Business Risks of Grid Infrastructure Changes

As the regulatory framework moves from a relatively relaxed deviation buffer to a much stricter grid-discipline regime, DSM is starting to look like far more than just an operational issue for renewable generators. It is increasingly becoming a revenue, bankability and deal risk issue as well - and the commercial impact could be material. Public reporting suggests potential revenue erosion of 3.5–11.1% for solar projects and up to 48.2% for wind projects in certain cases, which could directly affect DCF assumptions, discount rates, IRR sensitivity and, ultimately, transaction pricing. When you add the increasing linkage of DSM charges to real-time market conditions, the exposure looks even more significant, especially during periods of grid stress. For buyers, investors and lenders, this is likely to mean that DSM risk will need to be diligenced and underwritten much more carefully than before. That also means mitigation will become a big part of the value-preservation conversation. Storage and hybridisation could play an important role as physical buffers against deviation exposure, while pooling and aggregation through QCAs may help smooth variability across projects. On the contractual side, O&M frameworks may need sharper performance-linked forecasting obligations, and PPAs may need more deliberate risk allocation around DSM, curtailment and change in law. Put simply, tighter DSM norms are not just changing how projects are operated—they are also starting to influence how they are structured, contracted and valued in M&A transactions. Would be very interested to hear how others in the industry are thinking about mitigating this risk in order to preserve value in renewable energy M&A deals.

Data centers have created a grid reliability problem. That problem is leading to commercial opportunities for our industry.. How so? Two days ago, the North American Electric Reliability Corporation (NERC) issued a rare Level 3 alert, stating the action was necessary to “address the risks posed by existing and new computational loads interacting with the bulk power system (BPS), inclusive of computational load interconnecting with collocated generation.” Translated: There have been several instances of data centers unexpectedly dropping load or oscillating demand rapidly, creating reliability concerns. The fundamental issue NERC identified is the lack of (1) modeling in advance and (2) information in real time about how data centers are interacting with the grid. As a result, NERC issued this alert on Monday, strongly suggesting that RTOs, ISOs, utilities and other grid operations take seven specific actions, including collecting more data on large computational loads and modeling the impacts of minor grid events, as well as installing high-speed monitoring devices at certain data centers to enable analysis of any grid disturbances. In a related regulatory move, NERC is also proposing companies with computational loads in excess of 20 MW (think hyperscalers) to register with NERC. This would mark the first time that these companies would be direlty subject to NERC’s reliability standards. So…where’s the commerical opportuity? NERC has identified issues with predicting, modeling and managing the ever increasing data center load. Companies that can do just those things are going to be in very high demand. Similarly, storage assets attached to computational load can smooth out the performance and predictability of those loads, strengthening the business case for storage attachment. Additionally, NERC’s actions, in an odd way, confirm that data center load growth isn’t simply a prediction for the future. It is already happening at a scale large enough to impact grid reliability. So…how do you see this impacting your development timelines? Growth opportunities? Utilization of storage and software to provide better performance and stronger analytics?

The new NERC Long-Term Reliability Assessment (LTRA) has just dropped, and it’s alarming. Here are some quick highlights: 👉 13 out of 23 regions are at elevated or high risk. 👉 5 of these regions are at High Risk, all in the U.S. (PJM, MISO, ERCOT, WECC-Northwest, and WECC-Basin). 👉 High Risk means “shortfalls may occur at normal peak conditions." 👉 Resource and transmission additions are not keeping pace with retirements and load growth, despite efforts to expedite new resources. 👉 Data centers account for most of the load growth anticipated over the next 10 years. 👉 Most new builds consist of solar and battery storage, which “are inverter-based and weather-dependent resources that increase the complexity of planning and operating a reliable grid.” 👉 Fossil-fuel retirements are “reducing the amount of generation that has fuel on site and impacting the system’s ability to respond to spikes in demand.” 👉 Thermal generation is increasingly natural-gas dominant, making it important to “ensure that regional natural gas infrastructure can reliably serve the needs of BPS generators.” 👉 The combination of a shift toward heavy reliance on weather-based resources and reduced fuel diversity “increases risks of supply shortfalls during winter months.” NERC recommends grid planners and operators: ✅ Expedite resource additions. ✅ Be flexible with resource retirements and extend the service of units whose retirement would increase reliability risks. ✅ Improve the siting and permitting process for development. ✅ Improve planning and coordination. ✅ Ensure essential reliability services (ERS) are maintained as more conventional resources are replaced with intermittent wind and solar. While much of this mirrors the 2024 LTRA—generator retirements, insufficient replacement capacity, and the need for expedited resources and transmission—the major difference is that NERC has elevated five regions to High Risk that were not in the 2024 report. Three of these regions—PJM, MISO, and ERCOT—represent three of the four largest RTOs in the country by population served. With the inclusion of the WECC regions, this means nearly half of the country now falls into High Risk of shortfalls under normal conditions in the near future. Full Report: https://lnkd.in/gM6YCv7B

Two national outages. Three weeks apart. One very big problem. On April 28, Spain experienced a massive power blackout that shut down transport, airports, and payment systems across the Iberian Peninsula. Then, just weeks later on May 20, a “routine” network upgrade went wrong - taking down mobile networks, internet access, and even the 112 emergency line across much of the country. These weren’t cyberattacks. There was no earthquake, no storm. These were planned operations inside core infrastructure systems - and both failures had cascading, national consequences. What’s most concerning isn’t just what failed. It’s how everything else went down with it. 📉 Power fails → telecoms crippled. 📉 Telecoms fail → emergency services go silent. 📉 One network upgrade → millions offline and businesses locked out of systems. This is what it looks like when infrastructure is too centralized, too interdependent, and too fragile to absorb even a single operational mistake. It’s not just about Spain. This could happen anywhere. If we’re relying on digital systems for everything - from hospital communications to public safety - we need to ask: 🎯 Where are the buffers? 🎯 Where’s the redundancy? 🎯 Who’s testing “routine updates” like they could bring down a country? We need to stop thinking in silos and start planning across systems. Because failure doesn’t respect sector boundaries. #InfrastructureResilience #Telecom #PowerGrid #Spain #CrisisManagement #Risk

🔌Resilience, Risk & The North Hyde"Heathrow" Incident   The final report into the North Hyde substation fire should be required weekend reading for anyone who manages or governs critical infrastructure.   If you're short on time, at least read the executive summary - it's a sobering reminder of how known risks can quietly mature into full-blown crises.   🧯 The outage, which affected over 70,000 electricity customers and caused widespread disruption at Heathrow Airport, with an estimated 200,000 passengers impacted, revealed long-known equipment issues that had gone unaddressed for years.   Moisture ingress into high-voltage bushings had been identified as early as 2018. The substation's fire suppression system hadn’t functioned for years. There was no single point of failure, but many small ones, tolerated over time.   Having lived through the North American blackout firsthand, I saw how deeply dependent we are on energy, and how complex and time-consuming it is to bring both the grid and operations back online. Later, while working on risk analysis during South Africa’s load shedding in the context of an aluminium refinery, it became clear just how far one would go to build redundancy to prevent against the risk, and ensure that everyone, both inside and outside the organisation, truly understands the criticality of continuity of supply.   Here are three reflections for boards and executives: 1️⃣ Controls degrade quietly. Just because something hasn’t failed yet doesn’t mean it's still working. Organisations continue to struggle with detecting when control effectiveness is eroding and determining the level of erosion that is tolerable, especially when the degradation is slow and the data is fragmented.   2️⃣ Interdependencies multiply risk. North Hyde was a shared asset. Multiple entities touched it, and no one saw the whole picture. The more distributed your asset ownership and accountability, the more residual risk hides in plain sight.   3️⃣ Not all “critical infrastructure” is treated equally. It appears that Heathrow wasn’t formally prioritised for grid restoration and lacked an automated switchover to its backup supply. The airport assumed it would be treated as critical infrastructure, but that status had never been made explicit or agreed upon. In a crisis, assumed priorities are often invisible.   🧠 For those of us in governance, operations, or assurance, this incident serves as a case study in the gap between known risks and actual risk, as well as the complexity involved in understanding changes in risk resulting from poor or unaddressed control performance intelligence.   It’s not enough to identify the change in risk. It must be understood, prioritised, acted on, and followed through.   📘 Worth reading: NESO’s North Hyde Final Report - https://lnkd.in/gQN-wDMN   #riskgovernance #resilience #criticalinfrastructure #phantomrisk #corlessbookclub

Utility Death Spiral: How Grid Economics Are Being Flipped Upside Down Emerging markets like Pakistan and South Africa are providing a preview of what happens when distributed energy resources rapidly outcompete traditional utility models. As grid defection accelerates globally, U.S. utilities and regulators face critical decisions about how to manage this transition without financial collapse. Here's what energy professionals need to understand about this evolving dynamic: 1. The Economics Driving Change - Falling costs for distributed energy resources (DERs) have created compelling alternatives to grid power - As customers adopt these alternatives, utilities must spread fixed infrastructure costs across fewer kilowatt-hours - This triggers rate increases, making self-generation even more attractive - Commercial and industrial customers often lead this shift, removing significant revenue sources - The cycle accelerates as storage costs continue to fall, enabling more complete grid independence 2. The Broader Implications - Grid defection isn't limited to residential solar—commercial microgrids, industrial cogeneration, and campus-scale systems are growing rapidly - Essential public services (hospitals, data centers, military installations) are increasingly prioritizing energy independence - Utilities face stranded assets as large customers reduce grid dependence - Traditional cost-of-service regulation struggles to address these market dynamics - Developing countries may leapfrog centralized grid models entirely in some regions 3. Potential Adaptation Strategies - Forward-looking utilities are exploring platform business models that embrace distributed resources - Modernized regulatory frameworks can create value streams for grid services beyond commodity power - Investments in grid flexibility and intelligence can integrate rather than compete with distributed generation - Rate structures that separate capacity and energy costs more transparently may preserve economic sustainability - Public ownership or cooperative models might provide alternative paths for maintaining essential infrastructure The situation in Pakistan is particularly revealing—with approximately 17-18 GW of solar panels imported in 2024 alone. This adoption wasn't driven by environmental policy but by basic economics and reliability concerns, as solar-plus-storage became both cheaper and more dependable than grid power. For U.S. stakeholders, the key insight is that resistance to distributed energy may ultimately accelerate utility obsolescence. Creating sustainable business models that embrace rather than fight this transition is increasingly urgent for maintaining grid stability and ensuring equitable energy access. #EnergyTransition #UtilityBusinessModel #GridModernization #DistributedEnergy

⏳Navigating the Winds of Change: Tackling Intermittent Energy Sources Increasing reliance on intermittent energy sources, such as onshore and offshore wind, brings several technical, economic, and societal ramifications. While wind power can play a role in decarbonizing the energy sector, its variability introduces significant challenges: Grid Stability and Reliability Risks - Wind energy output fluctuates with weather conditions, creating supply-demand imbalances: - Risk of overproduction during windy periods → curtailment or negative electricity prices. - Risk of underproduction when there is little or no wind → reliance on costly backup capacity (e.g. gas, hydro, batteries). - Voltage and frequency control become harder without stable baseload sources like nuclear, hydro or gas. Revenue Cannibalization & Market Volatility - As wind capacity grows, especially in regions with high penetration (like Sweden and Finland), it will cannibalise its revenues: - Lower capture rates mean wind producers earn less per MWh. - Price crashes during peak production devalue investments and deter long-term financial stability for developers. - Investment risk rises, requiring higher subsidies or CfDs to stay viable. Increased Need for Energy Storage and Flexibility To balance variability: - Massive investment in grid-scale storage (e.g., batteries, pumped hydro) is needed. - Demand-side management, flexible loads, and sector coupling (power-to-X) must scale. - Grid operators must integrate more forecasting and AI-driven dispatch systems to manage real-time changes. Grid Infrastructure Strain and Costs - Expansion of transmission grids is necessary to move electricity from wind farms (often remote) to demand centers. - Interconnectors between countries can help, but are costly and politically sensitive. - Local resistance (NIMBYism) may delay new lines and substations. Energy Security and Strategic Resilience - Overdependence on intermittent sources can reduce energy security, especially in low renewable output ("Dunkelflaute"). - Countries must maintain backup thermal generation, which may be economically unviable without sufficient operating hours. - Events like the 2021 energy crisis in Europe showed how reduced wind and high gas prices can trigger major economic disruptions. Hidden System Costs Wind may be “cheap” at the turbine level (LCOE), but system-level costs rise: - Backup capacity - Grid upgrades - Ancillary services - Curtailment losses - Market support mechanisms Wind energy will play a role in the green transition. Still, we must effectively address the complexities and challenges by relying on empirical evidence, rigorous analysis, and adaptive strategies. This ensures that decisions are based on factual data and proven methodologies, leading to more reliable, efficient, and sustainable energy solutions. Ideological approaches, while often well-intentioned, often overlook critical technical and economic realities...

Last week, I was on a grid resilience panel where someone asked: “Would you run your business with a 817-hour blind spot?” And it made me pause. That number isn’t hypothetical. It’s based on a recent Department of Energy projection: by 2030, the U.S. could face up to 34 days of power shortfalls per year. We’ve spent the last decade modernizing operations, digitizing decisions, and moving infrastructure to the cloud. But the foundation — the grid — hasn’t kept up. If you’re a CFO, ask yourself: What does 817 hours of downtime actually cost? 1/ Mid-size Cold Storage Facility: • Estimated loss: ~$220,000/hour • Drivers: Spoilage, lost throughput, idle labor, restarts and compliance • Impact: 817 hours = $179M/year 2/ Manufacturing Operations: • Estimated loss: ~$260,000/hour (GE estimate) • Drivers: Equipment downtime, supply chain delays, idle workforce • Impact: Even 10% of 817 hours = $21M/year 3/ Data Centre • Estimated loss: Upto $1M+/hour • Drivers: Lost revenue, SLA penalties, customer churn, reputation • Impact: Even 5% of 817 hours = $40M At VECKTA, this is why we plan for resilience. Because without energy, you don't have a busienss. The energy risk is already on the balance sheet. It just hasn’t been itemized yet. The only question is: Will you plan for it now — or pay for it later?

When we talk about grid bottlenecks, one phrase dominates: 𝘁𝗵𝗲 𝗶𝗻𝘁𝗲𝗿𝗰𝗼𝗻𝗻𝗲𝗰𝘁𝗶𝗼𝗻 𝗾𝘂𝗲𝘂𝗲. But here’s the counterintuitive truth: the queue is the known devil. It's painful, slow, and costly, but ultimately a binary outcome. The harder risks are the ones we can’t easily forecast. ▪️ 𝗟𝗼𝗰𝗮𝗹 𝗽𝘂𝘀𝗵𝗯𝗮𝗰𝗸 – city or county moratoriums, zoning fights, landowner concerns. ▪️ 𝗦𝗵𝗶𝗳𝘁𝗶𝗻𝗴 𝗿𝘂𝗹𝗲𝘀 – capacity market reforms, elimination of revenue streams, cost allocation changes. ▪️ 𝗦𝘂𝗽𝗽𝗹𝘆 𝗰𝗵𝗮𝗶𝗻 𝘀𝗵𝗼𝗰𝗸𝘀 – HV equipment or transformer delays measured in years. ▪️ 𝗣𝗼𝗹𝗶𝗰𝘆 𝘂𝗻𝗰𝗲𝗿𝘁𝗮𝗶𝗻𝘁𝘆 – federal approvals, state-level reversals, evolving reliability standards. ▪️ 𝗜𝗻𝗳𝗿𝗮𝘀𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲 𝘂𝗻𝗰𝗲𝗿𝘁𝗮𝗶𝗻𝘁𝘆 – transmission upgrades that once carried benefits through various metrics (ex: LRTP Tranche 2.1) can suddenly be delayed, challenged, or even eliminated while disrupting years of analysis and undermining project economics. Each factor is difficult to predict, harder to hedge, and certainly capable of derailing even the best-laid plans. 𝗛𝗶𝘀𝘁𝗼𝗿𝘆 𝗼𝗳𝗳𝗲𝗿𝘀 𝗽𝗲𝗿𝘀𝗽𝗲𝗰𝘁𝗶𝘃𝗲. When Tesla’s AC system was introduced, it faced relentless skepticism, misinformation, and enormous resistance from industry rivals. But once adopted, it became the backbone of the grid we depend on today. 𝘌𝘯𝘨𝘪𝘯𝘦𝘦𝘳𝘪𝘯𝘨 𝘪𝘯𝘴𝘪𝘨𝘩𝘵 𝘪𝘴 𝘵𝘰𝘰 𝘰𝘧𝘵𝘦𝘯 𝘴𝘦𝘵 𝘢𝘴𝘪𝘥𝘦 𝘪𝘯 𝘧𝘢𝘷𝘰𝘳 𝘰𝘧 𝘱𝘰𝘭𝘪𝘵𝘪𝘤𝘢𝘭 𝘰𝘳 𝘦𝘮𝘰𝘵𝘪𝘰𝘯𝘢𝘭 𝘱𝘳𝘦𝘴𝘴𝘶𝘳𝘦𝘴. 𝘠𝘦𝘵 𝘵𝘩𝘦 𝘨𝘳𝘪𝘥’𝘴 𝘧𝘶𝘵𝘶𝘳𝘦 𝘥𝘦𝘱𝘦𝘯𝘥𝘴 𝘰𝘯 𝘭𝘦𝘵𝘵𝘪𝘯𝘨 𝘵𝘦𝘤𝘩𝘯𝘪𝘤𝘢𝘭 𝘯𝘦𝘦𝘥𝘴 𝘭𝘦𝘢𝘥 𝘵𝘩𝘦 𝘤𝘰𝘯𝘷𝘦𝘳𝘴𝘢𝘵𝘪𝘰𝘯. 𝗧𝗵𝗲 𝗹𝗲𝘀𝘀𝗼𝗻 𝗶𝘀 𝗰𝗹𝗲𝗮𝗿. The bottlenecks we see are only part of the picture. The bigger challenge is navigating the unknowns (evolving rules, shifting markets, and social dynamics) that shape every project. That requires 𝗵𝗼𝗹𝗶𝘀𝘁𝗶𝗰 𝗽𝗹𝗮𝗻𝗻𝗶𝗻𝗴, 𝘀𝗵𝗮𝗿𝗲𝗱 𝗮𝗰𝗰𝗼𝘂𝗻𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆, 𝗮𝗻𝗱 𝗽𝗿𝗼𝗮𝗰𝘁𝗶𝘃𝗲 𝗰𝗼𝗹𝗹𝗮𝗯𝗼𝗿𝗮𝘁𝗶𝗼𝗻. Risk can never be eliminated, but it can be minimized when tackled together. The world no longer changes in years. It changes in months and sometimes days. The grid must evolve at the same pace. #EnergyTransition #TransmissionPlanning #GridReliability #PowerMarkets #InterconnectionQueue #EnergyPolicy #Infrastructure #GridResilience #HolisticPlanning #Strategy