About this report
The power sector is going through fundamental changes: decarbonisation with fast growth in variable renewable sources, digitalisation expanding the surface for cyberattacks, and climate change leading to more extreme weather events. In response, governments, industries and other stakeholders will need to improve their frameworks for ensuring electricity security through updated policies, regulations and market designs.
This report surveys the ongoing multiple transformations in the electricity sector, which are leading to a new system in the future. For the first time, three key aspects of electricity security are addressed in one report: energy transitions with more variable renewables, cyber risks, and climate impacts.
In addition, the roles of new technologies and demand-side response, and electrification of other sectors are explored. Examples and case studies of all these changes are taken from power systems around the world. Existing frameworks that value and provide electricity security are described, and best practices offered along with recommendations to guide policy makers as they adjust to the various trends underway.
A secure supply of electricity is essential for the prosperity of our societies and indispensable for the 24/7 digital economy. Recent difficulties caused by the Covid-19 pandemic remind us of the critical importance of electricity in all aspects of our lives, from keeping medical equipment working and IT systems available to accommodating teleworking and videoconferencing. Ensuring safe and reliable electricity supply is of paramount importance for all countries.
While electricity only accounts for a fifth of total final energy consumption today, its share is rising. In pathways consistent with the Paris Agreement such as the IEA Sustainable Development Scenario (SDS), the trend will accelerate, and electricity could surpass oil as the main energy source by 2040. Electricity demand increases by roughly 50% in just 20 years in all scenarios of the IEA World Energy Outlook, with growth predominantly concentrated in emerging and developing economies.
Looking ahead, electricity is expected to play a bigger role in heating, cooling, and transport as well as many digitally integrated sectors such as communication, finance and healthcare. The need for robust electricity security measures will become a prerequisite for the proper functioning of modern economies. All this puts electricity security higher than ever on the energy policy agenda.
The power sector landscape has been undergoing dramatic changes, shifting from one characterised by centralised, vertically integrated systems using a relatively small number of large dispatchable thermal power plants to one made up of markets with large numbers of power producers of all sizes, many of which are using variable renewable resources. At the same time, the role of digital technologies is increasing exponentially. New digital technologies provide new opportunities for the economy as well as assisting in the management of these more complex systems, but they also expose the electricity system to cyber threats. While governments and industry are employing measures to mitigate climate change, adapting electricity system infrastructure to the impacts of climate change to preserve its robustness and resilience must become a priority.
These trends call for a broader, widely encompassing approach to electricity security: one that brings together actions taken at the technical, economic and political levels, with the goal of maximising the degree of short- and long-term security in a context that simultaneously comprises energy transitions, cyberthreats and climate impacts. This is the first time that a report considers all three of these aspects together.
Clean energy transitions will bring a major structural change to electricity systems around the world. Variable renewable generation has already surged over the past decade. The trend is set to continue and even accelerate as solar PV and wind become among the cheapest electricity resources and contribute to achieving climate change objectives. In the IEA Sustainable Development Scenario, the average annual share of variable renewables in total generation would reach 45% by 2040.
Such rapid growth in variable renewable resources will help alleviate traditional fuel security concerns, but it will call for a fast increase of flexibility in power systems. On the other hand, conventional power plants, which provide the vast majority of flexibility today, are stagnating or declining, notably those using coal and nuclear. On the demand side, electrification will increase demand for electricity, and technology and digitalisation are enabling a more active role for consumers as part of more decentralised systems.
Traditional frameworks for ensuring electricity security will not be sufficient in the face of these changes. The challenge for policy makers and system planners is to update policies, regulation and market design features to ensure that power systems remain secure throughout their clean energy transitions.
Experience in a number of countries has shown that variable renewables can be reliably integrated in power systems. Many countries and regions in many parts of the world have succeeded in this task using different approaches and taking advantage of their flexibility resources. They leave to the world a large set of tools and lessons to be integrated into the policy maker toolkit.
Making the best use of existing flexibility assets and ensuring these are kept when needed should be a policy priority. This will require market and regulatory reforms to better reward all forms of flexibility as well as careful adequacy assessments of the impact of decommissioning plans of dispatchable supplies.
However, going forward, new additional flexibility resources need to develop in parallel with expanding solar and wind, especially in emerging and developing economies that are facing strong electricity demand growth. Maintaining reliability in the face of greater supply and demand variability will require greater and more timely investments in networks and flexible resources – including demand side, distributed, and storage resources – to ensure that power systems are sufficiently flexible and diverse at all times.
Notably, current investment trends do not support such requirements and will need to be upgraded accordingly, sooner rather than later. Grids are a particular concern, as investment has been decreasing by 16.3% since 2015. Grids also require long-term planning, have long construction lead times and often face social acceptance issues.
Building new assets to provide needed adequacy and flexibility will require an update to market design. Increased reliance on renewables will augment the need for technologies that provide flexibility and adequacy to the system. This will include storage, interconnections, natural gas-fired plants in many regions, and demand-side response enabled by digitalisation. Updated approaches to planning will also be necessary, with more advanced probabilistic analyses that account for and enable contributions from all available technologies to adequacy.
Digitalisation offers many benefits for electricity systems and clean energy transitions. At the same time, the rapid growth of connected energy resources and devices is expanding the potential cyberattack surface, while increased connectivity and automation throughout the system is raising risks to cybersecurity.
The threat of cyberattacks on electricity systems is substantial and growing. Threat actors are becoming increasingly sophisticated at carrying out attacks. A successful cyberattack could trigger the loss of control over devices and processes, in turn causing physical damage and widespread service disruption.
While the full prevention of cyberattacks is not possible, electricity systems can become more cyber resilient – to withstand, adapt to and rapidly recover from incidents and attacks while preserving the continuity of critical infrastructure operations. Policy makers, regulators, utilities and equipment providers must play key roles to ensure cyber resilience of the entire electricity value chain.
Governments around the world can enhance cyber resilience through a range of policy and regulatory approaches, ranging from highly prescriptive approaches to framework-oriented, performance-based approaches. Approaches that are more prescriptive have the advantage of allowing for more streamlined compliance monitoring, but they could face challenges in keeping pace with evolving cyber risks. Less prescriptive, framework-based approaches allow for different approaches and implementation speeds across jurisdictions, but they raise questions around how to establish a coherent and robust cross-country approach to cybersecurity with tangible and effective impact. Implementation strategies should be tailored to national contexts while considering the global nature of risks.
The electricity system is witnessing increasing pressure from climate change. Rising global temperatures, more extreme and variable precipitation patterns, rising sea levels and more extreme weather events already pose a significant challenge to electricity security, increasing the likelihood of climate-driven disruption.
While there is a general recognition of these trends and associated risks, only 17 “IEA family” countries have incorporated concrete actions for climate resilience of electricity systems into their national adaptation strategies to date. Of those, only six cover the entire electricity value chain.
Enhancing the resilience of electricity systems to climate change brings multiple benefits. More resilient electricity systems reduce damage and loss from climate impacts and bring greater benefits than costs. Moreover, deployment of climate-resilient electricity systems helps developing countries address immediate threats from climate hazards and ensure reliable electricity access. Climate resilience also facilitates clean energy transitions, enabling more electrification solutions and accelerating the transition to renewable energy technologies, which are often sensitive to a changing climate.
Effective policy measures play a significant role in building climate resilience. The benefits of climate resilience and the costs of climate impacts tend to be distributed unevenly across the electricity value chain. This inevitably raises the question of who should be responsible for delivering resilience measures and paying for them. Policy measures for climate resilience can encourage businesses to adopt resilience measures, thus preventing a potential “market failure”.
A higher priority should be given to climate resilience in electricity security policies. In many countries, the level of commitment and progress towards climate resilience in the electricity sector still lags behind. Mainstreaming climate resilience in energy and climate policies can send a strong signal to the private sector, inspiring businesses to consider climate resilience in their planning and operation.
The three areas above require different security responses. The following overarching principles should be applicable: 1) Institutionalise: establish clear responsibilities, incentives and rules; 2) Identify risks: undertake regular system-wide risk analyses; 3) Manage and mitigate risk: improve preparedness across the electricity supply chain; 4) Monitor progress: keep track, record and share experiences ; and 5) Respond and recover: cope with outages or attacks and capture the lessons learned.
Electricity security matters more than ever if we are to have successful clean energy transitions. In addition to identifying best practices and innovations already underway around the world, new and updated responses from governments and other stakeholders to ensure security, build off existing frameworks and develop methodologies will enable much needed changes to electricity systems.
Many of us are facing similar challenges. Policy makers, regulators and operators can learn from the experience of other countries and regions. The IEA will be at the heart of such co‑operation.