Cybersecurity: building armour for critical apps

Energy infrastructure is no longer protected in the way it once was simply because it links more closely to the internet. The power sector must also understand that the only way to protect itself against the very real and very dangerous threat of cyberattacks is by keeping a proactive security posture.

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Is the global power industry impervious to cyberattack?

Until recently the answer would have been yes, but in recent years this has changed. Back in June, The Guardian reported that the concerns over the threat to power stations and electricity grids were ‘off the scale’, claiming that no other country in the world has an energy industry so worried about cyberthreats.

Admittedly, this was in the wake of the WannaCry ransomware attack, which not only famously knocked out a vast swathe of National Health Service systems in the UK, but also went on to affect thousands of computers across the world, including in Spain at the gas company Gas Natural and at electric organisation Iberdrola.

But while it might seem alarmist to suggest that the UK energy industry is more concerned than anywhere else, the truth is that our entire industrial sector is now more vulnerable to cyberattack than ever before. Large power stations, and indeed all energy infrastructure, are no longer protected in the way they once were simply because they link more closely to the Internet.

The connectivity that facilitates our everyday lives has reached into power plants, utilities companies and engineering firms and with it has brought the risk of predatory malware. The smallest chink in the IP network armour is enough to let in danger, even to the most critical apps. Threats relating to web connected devices, even smart meters linking back to electricity utilities, are well documented. There was even a case recently in which a petrochemical factory suffered a ransomware attack through a classic back-door approach, using an IoT-enabled coffee machine which provided access inadvertently to the internal control room network.

State-sponsored hacking

The industrial energy sector is now just as likely to suffer a cyberattack as a bank or commercial operation and the impact has the potential to be huge. Power suppliers are a tempting target for hackers and not always for the obvious financial gains. Increasingly, they are politically motivated or have been state-sponsored to create mass disruption on a national scale.

A case in point is Ukraine. Over the past three years the country has suffered a sustained and highly damaging series of cyberattacks. The most notable took place just before Christmas in 2015, taking down three power control centres in the west of the country and all of the connected sub-stations, leaving over 230,000 residents without heat or lights. In addition, the hackers also disabled backup power supplies to two of the three distribution centres, leaving operators trying desperately to restore power in the dark. The same type of event occurred a year later, both of these have been part of a campaign that has seen the hacking of media, finance, transport, military and political targets, eliminating data and destroying computers. Why power and utility firms must close the chinks in their cybersecurity armour

Ukraine’s President has openly accused Russia of deploying cyberattacks, and is an outspoken critic of Russia, claiming publicly in December last year that there had been 6,500 cyberattacks on 36 Ukrainian targets in the previous two months. He said that: ‘Ukraine’s investigations point to the “direct or indirect involvement of secret services of Russia, which have unleashed a cyberwar against our country.” 

Only this month, there were reports in the media that hackers, thought to be working for a nation-state, breached a well-known industrial safety system, Triconex, widely used in the energy industry at nuclear facilities and oil and gas plants.

The problem with fighting a cyber war is that, unlike traditional warfare, it’s not always possible to determine who the enemy is. One of the great advantages of cyber criminality is that it is easy to maintain anonymity, and state-sponsored hackers are able to use in-country assets to hide behind and guard their locations. They employ stealth in order to avoid being held accountable, and the massive changes being wrought by the digital revolution are facilitating this dangerous approach.

But the challenge of attributing attacks to individuals, or even to governments, should not distract us from the seriousness of the assaults or the financial and operational damage being caused to power companies, or any other affected organisation. Degrading the trust institutions and economies that are needed for civilisation to function simply adds fuel to the flames of the cyber war. And as nations are attaching more systems to the Internet, UK organisations are increasingly exposed to attacks targeting countries like Ukraine.

As nation states become more active in the cyber black market, the lines between ‘hackonomics’ – the buying and selling of hacked or stolen data for profit or political gain – and nation-sponsored cyber wars get fuzzier, in what is already a complex and blurred landscape.

Following the WannaCry ransomware attack, many security and intelligence organisations were asked to confirm where the attack originated from, and this is challenging for them. However, this has not stopped claims appearing that WannaCry was the work of a nation state. Recently, the Minister of State for Security (the Rt Hon Ben Wallace MP) also added weight to this claim by saying that the UK Government believes “quite strongly that the attack came from a foreign state”.

OT vs IT

One of the difficulties for the power engineering sector when considering the threat of cyberattacks is balancing the differing priorities between OT and IT systems. Traditionally, OT has been prioritised because availability comes before anything else. OT systems are designed to run constantly to avoid an interruption that could lead to serious production delays and have damaging financial implications. OT is traditionally open and robust, built for safety because engines, motors and processors present a physical risk to operators. IT, conversely, is less concerned about physical safety but places its priority on a secure network because any breach could eliminate essential data or allow hackers to gain access to sensitive control systems.

The time has come for a balance to be struck, and it is urgent. Ensuring uptime is essential, but unless security measures to combat the risk of a cyberattack are given equal weight, the connections that increasingly bring OT and IT systems together can be breached, with devastating consequences.

There are a variety of worrying incidents which prove the point. In July 2017, The Times ran a story detailing how senior engineers at the Electricity Supply Board, which serves both Northern Ireland and the Republic, were sent emails containing malicious software. The intention was to infiltrate control systems in order to take out part of the electricity grid.

In addition, reports last year highlighted how hackers broke into a water utility company’s control system and altered the levels of chemicals being used to treat tap water. This was enabled by ageing operational control systems and log-in details that were stored on the front-end web server. There is no indication that the attackers understood how the flow control system in the company worked – in fact the skills required to carry out an attack of this kind have become less, rather than more – but they didn’t let this stop them from modifying application settings.Why power and utility firms must close the chinks in their cybersecurity armour

Perhaps even more alarmingly, so many of these incidents take place where traditional IT endpoint and network perimeter security measures are in place, but just one phishing email needs to be clicked on, one vulnerable application go ‘un-patched’ or one set of log-in details become out-of-date and the entire network is wide open for cyber criminals to exploit. And with nation states actively sponsoring the development of advanced tools and techniques, traditional security infrastructures can be easily breached.

Keeping the lights on

Power engineering companies around the world are now addressing these issues and taking a proactive approach to protect their critical infrastructure against the rising threat of advanced cyberattack.

What many are recognising is that as their OT and IT systems converge, they need to close those chinks in the armour, ensuring that access to the IT networks, whether internally, or remotely, is totally secure and strictly controlled.   

Vidder works with organisations to provide systems that deliver granular access controls to assets based on trust. That trust should be measured across all devices, software, users and systems at all times, because, as we saw from the WannaCry and subsequent attacks, a breach can happen at any time using the smallest system vulnerability. Connections should be permitted only on the basis of having a deep knowledge of where a connection initiates from and where it is going to, validation of relevant credentials and continuous monitoring to ensure access is restricted only to approved assets.

While power engineering companies take advantage of the benefits of connectivity, by necessity a larger number of devices will want to access complex, shared infrastructures. It is a feature of the digital age and supports the way that industry now works and operates. But this interconnectivity and the sharing of data means that the only way to protect those systems is by taking a zero-trust approach.

One example of this is a large UK-based gas distribution company that we are working with. They moved their infrastructure to the cloud, which meant that although their physical network became less important, they had to focus on identifying any user or asset looking to access their network data, regardless of where they were located.

They are using our PrecisionAccess solution, which delivers sophisticated security, granular control and segmentation across premises and into their new cloud infrastructure. They have established a zero-trust model which first identifies the user and their device and then ascertains their access level. This is important because it is all too easy for this, or any company’s field engineers to connect into the network without first updating their security checks. The Vidder system allows for this, carrying out trust assessment every time access is requested.

The power engineering sector has multiple priorities from guaranteeing uptime to maintaining share prices to facilitating productivity in the workforce. It also wants to maximise the opportunities that OT and IT convergence brings.

But the sector must also understand that the only way to protect itself against the very real and very dangerous threat of cyberattacks is by keeping a proactive security posture. Adopting a zero-trust approach will make it more difficult, not just for predatory malware to infiltrate, but credential theft threats and man-in-the-middle attacks. Now is the time to take action.

Paul Darby is Regional Manager EMEA at Vidder. www.vidder.com

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TEPCO launches IoT thermal plant optimization centre

Tokyo Electric Power Company expects to save millions of dollars a year in fuel costs at its thermal power plants thanks to a new IoT optimization centre.

The remote optimization centre has been established by Tokyo Electric Power Company Holdings (TEPCO) and TEPCO Fuel & Power to increase the fuel efficiency and other operations of its thermal plants.

The centre is the result of testing that started in 2015 and will now be developed into operational support services for the thermal plants of other electricity producers in Japan and overseas. TEPCO says the centre’s projected annual revenue is $46bn within three years.

“Embracing IoT technology to improve our technological services make it possible to provide value-added services for our customers in terms of maintaining thermal efficiency and improving power generation availability” said Seiji Moriya, president of TEPCO Fuel & Power. “TEPCO intends to enhance its presence as a global O&M company.”

Moriya said that by using IoT technology, the effort has improved power generation efficiency, resulting in decreasing fuel costs up to $651,000 per unit a year. Also, by remotely detecting symptoms of non-conformance, the technology optimizes power station operation and maintenance with reduced outages of 10-20 per cent.

A data monitoring and analyzing centre was added to the trials in January 2017 and has confirmed operational improvements at TEPCO Fuel &Power’s thermal plants at Hitachi-Naka, Chiba, Futtsu and Shinagawa.

The IoT centre was developed in collaboration with some of the world’s leading IoT companies, including OSIsoft, Amazon Web Service, BHGE Bently Nevada and Curtiss-Wright. 

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Three challenges utilities must tackle this year

The successful utility companies of the future will be those which have replaced legacy systems with more nimble, flexible applications that can embrace smart meter and Internet of Things developments.

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The utilities industry faces new opportunities and challenges brought on by the march of a digital revolution, and by how this has changed end user expectations of their services providers.

Utilities today are being encouraged to up their game to remain competitive. This means finding new ways to be more customer-centric, empower customers with proactive and personalized care on all channels and the ability to control their usage experience.

Over the next 12 months, the biggest challenges and opportunities for power and utility companies will be to build a comprehensive customer experience, drive operational efficiency and excellence and embrace big data opportunities. This article investigates these three complex challenges, and shares insight into how technology can support utilities in embracing new opportunities in the year ahead.

The utilities industry is waking up to the realisation that they have to evolve their customer experience, and find new ways to engage with customers and meet their changing requirements. This involves bringing the utilities customer service in line with the experiences delivered by retail, finance and telco service providers.

Consumer expectations are shifting dramatically, and when utilities are unable to meet these, customer satisfaction and loyalty can decline. The focus must therefore be to achieve greater transparency, roll out new services and offerings and deliver a modern customer experience that leverages multiple technologies.

Those focussed on improving customer experience are often most concerned with making changes to front-end, customer-facing applications and services – improving dashboards and self-service capabilities or opening up new customer service channels via social media and chatbots. But this is only part of the story. Changes must be made across the organisation. 

Utilities face a number of barriers to achieving this. Disjointed customer service capabilities across various channels make it a challenge to control costs and ensure customer satisfaction. In addition, a lack of business agility, fragmented processes and complex infrastructure make it difficult to provide a seamless customer experience.The successful utility companies of the future will be those which have replaced legacy systems with more nimble, flexible applications that can embrace smart meter and Internet of Things developments

By improving service delivery and embracing new technologies that can interpret consumption data and empower customers to manage their service and control their usage, utilities companies can reshape their relationship with customers. The old dynamic whereby consumers only interacted with utilities with a complaint or service issue will give way to a two-way relationship that is more positive and proactive.

Of course, while technology plays a major part in the transformation of the customer experience, utilities do not necessarily need to overhaul their entire technology infrastructure. With the right flexible customer experience approach, utilities can seamlessly enhance their core Customer Information System (CIS).

CIS remains at the heart of each utility’s customer relationship strategies, so as customer needs change utility companies need to develop additional capabilities and components in an efficient and modular way. Their focus must therefore be to invest in changing business processes with the aim of achieving this and making better use of the valuable data they collect.

Operational efficiency and excellence

Operational excellence refers, in part, to utility operations such as grid management, work management, asset performance management, supply chain and even supporting smart meter or IoT deployments. It is important for three reasons.

Firstly, many utilities tend to invest heavily in this area, which means it also presents opportunities to quickly identify cost-saving opportunities. Secondly, utilities that adapt their technology to be mobile and cloud-ready will improve field services and boost efficiency. Finally, and most significantly, the traditional business model of distribution network management is quickly changing into something dramatically different.

Consumers are turning to cheaper distributed energy generated from rooftop solar panels, wind turbines and diesel generators. A smart approach to data analytics is essential to making the most of DERs, and guaranteeing users a reliable energy supply. This is where modern network management systems add value. They provide utilities with dynamic, real-time data on flow conditions across the network to help them better manage the integration of distributed energy sources.

If utility companies embrace these operational changes, they will gain greater visibility into, and control over, the distributed energy resources that are increasingly being used in today’s energy market today. From there, they can drive benefits for both prosumers and themselves.

Making better use of big data

It’s no secret that big data, and more specifically the smart use of big data, is providing companies across all industries with the ability to get closer to their customers, better understand their own businesses and inform more strategic decisions.  While the utilities industry is rich in data across all of these areas, it’s time for energy providers to look beyond their historical reporting needs and do more with the information at their disposal.

Senior executives will continue to need reports on what has already happened, but today’s technologies and algorithms also provide real-time insights into the status of everything from customer relationships to network performance. The successful utility companies of the future will be those which have replaced legacy systems with more nimble, flexible applications that can embrace smart meter and Internet of Things developments

The uptake of IoT, smart meters and sensor technology also means that the volume and type of data available on individual customers’ energy usage has grown exponentially in recent years, and when analysed alongside network data it becomes a powerful predictor of future network performance.

This future view allows utilities companies to better prepare for spikes in demand, incentivise customers to make small changes to their habits that will help better manage network capacity or develop new products and services to meet ever-changing customer needs.

Emerging technologies such as predictive machine learning, advanced analytics and artificial intelligence (AI) are further moving the needle and helping utilities to transition from a reactive to a very proactive and prescriptive operating model. In short, it’s all about treating data as an asset, breaking down data silos, and establishing a process that means the organisation can derive insights from the information it collects and act accordingly.

Success through self-disruption

There is no doubt that cloud solutions will play an increasingly important role in helping utilities to tackle the challenges they face. A significant number of utility companies already use or plan to implement the cloud, or use applications and computing resources delivered as-a-service via a network connection instead of traditional in-house resources.

To make the most of the cloud, the utilities industry needs to disrupt itself and move away from its risk averse approach to technology investment. Many of the technologies that utilities are taking to the cloud today revolve around smart grid efforts and next-generation technologies —such as meter data management (MDM), big data analytics, and distribution automation and network management.

The successful utilities companies of the future will be those which have replaced legacy systems with more nimble, flexible applications that address evolving business processes in key areas, optimise existing business models and ensure that cloud technologies fit well within the broader organisation.

Martin Dunlea is Global Industries Lead for Utilities at Oracle. www.oracle.com

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Honeywell launches industrial cybersecurity centre in Middle East

Honeywell has launched its first industrial cybersecurity center of excellence at its Middle East headquarters in Dubai.

The centre offers what Honeywell calls "a safe off-process environment" to test and demonstrate process control network vulnerabilities and threats, train customers with real-time attack simulations and provide advanced consultations.

Jeff Zindel, vice-president and general manager of Honeywell Industrial Cyber Security, said the centre “is the first of its kind dedicated to developing world-class industrial cybersecurity expertise in the region”.

“It provides a safe, real-world environment to learn in, allowing us to innovate and augment industrial cybersecurity skills.”

 The centre contains distributed control systems, a physical plant process and the latest industrial cybersecurity software and solutions. It includes data analytics and networking equipment capable of supporting unique training sessions, demonstrations, workshops, and cyberattack simulations.

Safdar Akhtar, business development director of Industrial Cyber Security at Honeywell Process Solutions, said: “As threats to industrial control environments become more sophisticated, it will be crucial to train the workforce of the industry for effective cyber security implementation.”

“At the centre, we are able to demonstrate cybersecurity solutions and controls in attack scenarios to show which of them are most effective at combatting various attacks.”

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Singapore, London and Barcelona named as world’s best smart cities

Singapore, London and Barcelona have today been named as the world’s best smart cities in a report which highlights the drivers and hurdles faced by local authorities considering implementing a smart city programme.

And the study – from Philips Lighting – highlights that the potential rewards from such a programme are high: it cites Barcelona as having created an estimated 47,000 jobs through the implementation of Internet of Things systems, saved €42.5 million on water and generated an extra €36.5 million a year through smart parking.

However, the report adds that while one in 10 local authority representatives stated that they did not have the capacity to look at developing a smart city programme, they are also being held back by budget limitations, a lack of infrastructure, short term planning and a lack of leadership on implementation.

The most common inhibiting factors are budget limitations (23 per cent) and the need for more supporting infrastructure (19 per cent), demonstrating that securing investment in smart city projects is no easy task.

But the report suggests that projects that deliver short-term gains as well as providing infrastructure for the long-term can overcome these issues, such as telco-integrated street lighting in San Jose and smart LED streetlights in Los Angeles, which deliver annual cost savings of $9 million and will repay the upfront cost within seven years.

Indeed, the report reveals that it is not uncommon for a city to spend half of its energy budget on street lighting. Philips says that implementing smart lighting technology not only reduces energy consumption, it has also been seen to lower crime rates, support local businesses as well as create a more aesthetically pleasing environment for city dwellers. This is in addition to the cost and environmental benefits.

Philips says that “realizing the benefits of smart cities is essential. Cities consume 70 per cent of the world’s energy and by 2050 urban areas are set to be home to 6.5 billion people worldwide, 2.5 billion more than today. For cities to remain fit for purpose as the demand on occupancy and energy increases, local authorities must tackle difficult areas including technology, communications, data security and energy usage.”

Jacques Letzelter, Segment Manager at Philips Lighting, said: “City authorities face complex and challenging choices concerning infrastructure, balancing the need to maintain existing services while investing in improvements, managing population growth and enhancing sustainability – all within tight budget constraints.

“New technologies can already transform the way cities deliver, operate and maintain public amenities, from lighting and transportation to connectivity and health services. Often, however, adoption is slowed by the division of work and the selection of technology that doesn’t easily work together or integrate with other city services. Fortunately, there are many successful examples of smart city projects that prove these obstacles can be overcome, with the right collaborative approach and integration technologies. These projects show that smart cities can bring about better lives and enhanced safety for their citizens.”Singapore, London and Barcelona named as world’s best smart cities

The report discusses the key role that the IoT has to play in delivering smart city success. Revolutionizing the collection of data (35 per cent), revolutionizing communication for accurate service delivery (15 per cent) and managing the strain on urban resources (13 per cent) were ranked as the top three areas where the IoT would be most effective in cities. However, the report notes that the implementation of new technologies and a smart city program is different for each city.

The top three smart cities were all noted for very different strengths in their smart city programmes. Singapore was praised for its forward-thinking infrastructure including its buildings, transportation and use of underground space. London was commended for its focus on communities when implementing technology. One respondent described London as “a honey pot of technologies and partnerships.” Barcelona was noted for its top-level government driving change.

Andreas Knobloch, Alliance Specialist at Philips Lighting, explained: “Collaboration is key. For cities to truly benefit from the potential that smart cities offer, a change in mindset is required where local authorities plan longer and across multiple departments.”

“We must think of city-wide systems as one ecosystem working together. At the same time, we all – technologists, local governments, businesses, environmentalists and the general public – must help to build the investment case to enable cities to successfully implement smart city programmes.”

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What will be the true impact of electric vehicles?

We examine some of the major uncertainties that exist around electric vehicles – when and where will people charge their cars? What behaviour will we see? And ultimately, what impact may EVs have on the generation and distribution of electricity?

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2017 was a major year for announcements on electric vehicles. While there are still hurdles to be overcome, it seems that EVs have already won the battle for the future of transport.

Naturally at Pöyry we don’t rule out the possibility of natural gas, hydrogen and fuel cells playing their part, but in this point of view we consider only an ‘all electric’ future.

Imagine that by 2030 EVs have taken over as the vehicle of choice and rapid EV take-up has transformed our streets making them quieter and with much reduced local air pollution. Still a major uncertainty exists – when and where will people charge their EVs? What behaviour will we see?

Added to this uncertainty is the transformation of the electricity system that is ongoing – decarbonization, decentralization and digitalization. We expect increasing amounts of non-dispatchable renewable generation in the form of wind and solar, and for new technology and innovation to allow for much greater levels of consumer participation in the electricity market.

So the key question we address here is ‘what impact may EVs have on the generation and distribution of electricity?’

In a future with 50 per cent of all cars, buses and motorcycles ‘all electric’ across the EU28, the demand for liquid transport fuels is 68 mtoe p.a. lower (or 24 per cent of the 2016 total) and annual electricity demand is 330TWh higher, which is 11 per cent of EU28 final demand in 2016.

To some this may not seem much, but it is equivalent to adding a country the size of Italy to the electricity demand of the EU28. One reason why the impact is not larger is that EVs are efficient in turning energy into km travelled when compared to reciprocating engines.

It is important though to consider how the electricity is generated and compare primary energy use per passenger km to ensure a like for-like comparison.

What does this 330 TWh mean in terms of additional capacity – how many gigawatts of new plant may be needed as a result of this increased electricity demand? If the 330 TWh was considered on a standalone basis, it would require 45 GW of baseload plant, which is equivalent to 14 Hinkley Point Cs, or 125 GW of onshore wind capacity, which is almost three times the current total onshore wind capacity of Germany.

But what does it mean for investment needs when considered in the existing electricity system? The answer to this question is not at all straightforward, as it depends on how, when and where EV owners choose to charge.

When will EVs charge?

Energy versus Capacity. Electricity demand varies across the day and across the year, and storing electricity is currently costly. As a result, traditionally electricity systems have plants that run baseload, mid-merit and peaking duty.

In addition, they hold reserve capacity to deal with unexpected peaks in demand. So, a peaking plant may only run for a small number of hours over the year. In addition, the wires that distribute electricity also have to cope with peaks in demand and be sized appropriately.

With spare capacity on the system, additional energy demand could in theory be accommodated without the need for new capacity.

We use the UK and a simple scenario to demonstrate this. In the UK, peak demand currently occurs in the winter at around 18:00 due to the combination of heating, lighting and cooking demand.When and where will people charge their electric vehicles?

Imagine all cars (that are charging) slow charge at the same time overnight in a seven-hour period starting at 23:00.

In this example, it would be possible to accommodate over 21 GW of charging demand before a new peak demand period is created. However, if charging began earlier in the evening, say at 21:00, then around 4 GW of charging demand creates a new peak.

If charging starts when people return home from work, at say 18:00, then the impact is direct and new capacity is required immediately. Assuming a 50 per cent penetration of EVs in the UK, the demand from charging over these seven hours translates to 20 GW and so can in theory be accommodated within the existing generating capacity.

The energy transition

However, the situation both today (in some countries) and in the future is not well represented by the above characterisation for a number of reasons, not least: the continuing increase in non-dispatchable generation such as solar and wind; and the growing potential of flexible demand from appliances and EVs, to balance supply and demand in a future smart, digitalized, decentralized energy system.

As the amount of wind and solar grows in the electricity system (whether centralized or decentralized) the shape of electricity demand will no longer be the main driver for when to charge an EV, as low electricity prices will not necessarily coincide with periods of low demand overnight.

Rather than charging overnight, it will make sense for EVs to charge (and for other flexible loads to run) during a sunny or windy period. Assuming that the average EV user charges once a week, then the best day to charge in Germany during Week 45 2017 is the 10th November.

The price of electrical energy on, say, a 15-minute dynamic basis, can provide the right signal about when best to charge an EV.

Consumers will, if so enabled by technology in the future, respond to the price signal, increase aggregate demand and reduce the level of curtailment on zero or negatively priced renewable generation.

Therefore, flexible demand will allow for more wind and solar to be built on a profitable basis as a result. Consumers will set their preferences and the EV will do the rest. Such preferences may be that they never want less than 40 per cent charge in their EV and are willing to pay a maximum amount per day for their electricity.

In addition to EVs, large controllable loads in the home (washing machines, tumble dryers, immersion heaters) will also be programmed to switch on at such times. These interactions will likely be automated through a home hub system rather than requiring any human intervention.What impact may EVs have on the generation and distribution of electricity?

The pricing of electricity will also need to be dynamic so that as demand increases, prices respond and additional demand sees its impact on price levels.

For this to work, of course, consumers will need smart meters that can record demand on this 15-minute basis and retail prices that reflect the changing value of electricity in each 15-minute period. In a world in which flexible demand responds to changes in the price of electrical energy, what implication will this have for the distribution of electricity?

Can EVs solve the gird problems they cause?

Distribution and Diversity. In practice, our electricity systems rely on diversity of demand to hold down costs. The fact that people use electricity at different times means that the capacity of the system is lower than it would need to be if they used it at the same time.

If everyone in a street put their electric ovens on at the same time, then the low voltage fuse at the street substation would blow and supply would be lost to everyone on the street. If people were willing to pay more so they could all have their ovens on at the same time and not lose supply, the distribution company could come and put in a bigger cable and potentially a bigger transformer at quite a significant cost (tens of thousands of euros per street).

By dint of natural diversity, the cost of distributing electricity to consumers is kept lower when we share assets. With non-smart systems it doesn’t matter to the residential consumer when their electricity demand occurs as settlements are based on half-hourly or hourly profiles rather than on actual demand.

In a 50 per cent EV penetration scenario, if all the EVs in a city street slow-charged at the same time, major investments in the electricity distribution system would be required.

In a world in which flexible demand is chasing low electricity prices, there is an incentive for consumers to charge their vehicles at the same time. Natural diversity will reduce and distribution systems will need even greater levels of investment.

The cost of distributing electricity will be low most of the time and then increase significantly when grid capacity grows scarce. There will exist at times a tension between the cost of electrical energy and the cost of distribution. The cost of delivered electricity will vary significantly with time and location.

The impact that this has on the electricity system will depend on the underlying characteristics of the system. In systems with high levels of hydro storage, the variation in electricity prices driven by wind and solar will be low.

The incentive to all charge at the same time will be reduced. In systems built to cope with mainly electric heating, home-based slow-charging demand is proportionally less important as the distribution system is already built for larger loads (as long as one avoids having the heating on at the same time as the EV is charging).

One solution is a system of dynamic pricing that reflects the cost of electricity at a specific location. The pricing option could be a variation on nodal pricing, common in many electricity markets, but which is extended down to the local distribution level, even to a price at the top of a city street.

Whatever the form, the key will be reflecting the cost of electrical energy and the cost of distributing electricity to an appropriate degree of temporal and geographic resolution.

Unless customers see the cost of their actions through locational dynamic pricing of electricity, it is likely that very significant investments in electricity distribution infrastructure will be made unnecessarily.

In the interim, a system of pricing distribution use on a kW capacity rather than kWh energy basis to reduce individual consumer peaks may alleviate the issue. Some trials of command and control by distribution companies, in which the distribution company controls the charging time, have taken place but it is difficult to see how this is consistent with a smart energy future.

Evolution

One of the key questions that remain with EVs is their ability to inject energy back into the grid economically. With current technology, the received wisdom is that cycling of the EV battery has too great a cost (in reduced battery performance and early replacement) for injecting back into the grid to be economic for much of the time.EVs will fundamentally challenge the whole of the electricity industry

But if the scarcity of the wires were priced accurately, the economics will change. In addition, as the number of EVs increases, this will lead to more periods of grid scarcity with greater value.

Battery technology for EVs will no doubt improve over time and, if re-injecting from an EV creates a value that can be captured, then developments will likely lead to a lower cost of re-injecting.

Alternatively, static batteries in the home or in the local grid may be the answer to reducing congestion on the local distribution wires. Evidence from Norway suggests that avoiding grid capacity fees is a major driver of residential battery deployment.

The economics of EVs reinjecting electricity into the system could end up being based on the cost of storing energy in, and re-injecting energy from, an EV (or static) battery versus the cost of grid reinforcement. So, when you want to charge your EV at a specific time and there is local grid congestion, you will charge from other EVs that are discharging energy in your local street or area.

The available re-injection capacity from EV batteries will be limited by the connection to the grid and by the ability of the grid to distribute electrical energy. An EV battery can deliver a large amount of power to the motor by comparison to its grid connection

Even with this limit, the GW of capacity that could be delivered by a 50 per cent penetration of docked EVs is large and this could lead the way to an electricity system premised on renewables and EV battery storage (as long as the issue of rate of change of frequency can be addressed).

So we may find that the problems that EVs cause in the future are actually solved by EVs themselves (either directly or indirectly through advancement in battery technology in static battery applications).

This will be the case as long as the correct price signals are seen. And this may mean having a new electricity market design fit for the future that prices not only the electrical energy dynamically within day, but also the grid congestion on the same basis down to a local level.

It is uncertain exactly how EVs may develop and given this uncertainty a flexible pricing system may be the best solution to make the most of the flexibility they will bring.

The truth is that EVs will fundamentally challenge the whole of the electricity industry – from the approach and remit of regulators, to the licences that define the activities of companies, as well as the settlement processes. It will also impact business models across the industry as we move behind the meter and allow for multiple suppliers to supply each home.

Developments are already being seen in some markets but a huge amount of work remains to be done.

If we are too slow to bring about these changes, we risk making generating capacity and grid investments in the shorter term that become unnecessary in the long-term and that burden consumers with higher costs for years to come.

Matt Brown is Vice-President of Energy for Western Europe, Middle-East and Americas, at Pöyry

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