JP Morgan's Sarah Kapnick Talks Climate Investments

SPEAKER_1 (0:02)

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Caroline Hepker (0:07)

We want to talk a little bit about climate change, about El Nino that is coming.

JP Morgan warning about the end of the war in the Middle East becoming even less feasible in terms of prediction and understanding when it might end. And ExxonMobil warning that actually the world's climate goals are going off track because of the persistent use of coal. So there's lots to think about in this area. Sarah Kapnick is Global Head of Climate Advisor at JP Morgan. Back with us on Bloomberg Radio. It's really nice to see you again, Sarah. Look, tell us a little bit about El Nino, because this is the kind of short-term effect in terms of climate change that people are most worried about now. We'll get into the bigger oil story maybe in a moment.

Sarah Kapnick (0:53)

Yeah, so El Nino has happened every five to seven years, and it's one of the most predictable things we have in the climate system. So right now, we are having the development of El Nino and predicted that it will peak between January, February roughly as it does historically.

With this El Nino, we are already seeing ocean temperatures that are above the previous very strong ones, and the predictions are that this will be the strongest El Nino since the real record-keeping locally, since the 1950s with the current type of technologies that we have. So it will peak in February, expected to be the strongest we've ever seen since the 50s, and it's expected to be extremely warm. The temperatures in the ocean are already extremely warm. It's expected to continue. What will happen is global temperatures on average from the physical models are expected to be 1.8 Celsius above pre-industrial. So it will potentially peak on a monthly basis extreme warmth. What does that mean? That means into next year, you will have this tail of temperatures where it will be much warmer next summer potentially. So it raises the likelihood for extreme heatwaves that are higher than what we've actually seen. But also for Europe, particularly right now with the natural gas shortages and reduction and what we have in strategic reserves here, it is really important actually to have an El Nino to give some relief. El Ninos have the ability to decrease demand by 10 to 15% for winter heating in Europe. And we saw this back in 23, 24, post-Russia invasion of Ukraine when storage was at the roughly levels that it is now, that it actually decreased demand. I was back in the US government then. We were giving monthly briefings to NATO and to European allies on what we expected with the temperatures in Europe, because it mattered so much to follow that. So in this case, we're rooting for a warm winter in the El Nino to lead to a warm winter in Europe. But then going into summer, we should expect those heat waves. And so between now and summer is the time to prepare to make sure that the grid is stable for those extreme heat waves that we may see.

Charles Capel (3:05)

And yeah, of course, coming to summer with heat waves, you expect greater energy demand. What can we actually do to prepare for a very, very hot summer when we've only realistically got just over six months before we get there?

Sarah Kapnick (3:20)

So we've already been seeing an increase in investment speed in Europe. The last five years has been four times more money deployed, more infrastructure deployed than the five years prior to wind, solar and storage. Critically storage helps smooth out those peaks. So when you have production, you're holding it for those heat waves. And also, the heat waves are very predictable in the weather model. So if you know that heat wave is coming and you make sure that you have that storage at peak capacity, the grid can hold and do much better. So the deployment between now and then is ensuring their storage. The other part is software modernization.

Software to be able to manage how the grid is managed, where you're putting electrons on, making sure that you don't have any peaks. That can actually be fast deployed within six months. And so I'm already seeing that actually deployment capacity and planning. And they're doing technologies specifically around demand peak for also data centers, for being able to manage that demand also during those peaks. So those peak times are those critical times, and it's roughly 100 hours a year, where you might need to manage that demand critically.

And I'm seeing that preparation happening both in North America as well as in Europe right now.