NERC ERO Reliability Risk Priorities Report

NERC stands for North American Electric Reliability Corporation.  It is a non-government organization that provides standards for governing the bulk power grid across Canada and the United States.  It is made up of six regional entities as shown below:

NERC recently issued a report https://www.nerc.com/comm/RISC/Related%20Files%20DL/2025_RISC_ERO_Priorities_Report.pdf  in which they summarized the five top risks facing the electrical grid in North America.  It is worth looking at what they reported as these risks will also affect the cost of electricity and its reliability for every customer in ways both good and bad.  At the same time as these risks are creating more challenges for electricity providers, electricity is becoming more important for customers.  With digitization, working from home, streaming and general internet applications, stable electricity is becoming even more vital.

Risk Profile #1: Grid Transformation

The grid in North America has been largely the same for decades.  It is now changing in a number of ways that will change how the grid is managed. Some of these changes include:

• Very Large New Loads.  Data centers are bringing new loads onto the grid in sizes much bigger than ever seen before.  I have had discussions with brokers for data centers that are looking for sites with a minimum load of 100 MW.  For comparison, the load of all of Niagara-on-the-Lake is around 50 MW on the very hottest days.  There are sites with loads of 1 GW (1,000 MW).  These large loads create both challenges in meeting the demand and opportunities from the additional revenue.
• Reserve Requirements.  Because of both the large loads and weather events (see below) the swings in electricity demand are much more volatile than was previously the case.  Operating authorities like the Independent Electricity System Operation (IESO) always have generation ready in reserve to cover unexpected events.  If the volatility is higher then these reserves will likely need to be higher thus raising the cost of electricity.
• Supply Chain Concerns.  Rapidly growing and changing infrastructure needs as well as the changing trade environment have created ongoing supply chain challenges including growing lead times and rising prices.  These, in turn, are requiring changes to the operational processes of electric utilities.
• Storage.  The biggest challenge with electricity has always been that it must be generated at the same time that it is used.  It cannot easily be stored like most products we use.  Energy storage technology is developing rapidly and the use of energy storage on grids is growing significantly.  Lithium-ion and other batteries are the primary technologies being developed but other forms, such as hydrogen, have potential applications.  The cost of energy storage is still high, but it is falling and could be transformative.
• Distributed Generation.  The grid is moving from one with a few large generators and a grid that distributes this generation to one that also has many small local generators.  NOTL Hydro is supplied by over 160 small local generators, almost all solar, though these supply less than 10% of the required electricity.  NOTL Hydro anticipates that the number of solar generation sites will increase with net metering and with new subsidies for solar panels.  The management of the grid is adapting to ensure these additional generators can be incorporated in a safe and efficient manner.

Risk Profile #2: Resilience to Extreme Events

Climate change is having an impact on the management of the grid with greater frequency of extreme events and changing historical patterns.  Many of these events have been in the news such as the recent wildfires, the ice storm north of Barrie this winter, the extreme cold in Texas, various floods, a longer hurricane season and derechos in Ontario.  All of these mean longer outages and bigger rebuilds of the grid.  This, in turn, creates pressures in the supply chain and in the workforce.  Some other events are not as extreme but have a longer-term impact.  Examples include higher levels of vegetation growth (this includes in NOTL) that can cause more outages and lower levels of precipitation that can reduce electricity generation from hydro dams.  Some of the impacts of this include:

• Utilities need to plan for these outages as they should now be considered as expected rather than highly unusual.  This means higher levels of inventory and staffing on standby.  Businesses are being developed that respond to these more frequent events.
• The grid needs to be more resilient with more of it located underground and with stronger components used.
• Greater flexibility needs to be built into the grid with more switching capabilities at a higher speed.
• Better coordination between utilities is required so that responses can be integrated.

Risk Profile #3: Critical Infrastructure Interdependencies

The grid in North America no longer works in isolation of other critical infrastructure.  The best example of this is the reliance on the telecom’s infrastructure.  As the management of the grid has digitized and as more and more devices are connected to the grid, the need for reliable telecommunications has expanded.  With increased reliance has come increased risk.  Some of the larger utilities have tried to reduce this risk by owning their own telecommunication systems.  Hydro One is an example of this.  It does not reduce the reliance of the telecommunication infrastructure, but it places it under common control.

Another example is the natural gas infrastructure.  Natural gas has replaced coal as the fuel used to manage the final matching of the demand and supply of electricity.  Nuclear and hydro are baseload while wind and solar are intermittent so no control over timing.  Batteries are not yet cost efficient for this role.  This means the grid depends on the natural gas infrastructure to deliver this commodity when needed as it cannot be easily stored like coal.

On a day-to-day basis these interdependencies are not an issue, but they could become one in the event of a widespread emergency, particularly something like an earthquake which could also disrupt both these infrastructures.

Risk Profile #4: Security

The increased digitization of the electricity grid has also increased the cyber risk.  This includes the risk from direct attacks (the electricity industry is heavily targeted), vulnerabilities embedded in software and hardware purchased and installed on the grid and risk from the increased use of cloud technologies.  Physical security of the electricity grid is also a growing concern whether due to potential terrorism or from vandalism.

There is an ongoing cost in addressing these security concerns.  The regulator in Ontario, the Ontario Energy Board, has made cyber security a priority for electricity utilities in Ontario.  While their approach has not always been the soundest, their emphasis is warranted.

Risk Profile #5: Energy Policy

Volatile energy policies with changes in administration create uncertainty and increased costs.  With energy policies being more extreme, the impact of a change in government is higher.  This is not just a US phenomenon.  In Ontario, this was also witnessed when the province switched from the Liberals who supported the Green Energy Act to the Conservatives who cancelled it.  No matter which side you were on, NOTL Hydro had promoted cancelling the Green Energy Act, it was still a significant change.  Continued volatility in energy policies will add costs and uncertainty to the sector and affect future performance.