2050s. Extreme heat poses the second-largest cost across the coming decades, followed by drought. Extreme heat is defined as the fraction of days exceeding the local historical 90th percentile of daily maximum temperature. Drought is modeled using the 12-month Standardized Precipitation Evapotranspiration Index (SPEI-12) and expressed as the fraction of days falling below the local historical 10th percentile of SPEI-12.
Water-related risks are fundamental to power generation, as large quantities of fresh water are needed to cool thermoelectric power plant equipment and for a plant’s basic operation — using heated steam to power the turbines that convert mechanical energy into electrical energy. Water stress and drought can restrict a plant’s access to the volume of water it needs, leading to reduced generation or full stoppages. During periods of extreme heat, a plant may need even more water than usual to maintain an ideal working temperature.
The S&P Global Sustainable1 Physical Risk data set models how these risks flow through to companies as financial impacts. These projected costs, absent any adaptation, could represent nearly $68 billion in annual financial impact by 2040 for the 29 power-producing companies in the S&P 500, based on our models. For context, that equates to about 16% of the group's total 2024 revenue. The projected cost rises to approximately $77 billion by 2050. The majority of these costs (about 77%) will appear in the form of lost revenue due to business interruption. For power plants, examples of climate risk-related business interruption include reduced generation or planned shutdowns due to high heat or reduced water availability. The remaining financial impact is projected to come in the form of higher capital expenditure and higher operating expenses.
Physical risks resulting from climate change can be acute, driven by events such as floods or storms, or chronic, arising from longer-term shifts in climate patterns. For example, Duke Energy Florida Inc., a subsidiary of Duke Energy Corp., estimated $1.1 billion in direct costs from the impact of three hurricanes in 2024. This is an example of the costs of acute hazards that cause substantial damage to infrastructure and assets. Our models project much greater financial impacts from chronic hazards such as water stress that affect a company throughout a given year and accumulate over time.
Addressing physical risk with adaptation
These projected costs represent a baseline of risk and do not reflect existing or planned adaptation measures. Taking action to harden corporate assets and operations against climate hazards could lower their impact.
Climate mitigation and climate adaptation are two key prongs of a comprehensive climate strategy. In simple terms, mitigation refers to human intervention to reduce emissions or enhance the sinks of greenhouse gases. Delays in climate mitigation mean the world is warming, which is contributing to more frequent and severe climate hazards.
As a result, in 2026, companies and communities are putting more focus on adaptation, or measures to prepare for and adjust to current and future climate change impacts. Adaptation can take many forms based on an area’s terrain, weather conditions and economic strength, as well as the climate physical hazards that pose the greatest threat to a business asset. Examples of climate adaptation are already widespread across the public and private sectors: In the US, cities are opening cooling centers to provide relief during heat waves. Green or cool roofs are a recognized solution for building owners to combat higher air-conditioning costs from more frequent extreme heat. Cities are building sea walls to protect against stronger storm surges during hurricanes and tropical cyclones. For example, following Hurricane Sandy in 2012, New York City, along with the state and federal governments, committed more than $1.7 billion for five capital projects to reinforce Lower Manhattan's coastal areas, beginning construction in 2022.
S&P Global research has shown that returns on adaptation and resilience investments are significant. For the nonresidential real estate sector, for example, we estimated that the timely implementation of wet and dry floodproofing could save $3.55 for each dollar invested, and green and cool roofs could save $7.45 per dollar invested.
For power companies, as in any sector, the most effective adaptation and resilience measures will account for the type of asset and the specific climate conditions of the local area. The S&P Global Corporate Sustainability Assessment (CSA) evaluates a wide range of sustainability practices at the company level, including whether a company has an adaptation plan, and whether that plan considers the specific context of a company’s operations. An “overall” corporate adaptation plan refers to a company reporting on relevant climate physical risks and the actions it is taking to address them in general, while a stronger “context-specific” adaptation plan describes how a company will adapt to risks based on the location, vulnerabilities and other attributes of its operations. A context-specific plan integrates physical and nonphysical measures aimed at reducing — to the extent possible and on a best-efforts basis — all material physical risks identified by a company.
Investment in power infrastructure to harden assets against extreme weather is standard practice for utilities and may be a regulatory requirement in some markets. Adaptation plans as defined in the CSA are the result of a detailed climate physical risk assessment.
Seven of the 29 US power companies in this analysis had a context-specific adaptation plan in the 2024 or 2025 CSA cycle. These companies face about $26 billion in annual financial impact but are taking location-specific action to respond to the climate hazards their assets face.
Another seven companies in the analysis have no adaptation plan recorded in the CSA. These companies are projected to face more than $9 billion in annual financial impact from climate physical risks by 2040. Without plans, they may face the full impact of those risks.
Climate risk and capacity growth
In addition to their existing operations, the power producers in the S&P 500 have 550 power plants in the planning stage with a total generation capacity of 130.9 gigawatts — about 10% of existing US operating capacity in 2024, according to S&P Global Market Intelligence data and the US Energy Information Administration. The extent to which companies are building climate resilience into these sites as they are developed will influence how effectively they meet US electricity needs in the coming years.
About 40 GW of this total is planned by companies that lack an adaptation plan, which could put a significant share (about 31%) of US power expansion at greater physical climate risk. A further 57 GW of this total is being developed by companies with overall adaptation plans rather than context-specific ones, meaning these future assets may be less prepared for the climate physical risks in their local areas.
Natural gas is the largest individual fuel source across these planned locations, but clean energy represents more capacity in aggregate: 89.2 GW. Companies without adaptation plans have over 20 GW of wind and solar capacity on the horizon. These assets may contribute to a utility’s efforts to mitigate greenhouse gas emissions, but they are still likely to face physical climate risks.
From a geographic perspective, many of the 184 future power plant assets being developed by companies without adaptation plans are clustered in California, Arizona and Texas. Extreme heat will become an increasingly significant risk in the southwest US as the climate warms, and drought and atmospheric conditions have already made wildfires a more frequent and destructive feature of California’s power market.
Looking forward
Electrification and widespread data center construction are accelerating demand for power globally, but particularly in the US. Previous research has noted that the US is already home to 40% of global data center power demand, and that figure is expected to reach 45% by 2030. As power producers scramble to meet that demand, they will also need to reckon with the hazards of a warming climate. Bending the trajectory of climate change toward less severe scenarios through emissions mitigation will remain important in the long term, but improving the resilience of power assets and infrastructure in the short and medium term will be a key factor in US energy expansion.