The transformation of energy markets towards a decentralized and distributed model, driven largely by carbon reduction policy commitments, is putting strain on the sector at both the financial and technological levels. Unprecedented levels of investment are required to transition to renewables and new smart technologies need to be developed and introduced to automate and reinforce the grid to integrate and optimize this intermittent generation.
On top of these, there are three ‘mega risks’ which have been identified by energy leaders as posing even greater threats to energy security and supply, according to the World Energy Council (WEC) in a new report, ‘Road to resilience: Financing resilient energy infrastructure’. These are extreme weather, the energy-water-food nexus and cyber attacks.
Energy ‘mega risks’
Stimulated by the rise in global average temperatures, the frequency and severity of extreme weather events such as storms, droughts or heat waves is on the increase. Over the past 40 years, the number of extreme weather events recorded each year has more than quadrupled. In large parts of the Asia Pacific region, Latin America and Africa extreme weather events are among energy leaders’ top uncertainty issues.
Energy and agriculture are the two most water-intensive sectors. 98% of electricity supply is dependent on the availability of water. Food production requires large volumes of water and energy: energy is used for pumping, moving and treating water; and water is used in the production and supply of energy. Both energy and food security are at risk and further water stress offers the prospect of greater competition between different uses.
The digitisation of the energy sector has resulted in the development of new methods to store and share data to improve grid and energy management and for example to enhance customer engagement. But it also has brought an increase in the sophistication and frequency of cyber attacks. Cyber threats are among energy leaders’ top uncertainty issues in parts of Europe and North America. By 2018 the oil and gas industries could be spending US$1.87 billion annually on cyber security.
These threats impact both the physical structures and the capital returns that are needed to advance energy systems to a more sustainable future, argues the WEC. Therefore, successfully managing them has become crucial, bringing the need for resilience to the fore.
“The different risks to resilience have very distinct meaning and priorities in different regions,” says Christoph Frei, WEC secretary general. “Yet the imperative to cope with these risks is a powerful catalyst for innovation: innovation in technology, system design and management, cross-country and -value chain cooperation, the required policies and, last but not least, financing concepts. Securing the future investments to expand and transform the sector is the critical challenge ahead.”
Improving energy resilience
The WEC report makes seven recommendations to increase resilience, of which probably most if not all are being implemented to some extent in energy markets globally, especially the development of a smarter energy infrastructure. Others include more forward looking evaluation of energy system design; better information sharing on risks and best practices; improved guidance from policy makers and regulators; increased private sector investment in infrastructure; reflecting the risks in cost-benefit analyses; and encouraging diversity in terms of generation types, technologies, solutions, etc.
All of these are obviously important to driving towards a more resilient future energy system. But it also can be argued that the decentralized model in itself will improve resilience and is thus the right model at the right time. With generation and storage at residential or community level, individual energy security is enhanced, while technologies such as microgrids with islanding can improve resilience in the face of extreme weather events or to cyber events. Electrification for rural communities offers the prospect of improving water and sanitation services and increasing local agriculture. There also are underplayed linkages at the energy-water nexus, such as the use of water for storage and demand management or for floating renewables.
Ultimately, the energy sector response to the ‘mega risks’ is only part of the picture. As their impacts extend more widely a full response will require coordination with other sustainability sectors.
These energy resilience issues will be explored in depth at the 23rd World Energy Congress in Istanbul next month, when Engerati will bring an update and further commentary.