Weather events, disasters and cyberattacks top the list of risks for power and utilities companies in today’s changing energy landscape, according to new analysis.
In a report released today, consultancy EY surveyed energy sector firms to rank the strategic, financial, operational and regulatory risks across the power and utilities sector.
It found that business interruption due to weather events such as storms and hurricanes, power outages due to disasters, and cyber threats such as denial-of-service attacks were the most-feared risks, with 80 per cent of surveyed firms saying these risks will become more important in future.
The top financial risk and number two overall risk was regulatory changes affecting companies’ ability to recover the costs of their power assets. The industry’s tradition of stable and predictable returns has been impacted by slowing energy demand in mature markets, but existing regulatory frameworks largely fail to offer incentives that would allow companies to invest in innovation and digital technologies or branch out into decentralized generation.
The rise of distributed energy was viewed as the third-largest overall risk and the top strategic risk, affecting sales and customer relationships as consumer demand and expectations evolve and non-traditional market entrants increase. Changing customer demand and more engaged consumers were also viewed as the fifth-highest overall risk, with utilities forced to evolve or face obsolescence.
Navigating complex and changing environmental regulations was the fourth-highest overall risk, with companies struggling to keep up on the global, national, regional and local levels. Continuing uncertainty around climate policy, carbon pricing and regulatory changes will continue to affect companies’ ability to plan long-term, the report found.
The evolution of digital technologies and the Internet of Things (IoT) made up the third-highest strategic risk, with companies needing to respond to the speed of change and the attendant security risks. In addition, EY found that the rise of digitalization underpinned all of the major risk factors.
Matt Chambers, Global Power & Utilities Risk & Cybersecurity Leader at EY, said utilities “need to ask themselves whether their operating model is agile enough to react to unexpected events” and “whether they have the right resiliency to recover”.
“This is further compounded by the rising importance of data privacy and protection, which demands that companies place greater emphasis on cybersecurity as an enterprise priority.”
However, he added that risk management “will evolve in exciting new ways as enabling technologies like robotic process automation, blockchain and data analytics are increasingly deployed to increase efficiencies, reduce costs and improve performance.”
Ultimately, utilities “will need to monitor the digital landscape and innovate in order to remain relevant and succeed in a future energy world”.
The report is available here.