New trends demand an update to electricity security frameworks

The power sector landscape is changing dramatically

After more than a century of rising electrification, most middle- and high-income countries have managed to reach high levels of electricity reliability. This achievement is the result of complex institutional frameworks often involving multiple institutions and stakeholders. These frameworks govern crucial aspects, from the planning of the physical infrastructure, setting the market and investment frameworks, to the secure operation of the system and preparedness for natural catastrophes.

Electricity security frameworks are the result of more than a century of experience, with a relatively stable set of technological choices and well-understood risks. But past experience, as characterised below, is not always enough to prepare for the future. 

Electricity was mostly provided by vertically integrated utilities with regional monopoly using dispatchable thermal and hydro power plants and centrally controlled transmission and distribution networks.

Large rotating mass for power generation also provided system inertia. Power generators were controlled manually and not connected to digital networks.

Regulation made a single entity responsible for the stable supply of electricity in the region and set the electricity tariff at a level sufficient to cover the normal rate of return from the invested asset. Under this system, utilities were able to invest in generation and network facilities with a high level of confidence about their return.

In an increasing number of countries and regions, these assumptions no longer apply.

Electricity market systems with regulated regional monopolies have been replaced by unbundled competitive systems.

Variable renewable sources like wind and solar PV have become cheaper than thermal power generation and are increasing their share of supply. This development is welcome as countries seek to decarbonise the electricity sector. Solar PV is one of the rare technology areas that is on track to achieve its sustainability goals. Wind and solar are indigenous energy sources, and their growth can reduce fossil fuel import bills for many countries.

At the same time, these new variable sources require flexibility in the system to cover their variability and more elaborate forecasting of their outputs. They are non-synchronous generators and do not bring in system inertia.

Variable renewables, solar PV in particular, are more distributed than conventional generators. Systems with distributed resources can be more resilient than centralised systems, but require operators to have greater situation awareness. Some resources are even behind the meter at consumers’ properties. Network operators increasingly rely on demand-side response as a key source of flexibility.

To manage such complex systems, the role of digital information technologies is increasing exponentially, exposing the electricity system to cyberthreats.

Governments and industry are promoting decarbonisation of energy systems to achieve sustainability goals such as climate change mitigation, but ongoing climate change is already leading to extreme weather events and is challenging the robustness and resilience of electricity supply infrastructure.

Businesses across the entire electricity supply chain need to invest in secure stable electricity supply in response to these drastic changes, but are challenged by increased uncertainty and complexity surrounding electricity systems.

For this reason, our report focuses on three aspects that will increasingly attract the attention of policy makers:

a changing electricity mix driving new measures to ensure operational security and longer-term system adequacy

emerging risks to cybersecurity

the need for greater resilience against adverse impacts of climate change, including extreme weather events

This report provides policy makers with a structural review of the types of threats the system will be facing in the coming decades and how they can be managed with proper institutional measures, market design and technology.

The new power sector landscape will be shaped by a combination of factors: a growing role for variable renewables, stagnation or reduced contributions from traditional low-carbon sources such as nuclear and hydro, decreasing thermal fleets, further digitalisation of the economy, climate change, and others. The combination of these factors will alter the potential impact and likelihood of electricity supply interruptions. They may well put more pressure on certain areas of the electricity security framework, such as rules designed to bring investment into the sector, while changing the nature of traditional energy security concerns, such as fuel security. How the threat map changes will depend on the specific power mix, the policies in place and the external threats to each power system.

Electricity system trends and their potential impacts on various aspects of electricity security

Secure supply of electricity requires many risk dimensions to be properly managed. From fuel availability and sufficient resources to cover peak demand and periods of stress, such as an unexpected plant outage, to the resources needed to ensure stable behaviour of the power system in real time, all these dimensions need to be considered and assessed. The table indicates how these dimensions can be affected by electricity system trends. Each dimension will be affected, sometimes in a positive manner, reducing the risks and increasing the set of tools available to maintain secure operation, but also potentially in a negative way. For example, in a country where the electricity mix is dominated by hydropower, growing reliance on solar PV could increase climate resilience and act as a good hedge against changing hydrology, but it may also require existing assets to be operated in a new, more flexible way.

A sound electricity security framework needs to map how these trends will alleviate certain security concerns while increasing others.

Ensuring security of supply requires proper governance

Most large interruptions have multiple causes, and therefore policy makers need to account for many different dimensions in the institutional framework that governs the power sector. This emphasises the need for rigorous analysis to underpin the decision-making behind ensuring reliability and more general security of supply.

As the electricity system continues to evolve due to the energy transition and emerging trends such as cyberthreats and climate change, governments and regulators will need to continue to update the legal and regulatory requirements on all stakeholders to ensure that electricity security is maintained in the face of these changes.

There are already cases of legislative changes to redefine frameworks, roles and responsibilities for various institutional actors in the electricity system to adapt to ongoing transformations in the power sector. The passage of the so-called EU Clean Energy Package is an attempt to restructure the institutional framework for EU electricity markets, including electricity security, in the face of ongoing changes to the fuel mix and increasing interconnectivity across electricity systems. It is a gradual evolution from earlier European legislative initiatives, or packages, for the electricity system published in 1996, 2003 and 2009. These started from an unbundling and market perspective, but increasingly cover security-related provisions.

Regulators, in particular, will have an important role to play in ensuring electricity security amid the energy transition. Either with changes to law or stemming from existing statutory authority, they will need to adjust market designs and standards to reflect greater variability of supply and demand. They will also need to account for new threats such as cybersecurity and climate change.

For example, to support the secure integration of renewables into the grid and manage risks stemming from the retirement of baseload generation and lower utilisation of other plants, the US Federal Energy Regulatory Commission issued Order 842 in February 2018. It requires all new generators (regardless of size or technology) to be capable of providing primary frequency response – a specific ancillary service used to cope with sudden changes in supply and demand – as a precondition for grid interconnection. Similarly, the European Union established a legally binding grid code in 2016 across all its member states that requires all new connections to have essential ancillary service capabilities. This paves the way for future operational rules and balancing markets with ever higher shares of VRE and distributed resources.

Integrated planning beyond jurisdictional borders is needed, involving a complex set of players

New and emerging threats to the reliability of power systems present challenges to electricity planning frameworks. This is true across market structures, ranging from competitive markets with extensive private-sector participation to more vertically integrated utility models. The implications of such developments for the electricity sector should be taken into consideration together with the fundamentals of generation, transmission and distribution.

In many jurisdictions, increasingly integrated and co‑ordinated planning frameworks have played a vital role in the cost-effective and secure transition to a new electricity mix. They increase transparency and provide information to market participants and to all stakeholders in general, informing project developers, grid operators and authorities. These frameworks are increasingly co-ordinating investment in generation and grids. They are also useful for foreseeing the potential outcome of low-probability but high-impact events. New approaches are emerging for co-ordinated and inteqrated planning practices that expand the traditional scope:  

inter-regional planning across different jurisdictions and balancing areas

integrated planning across a diversity of supply and demand resources (and other non-wire alternatives)

integrated planning between the electricity sector and other sectors.

These new approaches are expanding and reaching into distribution networks, which have historically depended on power supplied by the transmission network. The situation is changing as more generation resources are added locally to the distribution network at low- and medium-voltage level. Where deployment of many smaller distributed plants is concentrated geographically, reverse flows from the distribution network up to the transmission level become increasingly common and must be managed securely. Most distribution networks are physically capable of managing two-way flows of  power, although a number of upgrades and operational changes in voltage management and protection schemes can be necessary.

Closer co‑ordination between transmission system operators and distribution system operators is important for dealing with this change. Policy makers can help ensure that transmission and distribution planning processes are better integrated with generation planning, particularly as the latter begins to take system flexibility into consideration. Appropriate planning rules will play a crucial role in the expansion of the electricity sector and to foresee the impacts of low-probability but high-impact events, covering the grid, new generation, storage and other flexibility options.