Building Resilience in Europe’s Energy System

Extreme climatic events are increasing both in terms of frequency and scale, causing serious damage to physical assets such as gas and electricity transport infrastructure. More extreme weather conditions also affect the availability of intermittent renewable energy sources such as wind and solar, and the volatility of energy demand. Additionally, Europe’s electricity and gas sectors are becoming more interdependent as the continent moves towards its 2050 net zero goals, creating efficiencies but new vulnerabilities resulting from system integration. It is therefore urgent to ask how EU law and regulation can support and create incentives for a more resilient infrastructure.

This report, led by Catherine Banet, Friðrik Már Baldursson and Chi Kong Chyong, focuses on new EU regulatory and legislative approaches to increase infrastructure resilience. It illustrates the consequences of climate-change related hazards through concrete case studies of electricity and gas networks hit by disasters like wildfires, storms and extreme cold.

Key takeaways and recommendations of the report:

• Resilience needs to be defined in EU regulation with a broader scope, e.g. including flexibility as part of resilience and a longer-term perspective.
• There is a need for more clarity on methodologies regulators use to monitor operators’ resilience assessment and investments, and also in terms of guidance as to the prioritisation of investments.
• Benefits of resilience are much more difficult to measure than the costs. Value of Lost Load (VoLL) will be a very important component of any approach to monetising resilience. Research in this area is urgently needed for proper valuation of resilience benefits.
• It is key for grid operators to identify and assess risks that will form basis for investment plans and decisions. The challenge will be how to define criteria and metrics that will reflect disruptions of varying scale in a longer timeframe.
• Due to increasing coupling between the gas and electricity sectors, new gas and electricity resilience metrics may be needed to reflect increasing inter-dependence and feedback between the two sectors, and how one sector can support resilience of the other sector.
• There are different ways of bringing the required investments about, e.g., economic incentives and/or command and control. Costs will, however, almost certainly increase if the quality and reliability of energy supply Europe is accustomed to is to be maintained. These may be thought of as insurance against the greater damages that would ensue in the absence of action.
• Finally, despite improved resilience, extreme events will occur and may seriously damage infrastructure. Insurance funds such as that established in California may be a good solution to share such costs, unless markets fill the gap and offer insurance for these kinds of events