Energy Transition

The growing cyber-risk to our electricity grids - and what to do about it 

Computer science professor Christa Lopes holds an appliance communication module attached to the refrigerator in her home in Irvine, California January 26, 2015. Lopes said the Irvine Smart Grid Demonstration, a $79 million project funded half by federal stimulus money and half by Edison and partners like UC Irvine, cut her electric bill to zero in the summer. The $12 billion utility's research team Southern California Edison is testing everything from charging electronic vehicles via cell phone to devices that smooth out the power created by rooftop solar panels. Those are some of the roughly 60 projects in the works at Edison's Advanced Technology division. It has a small $19 million annual budget, but its influence far exceeds that. Picture taken January 26, 2015.

Smart grid technology can revolutionise the energy sector - but it is under growing threat from cybercriminals Image: REUTERS/Lucy Nicholson

Karime Kuri Tiscareno
Project Lead, IoT, Robotics and Smart Cities, Centre for the Fourth Industrial Revolution, World Economic Forum
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Last month, the social, political and economic crisis in Venezuela rose to new levels as power outages affected more than 70% of the country. While the exact cause of these outages is disputable, the disruption they caused was not. Simply put, few types of infrastructure are as critical to our lives and economies as electricity.

Globally, governments and utilities are investing $750 billion annually into electrical generation and supply, more than any other area of the energy sector. Smart technologies are vital to this investment. They have helped transform traditional electricity systems into intelligently connected networks known as smart grids. Smart grids have the potential to boost resiliency and to catalyse the efficient and sustainable use of electricity. Real-time access to supply and demand platforms, enabled by smart grids, could deliver a value of $632 billion to society – higher than any other individual digital initiative. This value derives primarily from cost savings to the customer and from reduced carbon emissions.

The nature of smart grids leverages the severity of the cyberthreats to them
The nature of smart grids leverages the severity of the cyberthreats to them. Image: WEF

The risk of cyberattacks

But as electricity grids increasingly become smart – and interdependent – the impact of a cyberattack also becomes more severe and wide-reaching. The World Economic Forum’s Global Risk Report 2019 suggests that large-scale cyberattacks rank fifth among the risks most likely to occur in the next 10 years. The cost of a cyberattack on the US smart power grid is estimated to be $1 trillion – roughly eight times the cost of cleaning up the Fukushima nuclear disaster. A six-hour winter blackout in France could result in over $1.7bn in damages. The negative externalities of a cyberattack on smart electricity grids could be immense, as just about everything depends on the availability of electricity, including water supplies, transport and communication.

The utility and energy sector ranks second-highest in terms of predicted losses per company from cybercrime - it costs an estimated $17.2 million per company per year. The financial services industry takes the top spot with an estimated $18.2 million in losses per company per year from cybercrime. Experts agree that society often bears the cost of cascading effects resulting from cyberattacks.

  As grids become smarter, the risks posed by cyberattacks begin to stack up
As grids become smarter, the risks posed by cyberattacks begin to stack up. Image: WEF

To help companies plan for and prevent cyber-risks, the World Economic Forum’s Risk Snapshot: Smart Grids paper highlights three ways businesses can mitigate cyber-risk.

1) Balance priorities. Companies need to balance innovation, adaptability, agility and efficiency with safety, investment, resiliency and security. A lopsided approach will result in increased risk. These eight priorities have been highlighted by the industry experts who contributed to the research.

2) Implement proactive safeguards and internal risk management. Proactive safeguards and internal risk management for internet of things (IoT) technology, including top-level accountability and information sharing, is necessary as companies become increasingly dependent on data-driven automated systems.

3) Create an organizational culture of awareness. Insurance data shows two-thirds of cyber insurance claim incidents are the direct result of employee behaviour - for example, negligence leading to lost devices. Talent shortages, skill deficits and employee engagement also contribute to the bulk of financial losses so far from cybercrime. All-level employee education on cyber-risk, not just building firewalls, will alleviate much of the strain currently being placed on the industry, according to the report.

 Collective action is required to build resilient grids fit for the future
Collective action is required to build resilient grids fit for the future. Image: WEF

The urgent need for collective action

Safe and responsible IoT deployment across the electricity grid can lead to a reduction in greenhouse gases, better resource management, increased resilience and consumer cost savings. But the industry needs to collectively address the risks to ensure that innovation can scale and accelerate the benefits for all of society.

To help address this challenge, the Forum’s Centre for the Fourth Industrial Revolution is recruiting leading companies, governments, organizations and experts to pilot new industry-wide best practices and market incentive schemes to ensure safety and security in an increasingly smarter world.

The demand for IoT technology in the electricity sector is rising as the benefits of smart grids become hard to ignore. Worldwide spending on the IoT is forecast to reach $1.2 trillion in 2020 - more than half of what the world is forecast to spend on defence ($2 trillion) and more than double the spend on digital advertising ($500 billion). Utilities rank fourth among the industries spending the most on this technology - but without securing these new technologies, the risks may make people question whether they outweigh the benefits.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Energy TransitionCybersecurity
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