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The TCFD highlights two primary types of climate risks: physical and transition.
Physical risks include extreme weather events such as flooding, and the longer-term
impact of increasing average global mean temperatures. Transition risks include
the global transition to a low-carbon economy, new regulations, and innovations
in energy efficiency.
We have identified a number of climate-related risks and opportunities with
potential impact to our business as described below:
PHYSICAL RISKS
Wafer supply chain disruption
Risk Type: Acute physical
Time horizon: Short-term
Likelihood: Possible
Magnitude of impact: Medium-high
Description:
Our critical suppliers include suppliers of certain raw silicon and semiconductor
foundry wafers that are incorporated in our products. We maintain inventory of
some critical wafers, but we have not identified or qualified alternate suppliers
for many of the wafers now being obtained from single sources. In the past fiscal
year there have been industry-wide semiconductor wafer shortages and leadtimes
have increased for certain of our foundry wafers. Wafer supply interruptions for
any reason, including acts of God such as floods, typhoons, cyclones, earthquakes,
or pandemics could seriously jeopardize our ability to provide products that are
critical to our business and operations, and may cause us to lose revenue. Risks
related to extreme weather may be exacerbated by the effects of climate change.
Packaging vendor supply disruption
Risk Type: Acute physical
Time horizon: Short-term
Likelihood: Possible
Magnitude of impact: Medium-high
Description:
We are dependent on our packaging vendors. Because of the unique materials
our products use, the complexity of some of our products, unique magnetic requirements,
and high isolation voltage specifications, many of our products are more challenging
to package than conventional integrated circuits. Some of our products use processes
or tooling unique to a particular packaging vendor, and it might be expensive,
time-consuming, or impractical to convert to another vendor in the event of a
supply interruption due to vendors’ business decisions, business condition,
or acts of God, including floods, typhoons, earthquakes, or pandemics. Leadtimes
for packaging services have increased during the COVID-19 pandemic and there have
been shortages of raw materials and equipment our packaging vendors need for their
process. Government lockdown restrictions, labor shortages, and raw-material shortages
have reduced our vendors’ capacity and increased their lead-times. These conditions
could continue, worsen, or recur. Additionally, certain of our packaging vendors
are in flood-susceptible areas. Flooding risks to such vendors may increase in
the future due to possible higher ocean levels, extreme weather, and other potential
effects of climate change. We have alternate vendors or potential alternate vendors
for the majority of our products, but it can be expensive, time-consuming, and
technically challenging to convert to alternate vendors. Furthermore, we may not
be able to recover work in process or finished goods at a packaging vendor in
the event of a disruption. Supply delays, interruptions, or loss of inventory
could seriously jeopardize our ability to provide products that are critical to
our business and operations and may cause us to lose revenue.
TRANSITION RISKS
Regulatory Compliance and External Commitments
Risk Type: Emerging regulation
Time horizon: Medium-term
Likelihood: Possible
Magnitude of impact: Low-medium
Description:
Climate change regulations at the federal, state or local level or in international
jurisdictions could require us to limit emissions, change our manufacturing processes,
or undertake other costly activities. Additionally, we could be subjected to future
liabilities, fines or penalties or the suspension of product production for failing
to comply, or being alleged as failing to comply, with various laws and regulations,
including environmental regulations. Specific gasses we use that could be subject
to future regulations include certain refrigerants used in our air-handling equipment
and sulfur hexafluoride used in our production processes.
Increased Cost of Electricity
Risk Type: Emerging regulation
Time horizon: Near-term
Likelihood: Likely
Magnitude of impact: Low-medium
Description:
NVE uses a relatively large amount of electricity for clean room air handling
and for production equipment. The cost of electricity is expected to increase
due to regulatory mandates to increase generation from renewable sources, nuclear
power disincentives, and restrictions and higher costs for fossil fuels used to
generate electricity. Our risks are mitigated somewhat by a relatively low contribution
of fossil fuels to electricity production in the upper Midwest. Our electricity
provider, Xcel Energy, which provides NVE’s electricity, reported the following
breakdown of its power generation in the Upper Midwest in 2021: fossil fuels,
46%; nuclear, 30%; wind, 21%; and solar farms, 3% [“Where does Twin Cities
electricity come from and how is it delivered to homes?” Star Tribune,
8/13/21]. Excel reported its electricity was 53% carbon-free in 2022. It plans
to reduce carbon emissions 80% by 2030, on the way to delivering 100% carbon-free
electricity by 2050. The Federal Sustainability Plan, enected in 2021, mandates 100% carbon-free electricity by 2030. This transition may increase the cost of our electricity.
Electricity Shortages Due to Less Electricity Generated by Fossil Fuels
Risk Type: Emerging regulation with acute physical effects
Time horizon: Long-term
Likelihood: Possible
Magnitude of impact: High
Description:
Xcel Energy, which provides NVE’s electricity, reports that its power generation
in the Upper Midwest is 46% fossil fuels [“Where does Twin Cities electricity
come from and how is it delivered to homes?” Star Tribune, 8/13/21].
Under legislation enacted in February 2023, utilities will be required to provide
electricity that is 80% carbon-free by 2030, 90% carbon-free by and 55% renewable
by 2035, and 100% carbon-free by 2040. This could lead to electricity shortages,
brownouts, or rolling blackouts that could disrupt our production.
Electricity Shortages Due to Less Nuclear Power
Risk Type: Acute physical
Time horizon: Long-term
Likelihood: Possible
Magnitude of impact: High
Description:
Xcel Energy, which provides NVE’s electricity, reports that its power generation
in the Upper Midwest is 30% nuclear [“Where does Twin Cities electricity
come from and how is it delivered to homes?” Star Tribune, 8/13/21].
The state’s three nuclear power plants’ federal licenses licenses expire
in 2030, 2033, and 2034, and Minnesota has had a moratorium since 1994 on nuclear
power construction. The decommissioning of these plants without enough alternative
generating capacity could lead to electricity shortages, brownouts, or rolling
blackouts that could disrupt our production.
TRANSITION OPPORTUNITIES
Nanopower sensors
Opportunity Type: Products and services
Time horizon: Near-term
Likelihood: Highly likely
Magnitude of impact: Medium
Description:
We make sensors that require only nanowatts of power, allowing sensors to be powered
by small batteries or harvested energy such as solar power in applications including
utility meters and portable instruments. Energy savings in battery-powered applications
are magnified significantly since more than 500 times the energy a typical small
battery produces goes into making the battery, plus there are additional end-of-life
environmental costs related to batteries [based on data from “Life Cycle
Impacts of Alkaline Batteries with a Focus on End-of-Life,” National Electrical
Manufacturers Association, https://www.epbaeurope.net/assets/resources/NEMA_alkalinelca2011.pdf].
Sensors for smart utility meters
Opportunity Type: Products and services
Time horizon: Near-term
Likelihood: Highly likely
Magnitude of impact: High
Description:
Our sensors enable smart utility meters, particularly water meters. Such meters
facilitate water conservation programs that reduce energy to supply water to homes
and businesses or reduce water usage.
Products for smart grids
Opportunity Type: Products and services
Time horizon: Medium-term
Likelihood: Somewhat likely
Magnitude of impact: Medium
Description:
Our isolators, particularly new isolators with integrated step-up DC-to-DC convertors,
address one of the challenges for smart grids, which is that microcontrollers
run on low voltages like three or five volts, while motors that consume energy,
such as those in furnaces or refrigerators, run on 120 or 240 volts. Our isolators
provide a bridge between control systems and line voltage measurements, allowing
more efficient control of motors and other energy consumers.
Products that improve power conversion efficiency
Opportunity Type: Products and services
Time horizon: Short-term
Likelihood: Likely
Magnitude of impact: Medium
Description:
We have opportunities to facilitate designs for more efficient power conversion
in applications such as electric vehicle charging stations and battery management
systems for electricity storage. Our isolator products can increase the efficiency
of these systems, often in conjunction with advanced power switches such as gallium
nitride and silicon-carbide MOSFETs. For example, we have partnered with our Swiss
distributor to demonstrate such systems.
Products that improve motor efficiency
Opportunity Type: Products and services
Time horizon: Short-term
Likelihood: Likely
Magnitude of impact: Medium
Description:
By one estimate, motors account for 45% of global power consumption [“The
Changing Landscape of Electric Motor Efficiency Standards,” magneticsmag.com,
7/18/18]. U.S. Energy Star guidelines and European Union standards encourage power
factor control [“Power Factor and Power Factor Correction,” CUI, Inc.,
4/20/19]. We have the opportunity to facilitate designs that improve electric
motor efficiency by measuring motor position and speed with our angle, rotation,
and gear-tooth sensors; measuring instantaneous motor current with our current
sensors, and high efficiency motor power control and power-factor correction using
our isolators.
Products that improve the efficiency of hybrid/electric vehicles
Opportunity Type: Products and services
Time horizon: Medium-term
Likelihood: Fairly likely
Magnitude of impact: Medium
Description:
We have opportunities to facilitate designs that improve the efficiency of hybrid/electric
vehicles by measuring actuator position, rotation, and current with less power
consumption than conventional alternatives; and improving the efficiency of on-board
battery charging electronics and battery management systems.
Products that enable home electricity storage
Opportunity Type: Products and services
Time horizon: Short- to Medium-term
Likelihood: Fairly likely
Magnitude of impact: Medium
Description:
In January 2023 we announced a design win with a high-profile provider of residential
battery systems for renewable. Such systems may encourage and enable more widespread
use of photovoltaic solar and wind-based residential power sources by storing
power to be used when the wind isn’t blowing or the sun isn’t shining.
Products that enable charging infrastructure for electric vehicles
Opportunity Type: Products and services
Time horizon: Medium-term
Likelihood: Fairly likely
Magnitude of impact: Medium
Description:
In January 2023 we announced a design win with a high-profile provider of electric
vehicle charging stations. Such stations may encourage and enable more widespread
adoption of electric vehicles.
Reduce resource usage
Opportunity Type: Resource efficiency
Time horizon: Short-term
Likelihood: Very likely
Magnitude of impact: Low-medium
Description:
Our process engineering group continuously evaluates opportunities to use less
resources in our production process. Candidates for resource reduction projects
include electricity, water, bulk chemicals, bulk gasses, liquid nitrogen, and
silicon wafers. In addition to direct reductions in resource use, reducing usage
would decrease the impacts of transportation and electricity used to process or
manufacture the resources.
Reduce sulfur hexafluoride usage
Opportunity Type: Resource efficiency
Time horizon: Short-term
Likelihood: Very likely
Magnitude of impact: Medium
Description:
Sulfur hexafluoride (SF6) has been identified by the the US Environmental Protection
Agency (EPA) as an especially potent greenhouse gas, and is widely used in the
semiconductor industry and in our production. Our equipment is designed to avoid
leaking SF6 into the atmosphere, but SF6 can inadvertently escape if there are
leaks. Engineering projects have demonstrated modified process that use less SF6,
and we expect to deploy those processes in fiscal 2023.
Improve the efficiency of our manufacturing infrastructure
Opportunity Type: Resource efficiency
Time horizon: Short-term
Likelihood: Likely
Magnitude of impact: Low-medium
Description:
We have and will continue to upgrade our heating, air conditioning, air-handling,
and water heating systems for higher efficiency. We also convert to more environmentally-friendly
refrigerants as practical.
POTENTIAL FAVORABLE IMPACTS OF CLIMATE CHANGE
Less use of heating fuels
Opportunity Type: Resource use
Time horizon: Long-term
Likelihood: Likely
Magnitude of impact: Low
Description:
A warming climate could reduce our need for heating in the winter months.
More desirable climate for attracting employees
Opportunity Type: Resource use
Time horizon: Long-term
Likelihood: Likely
Magnitude of impact: Low
Description:
The Minnesota State Demographer has said that a warming climate could help increase
foreign immigration and migration from other states and help address medium-term
worker shortages [https://www.mprnews.org/story/2022/12/07/demographer-minnesota-has-one-of-the-tightest-labor-markets-and-its-unlikely-to-change
].
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