Equipment Breakdown: Dealing with Canada's aging electricity system

Most Canadians don’t give a second thought to the electricity that runs their homes. Even problems like power outages are merely an inconvenience when they’re resolved quickly enough. However, for businesses that need to keep the lights on – literally and figuratively – electricity is top of mind, as power disruptions can have devastating impacts. 
 
Manufacturers in sectors such as auto, food and beverage, and pharmaceuticals are particularly vulnerable. Power outages, even brief ones, can damage equipment and lead to production line shutdowns. In addition, power surges – momentary increases in voltage – can wreak havoc on computers, servers and other sensitive IT equipment, which can lead to loss of both the equipment and valuable data.^1,2

“When equipment breaks down as a result of a power-supply event, it can cost days, weeks or even months to recover from the loss,” says Shivani Sharma, Underwriting Specialist – Equipment Breakdown, at Sovereign Insurance. Those losses include replacement costs, business interruption, lost revenue, and the expense of restoring data. 

One of the major reasons for today’s power problem stems from Canada’s aging and overburdened energy infrastructure, which hasn’t seen significant investment since the 1970s and ’80s.³ Since then, new technology, machinery and automation has proliferated, putting further strain on provincial power grids and distribution systems inside commercial buildings. 

“On top of that, the growth in alternative energy has further stressed the infrastructure, which is not currently set up to handle the integration of renewable energy,” says Shivani. “So, the existing energy infrastructure needs urgent reform.” 

It’s a problem that’s only going to intensify. As the Canadian Climate Institute notes in a recent report, electricity demand will be 1.6 to 2.1 times larger in 2050 compared to today. That means the capacity of Canadian electricity systems needs to at least double, if not more than triple, over the same time frame. Meanwhile, the federal government has set a target to achieve zero-emissions electricity by 2035, further amplifying the need to transform Canada’s electricity system.⁴

As the government and energy sector takes steps towards this goal – and modernization could take years – organizations across sectors will remain at risk. “As power grids are stressed, this creates more stress on the actual equipment used by commercial businesses,” Shivani explains. “So, we continue to see power-supply events being a key equipment breakdown loss trend.” 

See: Loss trends and emerging risks: Equipment Breakdown

How can organizations mitigate risks?

Power disruptions may be beyond a business’s control, but there are ways to mitigate risks and help safeguard equipment. The key is being prepared, so a comprehensive plan or checklist should be developed, outlining what to do before a power-supply event, during an event, and afterwards. And while there’s no one-size-fits-all plan, a few key best practices apply to almost any organization. 

To start, Shivani says organizations should train employees on how to properly use the equipment, including how to identify early warning signs of failure. “If they’re not trained, they’re not going to know when there’s something wrong with the equipment and the impact that may have,” she says. “Employees should also be trained on proper restarting procedures to prevent damage to the equipment.” 

Preventative maintenance schedules should also be in place for all equipment. This can potentially reduce damage to the equipment and help lower repair costs stemming from a power disruption.  

Organizations can also shore up protection through various products on the market. For example, surge protectors help prevent voltage spikes from damaging equipment. Many organizations also purchase backup power supplies such as generators. 

In any case, awareness is the first step. Shivani notes brokers and risk managers have a role to play, as they can educate clients on the effect Canada’s aging infrastructure can have on their business and provide information on mitigating risks. 

“Brokers and risk managers are extremely knowledgeable about the different types of risks, what preventative measures companies need to take, and where they can make improvements,” she says. “So, while power disruptions are unexpected, that doesn’t mean organizations can’t be prepared.” 


Sources
¹ ABB, “The importance of power protection for modern industries,” Feb. 12, 2022
² Penny Electric, “The effects of power outages on computers & electronics,” Oct. 16, 2018
³ Powertec Electric, “Modernizing Canada’s aging power grid,” April 20, 2019
⁴ Canadian Climate Institute, “The Big Switch: Modernizing Canada’s Net Zero Future,” May 2022