RISK - Electricity Auditing

Risk – Electricity Availability


Introduction:

Commerce stops if the electricity grid is compromised or a natural disaster renders the supply unavailable. The concept of mission-critical services is a well-established business discipline but only a miniscule number of organisations can inform stakeholders where, when, and how their costly electricity is consumed. We all think about electricity availability in the abstract but very few small to medium businesses have a business continuity plan in place that details how their business operations would continue in the event of an extended electricity outage.

Until recently Australia’s electricity supply was readily available with coal powered generator’s providing inexpensive but always dependable energy supplies. This has all changed in the last generation with the widespread introduction of intermittent renewable electricity sources – solar and wind. The promise of lower electricity costs thanks to cheap renewables has failed to eventuate. In reality, electricity prices have increased and the national grid is less reliable because coal power plants are required to cycle up and down depending on whether the wind blows or the sun shines to power the grid. This is not what coal plants were designed to do and it stresses, prematurely ages, and adversely affects the reliability and uptime of the coal generation plant and equipment.

To exacerbate the situation, coal plants are forced to operate well above their optimal tolerances and output rating simply to meet demand. This has contributed to increased plant failures and downtime, further increasing the risk to base-load power availability. This unpalatable fact must be incorporated into business continuity and recovery planning. The more insidious change on the horizon is the potential widespread enforcement of “demand management” that will transform electricity from a commodity into a luxury item. This will mean that high-energy businesses will be instructed to stop operating when base-load electricity is in critical short-supply.

  • Australia’s period of global energy competitiveness is over with subsidised renewable sources distorting both pricing and energy availability
  • Renewable energy costs more to supply and it destabilises the reliability of the electricity grid
  • Coal generation plants face reliability issues because they must repetitively cycle up and down depending on the availability of renewable sun or wind energy
  • Electricity rationing is happening today with big electricity users being coerced to take their plant offline without any compensation

Contingency Planning: Building electricity resilience into business operations


What is the cost of an electricity outage?

To be ready to meet unplanned or unpredictable electricity supply concerns the first issue to consider is how do you use electricity and what happens if supply is disrupted. A good starting point is to analyse the risk posed to revenues if transactions can’t be processed, phones are offline or EFTPOS facilities are unavailable. The inability to deliver backbone commerce could quickly cripple your operations and the long-term effect could put your organisation out of business. Business continuity and continuous service delivery is entirely dependent upon electricity at nearly every step in the supply chain.

An independent study* funded by Cisco Systems polled 1,000 Australian IT Managers and analysed the cost of IT outages across businesses of all sizes. Downtime costs for small businesses started at $2,000 per hour but larger organisations feel more pain as this figure blows out to an eye-watering $144K per hour. Can you picture a scenario where an electricity outage isn’t measured in hours but days? How would your business cope with an outage of such magnitude? Numerous studies have quantified the likelihood of businesses becoming insolvent and bankrupt after this type of interruption with the risk increasing as the length of the outage increases.

Reference:

The IT industry is a rich source of information for operations professionals looking to increase their working skills in Business Continuity

The Cost of Downtime*

Review 

Resilience Strategies - Electricity

Review 

Preparing a Power Failure Response Strategy

Review 

Assessing the risk and building the business case


Typical scenarios

Small outages can quickly become large electricity outages.

Insurance

  • Does your current insurance policy include the cost of business loss in the event of a power outage?
  • Is an interruption of electricity supply beyond your control considered a normal business risk or an act of God?
  • How does your insurance policy deal with the concept of supplier dependencies – specifically utilities?
  • Business Continuity

    • What capacity electrical generator would be needed to power your head office or remote operations for an extended period of time?
    • How would you refuel it if the outage was widespread?
    • In the event of a city or state-wide outage, could you still procure the generation equipment needed to power your business?
    • Assuming a worst-case scenario where all utilities and infrastructure (traffic lights etc) services ceases for more than a day, what then?
    • Recovery

      • Would investing in a generator be a sound business decision?
      • What capacity generator would you need and how much fuel would be required to sustain operations for an extended period?
      • Is investing in renewables to aid continuity and the recovery process and astute deployment of company funds?
      • What’s the ROI?

Conclusion


Ensuring service availability and business uptime is a very mature discipline that’s developed over decades within the information technology industry. Business leaders are familiar with the broad concepts of disaster recovery but usually within the context of computing services or a technology framework.

The reliability of Australia’s electricity grid is coming under increasing pressure as base-load coal generators come to the end of their life and intermittent renewables destabilise our remaining capacity. Electricity supply is a mission critical service needed by businesses to generate revenue and it’s incumbent on management to ensure that contingency plans are in place to guarantee business can survive an extended disconnection from the grid. The endurance and longevity of your business operations could depend on the foresight and planning delivered by your management team.