From the July-August 2010 issue of Treasury & Risk magazine

Solar Storm Warning

Add solar storms to the disaster risk list. These high-energy bursts can interact with the earth's magnetic field, creating geomagnetic storms that could bring sudden, extended and widespread power and telecommunications outages over the next few years. The next peak in the 11-year cycle of solar disruptions arrives in 2012.

"We've been lucky, because the kinds of storms we've had in recent decades have been relatively low-intensity compared to those in the historical record," says Sten Odenwald, an astronomer at NASA's Goddard Space Flight Center. Odenwald points out that society's growing dependence on technology--especially electricity grids--would exacerbate the impact of a really big storm.

The largest one on record, the Carrington Event in 1859, shut down most of the U.S. telegraph system. Another severe storm in 1921 disrupted railroad signaling and switching, sparked station fires in the northeastern U.S. and damaged Europe's telegraph and telephone lines. Canada's Hydro-Qu?bec power grid collapsed within 90 seconds after a storm began in 1989, leaving millions without electricity for up to nine hours.

An extensive 2008 report from the National Academy of Sciences notes that the collateral effects of severe storms could disrupt transportation, communications and banking systems, and even the availability of potable water and perishable foods.

John Kappenman, a storm analysis consultant at Metatech Corp., says a current shortage of power-grid transformers, which can be damaged or destroyed by geomagnetic storms, could result in lengthy outages. "We're talking about months, perhaps years, before recovery could occur."

In June, Congress began taking steps to protect transformers, but Kappenman says it will likely take years to upgrade the grid. Interim policies, such as strategically turning off critical grid components when storms are forecast, could minimize damage, he adds.

Armand Fernandez, chief risk engineering officer at Zurich Financial Services, a commercial property-casualty insurer, says the risk of geomagnetic storms should be "debated" at the enterprise level. Fernandez moderated a solar storm panel at the annual Risk and Insurance Management Society conference in April.

Companies' backup generators often haven't been tested and may have insufficient fuel, he says. "A backup generator is one piece, but there are new power supplies such as solar energy that provide more local sources of electricity than relying on the grid."

The risk of a big solar storm shouldn't be downplayed, Odenwald says. "Major oil spills are rare, but BP's impact is enormous."


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