With modern society's ubiquitous reliance on the electricalgrid, “space weather”—such as a severe solar storm—can wreak havocon the electric-power supply and trigger losses from businessinterruption and damaged physical assets.

While power outages from space weather are low-frequency events,they have the potential to cause crippling long-term damage.

In fact, the risk of grid power outages due to space weatherfits the profile of a market-changing catastrophe such as Katrina,the 9/11 attack or the Japanese earthquake and tsunami. Each wasunprecedented and believed to be very unlikely—until itoccurred.

LOW-LIKELIHOOD—BUT EXTREMELY HIGH-SEVERITY

The most-severe space-weather event in recorded history happenedin 1859. Intense solar flares were accompanied by massivecoronal-mass ejections (CMEs) that created the largest geomagneticstorms on record. Telegraph operators received electric shocks, andtelegraph lines melted. Auroras were seen all over the globe.

If an event of similar magnitude were to occur today, expertsestimate it would take down more than half the power grid anddamage so many transformers that it would take years torecover.

Such catastrophic events are rare, but how rare? According torecords of past events, Earth experienced an occurrence in the lastapproximately 150 years. Therefore, the yearly chance of occurrenceis 1 in 150.

But this estimate ignores the physical details. A rigorousanalysis may show that we have simply been lucky (or unlucky) inthe past. And it does not take a repeat of the Carrington event tocause catastrophic loss.

In fact, devastating space weather events have occurred muchmore recently, giving us a hint of what could happen again.

At 2:44 a.m. on March 13, 1989, the Hydro-Quebec power grid washumming along smoothly while most grid customers slumberedpeacefully. Less than two minutes later, however, the entire Quebecpower grid had collapsed in a rapid cascade of events.

On the same day throughout North America and the United Kingdom,electrical disturbances barraged power grids for several hours. Onthe Hydro-Quebec grid, a number of pieces of equipment sustaineddamage, including two transformers that had to be removed fromservice.

In New Jersey, a $12 million generation step-up transformer atthe Salem nuclear plant suffered permanent insulation damage.

The cause? A powerful geomagnetic storm triggered by a blast ofmagnetized plasma from the Sun.

The magnetic storm spawned electric currents in the ground andin power lines—currents which rapidly incapacitated key power gridcomponents. As a result, schools and many businesses were closedfor the day, and grid customers tried to stay warm at home.

Luckily, within nine hours, power was restored to most customersin Quebec. The Salem nuclear plant also was fortunate. They wereable to install a spare transformer within a “short” six-monthtimeframe.

Over the next two years there were 12 transformer failures inNorth America suspected to be related to the storm. The outage wasa chilling reminder of our reliance on electrical power—and thevulnerability of our grid to geomagnetic storms.

In the 22 years since the Quebec grid was damaged, globalcompanies and regional economies have increased reliance on theelectrical grid dramatically, meaning the impact today of a similarsolar event would be even more drastic.

RISK-MANAGEMENT PREPERATIONS

Quantifying financial exposure to space-weather events ischallenging. When doing so, risk managers should consider plans forboth short-term and long-term power outages.

In this context, short-term means hours to a day, with arecurrence interval of a few years. Power-outage mitigation planscould include back-up generators for critical systems, redundantand co-located software and data systems (especially for revenue,customer-facing and customer-service operations), or a contingentbusiness-interruption policy that covers utility outage. Wheresupply-chain risks are important, a tailored contingentbusiness-interruption policy should be in place.

A long-term, space-weather-caused outage could last for a week,a month or even a year without electricity. There is no way toprevent it from striking your company; the risk lies in our powergrid.

A mitigating strategy, pre-approved and ready for implementationafter such an event, should include alternative locations to beused for business operations.

Consider that neighboring companies will be searchingfrantically for similar locations and services. The risk of aspace-weather outage is lower in certain places in the UnitedStates than others. Therefore, a company with multiple locationscould have a business-continuity plan that includes relocation ofcritical functions when it becomes clear the outage will lastlonger than a specified time period. Data access at new locationsshould also be considered.

Beyond financial exposure, another non-trivial aspect iscommunication; how will management communicate with each other,employees, partners and customers? Corporate reputation andemployee morale should be addressed within the company'srisk-management plan.

Companies that communicate proactively are viewed as trustworthyleaders by their customers, employees, the media and localgovernment. Organizations that appear to change their spokespersonor alter their plans every few days, however, are perceived asunprepared. When the problems continue for days or months, publicpatience can dissolve into a feeding frenzy.

While the chance of a space-weather-caused long-term outage issmall, it cannot be disregarded—if such an event does occur, thecost would be staggering.

DEFINING SPACE WEATHER—AND ITS DANGERS

Space weather is a general term describing conditions inspace that affect the Earth and our technological systems.Geomagnetic storms, which can not only cripple the electrical gridbut can also corrode oil and gas pipelines, are only one aspect ofspace weather.

Solar flares can disrupt radio communication, aviationcommunication and navigation, and they can interfere with the GPSsignals used in our positioning and timing technologies.

One perhaps under-addressed risk is a cascading interruption inenergy supply. Even a short-term electrical power outage can createa shortage in oil supply because oil refineries depend onelectrical power from the grid. A refinery can take up to severaldays to recover from an electric power outage.

Most space-weather events originate at the Sun and are aconsequence of its magnetic outbursts. The Sun's magnetic activityis periodic, with a peak in activity approximately every 11 years.For several years surrounding this peak, the chance of solar stormsis much higher. We are currently in Cycle 24, with a predicted peakin June 2013.

This means that from now until 2017 or so, we should be on alertfor strong solar flares and large coronal mass ejections (CMEs).Historically, the strongest storms happen during the decline of thesolar cycle, so the period from 2013 through 2017 may pose thelargest risk.

Scientists agree that it is only a matter of time until weexperience an event of similar magnitude. When it does happen,preparation will be the key to avoiding disaster.

Nicole Homeier is staff scientist in remote sensing atAtmospheric and Environmental Research (AER), where her recentresearch focuses on space weather and industry impacts. She can bereached at [email protected].Kyle Beatty is managing director of business solutions at AER,providing risk management and meteorological expertise globally. Hecan be reached at [email protected]. James Martin Griffinis staff scientist at AER, involved in space-weather research,including how the upper atmosphere and space environment affectsatellites and remote-sensing measurements of Earth. He can bereached at [email protected].The authors are located at AER headquarters in Lexington,Mass.