Analytical frameworks for electricity security

Given the essential role that electricity plays in modern economies, the task of ensuring electricity security is a top priority for policy makers. Not only is electricity demand growing faster than overall energy demand globally, driven by increased electricity access and electrification, but electricity also has critical linkages with other parts of the energy sector, underpinning basic activities in the residential, commercial and industrial sectors.

This chapter defines outages, describes approaches to assessing how much they cost, and outlines the institutional responsibilities to prevent them. In doing so, it lays out the existing approaches that policy makers have available and the challenges they face in creating electricity security frameworks, including clarifying the costs and benefits, establishing reliability planning structures and assigning institutional responsibility for various tasks.

Electricity has a fundamental and intensifying role in our economy, implying that the impacts of an outage extend far beyond the power system. Power interruptions can trigger many incidents, ranging from the inconvenient to the life-threatening, for example people trapped in lifts, trains and underground transport, death and illness due to high temperatures from loss of air conditioning, and higher mortality in hospitals when backup supply fails. Moreover, the potential indirect impacts of electricity supply interruption are also enormous: transport disruption, food safety issues, crime and riots, and loss of economic activity, to name but a few.

It is important to establish a basic definition of electricity security and understand how the concept is evolving due to trends underway in the sector. The IEA defines electricity security as the electricity system’s capability to ensure uninterrupted availability of electricity by withstanding and recovering from disturbances and contingencies. Many systems are seeing a growing share of variable renewables in the power supply as governments seek a cost-effective, low-carbon electricity mix, complemented by large potential for more demand response. All segments of the electricity system, from conventional plants to distributed PV, electric vehicles and aggregated demand response, face new challenges related to cybersecurity. And from the perspective of climate change and extreme weather events, all electricity infrastructure will become more vulnerable to disruption. These themes are rarely addressed through the same lens in an integrated manner.

The impacts of an outage depend on a range of factors, including timing, extent of damage, location, number of consumers and consumer segments affected, duration, and frequency of occurrence. At a basic level, outages can be categorised as: 1) cascading blackouts or black system events; 2) load-shedding; and 3) long rationing periods of electricity.

Policy makers can use different approaches to monetising these impacts. The economic value of a unit of electricity is linked to the welfare and benefits that households and firms derive from electricity consumption during a specific period of time. A useful metric is the value of lost load (VoLL), which assesses the economic impact of a power supply disruption by measuring the resulting lost economic output. The economic impact will depend on a number of factors such as the affected consumer group and the time, duration, frequency and season of the disruption. VoLL is useful to evaluate direct costs associated with limited amounts of energy not supplied, but is not fully reflective of all the costs of interruption, especially for high-impact events.

Various institutions are involved in providing electricity security and guiding the complex interactions between numerous stakeholders to maintain a well-functioning and reliable power system. The operation of the electricity system involves a diverse set of actors and varies considerably both within and between countries. Moreover, institutional roles increasingly need to shift in response to changing trends in the electricity sector, including the energy transition, cybersecurity and climate change. 

Globally, electricity demand has been growing faster than overall energy demand. The power sector accounted for around half of the growth in global energy demand in the past decade. In the IEA Stated Policies Scenario, electricity’s share of final energy consumption is projected to rise from 19% today to 24% in 2040. Most of this growth comes from developing economies due to increasing income levels and growth in the industrial and service sectors. Growth in advanced economies due to electrification is partially tempered by improved energy efficiency. In the IEA’s Sustainable Development Scenario, the role of electricity becomes even stronger, reaching 31% of final energy consumption by 2040. While the share of electricity in final consumption is less than half that of oil today, it overtakes oil by 2040 under the Sustainable Development Scenario.

The growing share of electricity in final energy demand does not even fully capture its importance. Electricity has critical linkages with other parts of the energy sector. It also underpins the basic activities of the residential, commercial and industrial sectors. As electricity commands growing shares of heating, cooling, transport and many digital sectors of communication, finance, healthcare and others, the need for adequate electricity security will intensify in the coming years.

Electricity security is often referred to by the term “security of supply”, or the more literal phrase, “keeping the lights on”. The eventual goal is to provide electricity to consumers reliably. There are many threats to meeting this objective, ranging from equipment failure, fuel supply shortages and operational planning failure, to human error and deliberate attacks.

The IEA applies the following definition:

“Electricity security is the electricity system’s capability to ensure uninterrupted availability of electricity by withstanding and recovering from disturbances and contingencies.”

This definition covers several properties, notably operational security, adequacy and resilience. While this is a broad definition covering many properties, it also excludes some elements. Electricity security does not directly include affordability or sustainability, although they should be explored alongside it.

Ongoing changes to electricity systems will have far-reaching implications for all elements of electricity security. Many systems are seeing increasing shares of variable renewable supply as governments seek a cost-effective low-carbon electricity mix, complemented with large potential for more demand response. This has implications for operational security, future capacity and the flexibility investment needs of the system. All segments of the electricity system, from conventional plants to growing shares of distributed PV, electric vehicles and aggregated demand response, face new challenges related to cybersecurity. From the perspective of climate change and extreme weather events, all electricity infrastructure will become more vulnerable to disruption, although solar PV and wind may actually be the most resilient elements compared to thermal plants and grid assets. As such, electricity security in the future will bring together actions taken at the technical, economic and political levels to maximise the degree of short- and long-term security in a simultaneous context of the energy transition, cyber events and climate impacts.

The themes covered in this report are rarely addressed through the same lens in an integrated manner. From a detailed technical perspective, issues such as market design, system stability, cybersecurity or physical resilience may be addressed as separate disciplines. For policy makers, however, they do cover similar questions, including how reliability is defined as a measurable objective, which organisations carry which responsibilities, and how appropriate incentives are given to the sector to ensure adequacy with a diverse generation mix and sufficient transmission and distribution networks. 

Unsurprisingly, given the central role of electricity globally, even rare, isolated power outages can have far-reaching effects. Power interruptions can prompt many incidents, ranging from the inconvenient to the life-threatening, such as people trapped in lifts, trains and underground transport, death and illness due to high temperatures from loss of air conditioning, and higher mortality in hospitals when backup supply fails.

The potential indirect impacts of electricity supply interruption are also enormous and include transport disruption, food safety issues, crime and riots, and loss of economic activity. This can lead to health and safety problems as well as substantial financial losses. In extreme cases where power outages relate to extreme natural events, loss of electricity supply exacerbates other recovery challenges, making restoration of the power system one of the earliest priorities.

As electricity is a regulated good and most often designated as critical infrastructure, governments are generally held accountable for the reliability of power supply. A large-scale blackout or generally low reliability (or the perceived risk of it) can have strong political implications. Frequent and ongoing blackouts have also been connected with social and political unrest in some regions. This adds complexity to questions around how reliability is valued in planning, as governments and responsible organisations may have an incentive to maximise reliability beyond the point of pure economic efficiency or take a very risk-averse position.

The political sensitivity of electricity supply risks can also complicate the energy transition agenda. Perceptions of security concerns linked to higher contributions from variable renewables, higher levels of demand response and wider digitalisation can lead to pushback on clean energy solutions. This is highlighted by several blackouts such as those in South Australia in 2016 or the United Kingdom in 2019, when renewables plants were involved and triggered a fundamental review of how the system is operated. Even though the underlying technology or variability of infeed was proven not to be the main cause, they were presented in the media as supposedly illustrating the unreliability of renewables.

This underlines the challenges of formulating a balanced policy on electricity security – the topic is fundamentally complex and touches on many highly technical aspects, but at the same time is commonly politicised and communicated in the public sphere in an overly-simplified way, at times misrepresenting reality. This only emphasises the need for rigorous analysis to underpin decision-making to ensure reliability.