The case-study of Finland’s electricity transmission and distribution system in this chapter illustrates how governments can set-up an effective governance model that fosters investments in infrastructure resilience. Finland has been nurturing a cooperative framework to strengthen critical infrastructure resilience that stresses public private cooperation, information sharing and consensus building on policy design and objective setting. With ambitious resilience targets, this governance model has shown great results in its first years of implementation. Nevertheless, new challenges have emerged including how to address the implications in terms of costs for customers, the difference between larger and smaller operators’ capacities, as well as the implications of digitalisation and climate change.
Good Governance for Critical Infrastructure Resilience
4. Critical infrastructure resilience case-study: Electricity transmission and distribution in Finland
Abstract
Introduction
The electricity transmission and distribution network is designated as critical infrastructure services in Finland and disruptions of energy supply is considered among the most critical national risks. The supply of electricity is vital for functioning of society and the economy, especially given the high degree of dependencies of many other critical sectors upon power supply (e.g. telecommunications, water, transport). In Finland, harsh climate conditions, a dispersed population and ageing infrastructure expose the electricity network to a range of risks. On top of weather-related hazards, technological accidents, hybrid threats, and cyber-attacks call for greater attention with the potential vulnerabilities linked to technological developments in the sector, characterized by increased automation, digitalization, deployment of smart grids and interdependencies with ICTs.
Finland has set itself the objective of being the safest society in Europe. Reaching national resilience goals necessitates strengthening the resilience of national critical infrastructure and in particular the electricity network. Experiences with extreme weather in Finland illustrate the large-scale consequences of electricity disruptions. In December 2011 the severe windstorm Tapani left over 500,000 people without electricity, from several hours up to 3 weeks – impacting the livelihood of communities, telecommunication and water systems, business closures and more. Repair costs of the electricity network were estimated to reach 102.5 million euros, and operators paid 71 million euros of compensation to customers. Following the event, public discontent on the extensive interruptions led to political discussions on the urgent need to revamp preparedness measures in the electricity network. In 2013 regulations in the Electricity Market Act were updated and new resilience targets set up to reach by 31.12.2028. Additional modifications were made to limited outage times, with compensation schemes and penalties for distribution operators.
This case study discusses the governance issues related to strengthening the resilience of the electricity transmission and distribution network in Finland. Along with the 2028 resilience targets, Finland has been cultivating a cooperative framework to strengthening critical infrastructure resilience that stresses public private cooperation, information sharing and consensus building on policy design and objective setting. The governance approach is steered by sector-specific security of supply policies and a comprehensive national strategy that involves multi-stakeholder participations and coordination. This approach involves a mix of policy instruments to incentivise investments in resilience, both regulatory and voluntary. The case-study illustrates these good practices in Finland, and also presents some challenges to overcome and to continue improving the resilience of electricity transmission and distribution in a dynamic risk landscape.
Electricity transmission and distribution network as critical infrastructure in Finland
Power supply is a priority in Finland
Energy production, transmission and distribution networks are deemed critical infrastructure services in Finland, and resilience against disruptions are considered as one of the highest priorities. The 2013 Government decision on the security of supply goals lists disturbances in the electricity grid as the first major threat to the Finnish society’s capability to function properly (Ministry of Employment and the Economy, 2013). The 2015 National Risk Assessment further highlights the criticality of power supply for the functioning of society and the economy, and provides a list of scenarios of serious disruptions and their potential impacts (Ministry of Interior, 2016). The National Risk Assessment informs the Security Strategy for Society (2017), which presents reliable power supply as a basic requirement for all vital areas of society: its interruption may endanger other critical functions and affect the well-being of the population.
Finnish electricity transmission and distribution system
The concentration of power production, the dependency on electricity imports during peak periods, as well as Finland’s vast territory and dispersed rural population, shapes the Finnish electricity transmission and distribution network. Power generation in Finland currently has a production capacity of 12 000 MW, generated by 150 companies in 400 production plants. While biomass, peat and hydropower electricity generation is spread out throughout the Finnish territory, nuclear and natural gas are concentrated in the southern part. The concentration of energy production is expected to increase in the south once the new nuclear reactor Olkiluoto 3 becomes operational, complementing the four existing ones in Loviisa and Olkiluoto. With an estimated peak demand exceeding 15 000 MW during the winter, Finland currently imports around 20% of its electricity, mostly from Sweden and Estonia through the Nordic electricity market pool, and also from Russia (Energy Authority, 2017).
The vast electricity transmission and distribution network is operated by a diversity of operators, with different levels of operational and financial capacities. As per European Union directives, the network is composed of one nation-wide transmission grid and a series of local monopolies for distribution. The state-controlled Transmission System Operator (TSO) Fingrid operates the main grid composed of around 14 400 km of high-voltage overhead lines and 113 sub-stations. It ensures a balance between electricity supply and demand, and manages cross-border inter-connections with Sweden (2 undersea and 2 overhead lines), Baltic countries and Russia. Medium and lower voltage regional and distribution networks cover 140 000 km (80% as overhead lines) and 240 000 km (60% as overhead cables) respectively. They are under the responsibility of 77 distribution system operators (DSO). A few among them operate the majority of the market and their ownership is a patchwork between public and private. For example, the Helsinki DSO Helen Sähköverkko is 100% owned by Helsinki city, the largest DSO Caruna is owned by a combination of private investors and pensions funds, and many small DSO in rural areas are owned by local municipalities. This makes DSOs very diverse in their capacities to invest in and maintain distribution networks and services.
As in many OECD countries, the Finnish electricity market is undergoing major changes driven by innovation and climate change policies. Megatrends such as the phasing out of coals by 2029, the growing share of renewable energy with intermittent production, the deployment of smart grids and automated control systems are leading to increased flexibility between supply and demand, as well as dependencies on information systems. These changes raise questions on how these evolutions will affect security of electricity supply and how TSO and DSOs will need to adapt.
Main risks and vulnerabilities of the Finnish electricity transmission and distribution system
Before 2010, the Finnish transmission and distribution system had extremely high reliability rates, but major storms put into question its resilience to climate-related risks, especially concerning distribution networks. Harsh climate conditions and long distances of the electricity network to a dispersed population across Finland makes power outages a critical risk with severe potential impacts (Forssen, 2016). In the 2015 National Risk Assessment, the scenario of a large-scale winter storm is considered as the most probable serious regional event with the largest impact, notably due to electricity disruptions it can create. Large storms in 2010 and 2011 toppled trees onto overhead lines, which pass through the large forest areas of the country and are difficult to access for quick repair (Kufeoglu and Lehtonen, 2014). These events led to major socio-economic impacts in many sectors across the nation (Box 4.1). Regular snowstorms are also known to accumulate snow on overhead lines or on trees that can bend and break circuits or damage protective equipment.
The effects of climate change on hazard patterns and their potential consequences on risks to electricity transmission and distribution networks should also be carefully considered. The large-scale 2018 summer fires affecting neighbouring Sweden raised concerns that rising temperatures could lead to more frequent forest fires across Scandinavia, with potential implications on electricity networks. Sea level rise and coastal floods are another risk in Finland, particularly along the south-western coast and greater Helsinki area, where population density is the highest and flooded sub-stations could disrupt distribution. Although unrelated to climate change, the Finnish National Risk Assessment also mentions the specific risk of a 100-year return period solar storm and its repercussions on electricity systems.
Box 4.1. The Tapani windstorm in 2011
The December 2011 Dagmar cyclone, locally known as the Tapani storm, demonstrated how disruptive and damaging such extreme weather event can be on the electricity network. While an earlier storm in the 2010 summer, leaving 400 000 people without electricity, was a significant warning, Tapani’s consequences were much more severe, as it happened in winter. With two consecutive waves of strong wind gusts affecting most of the western shore of Finland on the 26th and the 27th of December, the Tapani storm caused the largest disruption to society that Finland had experienced in years. 570 000 people were affected by electricity disruption, representing one of six households in the country, some of them for more than 15 days, due to the difficulty to restore services. Strong winds and falling trees caused more than 60 000 faults in the grid and interruptions of electricity supply had major cascading impacts, including on Fingrid’s high-voltage transmission network. Heating systems, hospitals, water distribution and wastewater treatment plants were significantly affected, and the interruption of unpowered telecommunication services caused further repercussions: remote access connections to electricity substations were lost, Finnish authorities communication network broke down, and the electricity service restoration took a longer period. While estimates of all these indirect damages are not available, the storm incurred repair costs of up to 102.5 million euros for electricity operators, 120 million euros in forest damage and operators paid compensation of 71 million euros to their customers. This extreme weather disaster was a turning point for Finland to rethink security of supply policy in the electricity sector.
Source: (Kufeoglu and Lehtonen, 2014)
In addition to natural hazards, technical faults or accidents, interdependencies, and cyber threats or other security risks are key issues for an all-hazards and threats approach to the resilience of Finnish electricity transmission and distribution systems. On the 18 July 2018 a fire in a current transformer at the Olkiluoto substation burned protection cables (Fingrid, 2018). As a result, two nuclear power plants were shut down and taken off-grid, which posed a serious supply shock requiring the activation of energy reserves. It highlighted the potential domino effect of these types of accidents and need for preparedness planning. A similar situation during the winter consumption peak may have had much worse consequences on the main grid. Finland’s reliance on imports from neighbouring countries, which can be affected by similar hazards from cold frost to winter storm, poses another major risk, in case of multiple failures affecting Nordic countries at the same time. Finally, interdependencies with other critical sectors and specifically with ICT networks is a key issue to reflect upon, as the electricity network operations are moving towards increased automation and digitalisation (Pantelli and Mancarella, 2017). This could create new vulnerabilities to cyber-attacks that authorities and operators alike should take seriously, especially in the context of increasing concerns of hybrid threats in Europe.
Governance of electricity transmission and distribution resilience
Finland has a well-established critical infrastructure policy
In this dynamic risk landscape, where interdependencies and interconnectedness of systems create the potential for damaging consequences of failures, Finland has been pioneering resilience of critical infrastructure in its risk management policy for a decade. With the ambitious goal to be the safest country in Europe, Finland’s strategic framework for risk governance aligns well with the OECD Recommendation on the Governance of Critical Risks (OECD, 2014). The National Risk Assessment supports the whole-of-government Security Strategy for Society that puts vital functions for society at its core since 2010. With a focus on the resilience of the flow of services vital for functioning of society and government, this strategy fed into the 2013 Government Decision on the Security of Supply Goals. This policy document, first adopted in 1988 and revised around every 5-7 years ever since, defines the following resilience objectives: the continuity of economic activities and the functioning of critical infrastructure in the case of severe disruptions and emergencies. It also lists the critical infrastructure services of the country as follows: energy, data communication systems, financial services, transport and logistics, water supply, construction and maintenance, and waste management.
Finland’s strategic approach assigns leadership to sectoral ministries for critical infrastructure resilience and emphasizes a collaborative framework leveraging on public private cooperation. The Security of Supply strategy harmonizes national preparedness principles across administrative branches by outlining clear roles and responsibilities across the whole-of-government, including at the local level (Ministry of Employment and the Economy, 2013). By highlighting the principles of cooperation with the private sector and coordination with international partners, this comprehensive strategy stresses the importance of partnerships and well-functioning markets and regulations for critical infrastructure resilience.
To support the implementation of critical infrastructure resilience policies, the National Emergency Supply Organisation (NESO) is the cornerstone for public and private cooperation, which allows building a shared vision of critical risks and resilience. NESO brings together industry and government in sector-specific pools, to develop a common understanding of critical infrastructure risks and vulnerabilities and discuss practical preparedness measures and business continuity planning. The National Emergency Supply Agency (NESA) under the Ministry of Economic Affairs and Employment is tasked to conduct risk analysis, coordinate information-sharing, foster public private cooperation, and mainstream security of supply policies in critical sectors. With more than a thousand companies engaged in the pooling system (Figure 4.1), NESO is considered as a well-functioning governance mechanism for critical infrastructure resilience by its participating stakeholders.
Figure 4.1. NESA pooling system: public private cooperation model
Electricity market regulations are also a key tool used in Finland to foster resilience
Finland’s electricity market regulations have since a long time been paying close attention to the resilience of the transmission and distribution networks. As in most countries, the energy sector in Finland has a long history of regulation to ensure quality and reliability of services, containing security standards and measures to keep reasonable prices for customers. The 2003 Electricity Market Act set the regulatory framework for the energy sector and established outage time limits with variable penalties in the form of compensations to consumers commensurate to pre-set outages times above 12 hours of disruption (Ministry of Economic Affairs and Employment, 2013). This scaled approach was quite innovative at that time and complemented well other price incentives for distribution companies to increase the resilience of their networks, based on reliability and quality levels.
This sophisticated approach proved insufficient to avoid large-scale electricity supply disruptions during the 2010 and 2011 storms, which led the Ministry of Economic Affairs and Employment to revise regulations and strengthen incentivises for resilience investments. The 2013 revision of the Electricity Market Act adjusted the above-mentioned scheme, setting higher compensations paid by distribution operators to their customers in case of longer outage time. These compensations can now reach up to 200% of the yearly average electricity fee - up to a maximum of 2000 euros - when the disruption exceeds 12 days, compared to the previous 100% compensation rate above 5 days of outage time. While this regulation applies to all disruptions, the revised Act also sets compulsory resilience targets for weather hazards that operators should comply with by the end of 2028. It specifies that the longest acceptable interruption time will be of 6 hours in urban areas and 36 hours in rural areas. As the sector regulator, the Energy Authority assesses compliance of DSOs to intermediary objectives provided in approved investment plans that they are required to submit every two years (Figure 4.2). The regulation is grounded on an incentive mechanism, including quality and security of supply incentives. The former encourages DSO’s to reach higher than minimum level of security of supply on account of outage costs, and the latter to meet regulatory criteria using cost-effective measures, and continue regular investments in maintenance and contingency. In addition, the 2013 Act makes business continuity plans mandatory for operators. The adoption of the new legislation required that all DSO’s reapply for a license of operation in 2013, and these utilities now have a clear plan of action to boost investments in resilience and strengthen their preparedness efforts.
Figure 4.2. Intermediary objectives towards reaching 2018 resilience targets
The system of sectoral pools coordinated by NESA was key to fostering trust among electricity stakeholders and build consensus on these resilience objectives
The governance approach to strengthening resilience of the energy network in Finland emphasizes a voluntary framework and cooperation between industry and sectoral government authorities. The Power and District Heating Pool has a dedicated sub-group on electricity transmission and distribution, which brings together all actors in the industry, authorities and the regulator on a voluntary basis to share information, foster preparedness and engage in policy design. Led by the industry – the TSO Fingrid being its chair – the pool is independent to designate its membership and its tasks are defined in a contract signed with NESA. There are strong incentives for operators to take part in the pooling system because of a wide range of benefits from information resources, sharing best practices and participation in trainings. NESA provides the necessary infrastructure for information-sharing and supports the activities of the pool.
Regular meetings and institutionalized dialogue within the Power and District Heating Pool allowed for the building of a shared vision of risks and resilience objectives between the public and private sector, and significantly contributed to the design of the revised legislation. Operators and government agree on the importance to secure power supply and ensure the continuity of services, however their views on the resilience levels that should be targeted and the ways to achieve them may differ. The pooling system provides a pathway to build consensus about resilience policies and objectives by engaging industry with sectoral authorities. This interaction proved valuable in the update of the regulatory standards in the Electricity Market Act in 2013. DSO’s across Finland differ in size, capabilities and resources and bringing them together, as the pool has successfully achieved, helped stimulate open discussions on how to go about strengthening the networks’ resilience. The large engagement in the pool demonstrates its success in developing trust between its participating stakeholders, which plays a key role in reaching common objectives. It helps also circumvent the potential risk of free-riding, as operators may feel peer-pressure from participating in regular discussions. According to the pool’s participants, its discussions after the 2011 storm were fundamental to inform the design of the new resilience regulation, in a way that is consistent with operators’ investments capacities, infrastructure assets’ lifetime, and average profitability, as well as other policy priorities related to efficiency, innovation and climate change.
Resilience measures and their implementation
Risk assessments and information sharing across interdependent critical infrastructure
While the Finnish government conducts risk assessment and foresight analysis on future threats, there is no detailed interdependency mapping. The government utilises several tools to foster risk awareness of the whole-of-society, which provides useful information for electricity operators to anticipate major threats to the disruption of their networks. The Finnish National Risk Assessment is a cross-governmental tool that allows every 3 years to identify the most critical risks the country can face, their likelihood and potential impact (Box 4.2). Taking a forward-looking approach, NESA developed the Security of Supply 2030 scenarios, which presents five scenarios for the future and their implication for security of supply (NESA, 2018). Beyond building operators’ awareness and anticipating potential cascading effects in these sets of scenarios, interdependency mapping and criticality assessments across critical infrastructure sectors is not yet conducted at the national level.
Operators have the responsibility to conduct criticality assessments of their network, but there is no single approach. In order to comply with regulations, operators are incentivised to conduct their own risk assessments to prioritise resilience measures and develop business continuity plans. The largest operators have adopted advanced risk modelling techniques in partnership with universities, allowing them to evaluate the impact of different risks on their network with a probabilistic method, for storms or floods for instance. International asset management standards such as ISO 55 000 are utilised to identify critical points in the network by others. While NESA has developed guidelines to support operators for their criticality assessment, there is no single approach to identify the most critical points, where failure could lead to the largest cascading consequences, including in other critical infrastructure sectors.
Information sharing within the Power and District Heating Pool provides opportunities for operators to learn about best approaches to risk assessment in a secured environment, but cross-sectoral exchange remains limited for interdependency analysis. Risk assessments can be strengthened by information-sharing platforms to share methods and technical expertise among operators. The pool’s online platform encourages the ease and security of information sharing. Companies can access this online communication platform while NESA maintains the portal and ensures that information voluntarily provided will not be shared outside of safe circles. Guaranteeing security is an important factor to encourage sharing high quality information and maintaining trust in the pooling system. Otherwise, there is a risk that the information shared reveals business secrets or gets in the hands of malicious outside organizations. Pool members are thus required to sign confidentiality agreements to access the platform, and sensitivities can be flagged to NESA by businesses who want information to remain confidential. Cross-sectoral information sharing is encouraged, but the quality of information tends to decrease between pools. It will be important to facilitate more dialogue across pools to enhance understanding and analysis of interdependencies, especially given the criticality of the energy sector for all other critical infrastructure services, and the increasing cross dependencies with the IT sector.
Box 4.2. National risk assessment processes in Finland
The Finnish National Risk Assessment was conducted for the first time in 2015 by the Ministry of the Interior with a cross sectoral working group. The National Risk Assessment identifies the most important risks threatening people, the environment, property and critical systems and services that authorities need to prepare for. Based on an assessment of over 60 risk scenarios across all-hazards and threats, it selected 21 possible events defined either as wide-ranging events affecting society or as serious regional events. Information is provided on their potential impacts, likelihoods and measures taken to address these threats. It is worth noting that in the six wide-ranging events assessed, three scenario are related to electricity supply: serious disruption of energy supply, using the cyber domain in paralysing systems vital to society, and the risk of a solar storm. Similarly, among the serious regional events assessed, the large-scale winter storm is the one with the highest probability and largest impacts, and the scenario of several simultaneous major forest fires also considers electricity disruption as a potential impact.
The Finnish Security of Supply Scenarios 2030 were developed by NESA, as a foresight approach to future challenges. Its global five scenarios - Global interdependency, Armed power politics, Blocification and hybrid influence, Technological world order and Dominance of the East – propose possible development paths for the future informed by geopolitics, economic, demographic and technological trends. The document details out how the security of supply could be affected in these scenarios and proposes eight areas of action for both industries and the NESO to prepare for future challenges. These include adopting a system-thinking approach to security of supply, being attentive to the increased risks of cyber threats and hybrid influencing, and preparing for natural resource depletion, among others.
Source: (Ministry of Interior, 2016) (NESA, 2018)
In light of cyber risk specificities and the fast pace of change in this area, the pool established a dedicated sub-group for regular discussion and an early warning system when threats are detected. Cyber threats have received greater attention in recent years and demonstrated how they can potentially affect electricity transmission and distribution systems. While many electricity operators conduct dedicated risk analysis and strengthen their resilience measures internally, cooperation can help define the most relevant methods in this fast-changing environment. The pool established a dedicated forum on cyber security, with specific contact points in the companies to discuss assessment, prevention and situation awareness of cyber security incidents affecting electricity transmission and distribution. In partnership with the Cybersecurity Agency and the Energy Authority, to which mandatory reporting of cyber incidents is due by operators, NESA developed an early warning systems for cyber threats with secured communication channels to these contact points.
An important investment plan to increase the robustness of the electricity network is underway to comply with the new regulation
To reach the 2028 resilience targets, DSO’s have the autonomy to decide on their preferred approach. They are required to submit an investment plan to the Energy Authority every two years demonstrating the progress made towards intermediary objectives. Estimates of the total investment for all DSO’s are 9.5 billion euros, out of which 30% is for the extra level of resilience required by the revised regulation. The rest of investments are for normal renewal of ageing infrastructure and maintenance costs. For instance, the largest operator Caruna invested 1.2 billion euros since the 2011 storms in resilience and grid renewal and plans to invest 1 billion more by 2028. Another example comes from Helen Sähköverkko, the Helsinki metropolitan area operator, for which resilience has been a priority for a long time, and who says that the new regulations have not had a major effect on their investments. This can be explained by the fact that extreme storms have little effects on its largely urban network. The priority here is flood risks for which the long-term city flood strategic plan is in place where sub-stations are to be re-elevated when being renewed (City of Helsinki, 2013).
Measures to increase resilience of the energy network are diverse, but most DSOs choose the simplest but costly option of underground cabling especially in suburban areas. Operators can increase their network’s resilience by strengthening robustness of the design such as underground cabling, expanding automation of the network and creating more redundancies with circular connections (Pantelli and Mancarella, 2017). Many DSO’s are opting for underground cabling of medium to low voltage lines. Underground cabling is costly, but increases resilience of the network to weather related outages quickly. The target for 2028 is to ensure that 47% of medium voltage lines are placed underground. DSO’s can set their own targets for their networks –companies operating in rural areas are estimated to transfer only 15-20% of the network underground and may opt for other measures. Other cost-efficient options include moving cable pathways from inside forests to open roads, or increasing the margin between trees and the cable lines by clearing out some parts of the forests (Figure 4.3). This is especially important in rural areas where overhead lines are located in areas difficult to reach and repair rapidly. Other more costly options involve building more substations to increase redundancies and reduce the scale of disruptions. For rural areas, where networks are mostly radial, this could be a measure to increase resilience. However, DSO’s may not have sufficient resources to implement them. While the overall preference for underground cabling reflects market choices, the important investment it requires has led to increased costs for customers (see below). A scaled approach combining different set of measures could have been better accepted.
In addition, other resilience investments are made in the Finnish electricity transmission and distribution system, including by the transmission operator Fingrid for the main grid, as well as in cyber resilience. As per the Energy Market Act, Fingrid also submits its investment plan to the Energy Authority. According to its 2017-2027 investment plan, Fingrid will invest an average of 100 million euro per year in the next decade to maintain its resilience level and low transmission costs. This is a slight reduction compared to the previous investment period, during which interconnections with Sweden and Estonia increased financial needs significantly (Figure 4.4). This investment will be split almost equally between replacement of existing infrastructure and new substations and transmission lines, including for international connections with neighbouring Nordic countries. DSOs and Fingrid also implement resilience measures to increase cyber-security, such as strengthening firewalls, awareness measures for staff, and establishing cyber-security response teams.
Figure 4.3. Resilience measures in the electricity network
Figure 4.4. Fingrid’s investment levels in 2000–2027 in million euro
Source: (Fingrid, N.D.)
NESA’s support to business continuity planning and the organisation of joint exercises, trainings and lessons learning is highly valued by electricity operators to strengthen their resilience.
NESA’s expertise in emergency preparedness helps electricity operators to develop business continuity plans aimed at maintaining service and restoring rapidly operations in case of disruptions. The Electricity Market Act requires DSOs and the TSO to draw up business continuity plans under normal and emergency conditions, which must be tested and updated at least once every 3 years. Business continuity plans look at critical load points and how to prepare in case of incidents. They further develop lines of responsibilities, operational measures, and communication channels for emergency response. NESA has been supporting their development for many years through guidelines, trainings, advisory capacities, and assessment of the plans. Operators find the self-assessment tool for business continuity management that NESA has developed particularly useful. The self-assessment tool assesses these plans and makes comparison with the general trend within the pool so that operators can benchmark their results among their peers. Discussions within the pool has also allowed operators to realise that they are at times counting on similar resources to support their continuity (e.g. service providers), which could question the effectiveness of these plans in case of a large-scale outage. This has not yet led operators to engage in mutual aid agreements, as set up in some OECD countries (Asgary et al., 2017).
A new division of role between NESA and the regulator regarding approval of operators’ continuity plans provides clarity on their respective role. Last year, the decision was made that these plans will now be submitted to the Energy Authority for their approval, while NESA and the pool will continue steering progress and improvement of these plans. This division of roles between voluntary engagement and support with NESA and the pool on one side, and oversight of mandatory requirements by the regulator on the other side appears as a good governance model to support resilience in the electricity transmission and distribution sector. Going forward, publicly disclosing some of the benchmark results could be another incentive for operators to further improve their preparedness.
Regarding the TSO Fingrid, its robust business continuity plan is based on the objective to restore its network within 24 hours after a blackout, as per the EU network code on 1emergency and restoration. It includes preparedness and rapid restoration measures for major accidents, such as a national blackout, the loss of one control room, and a complete loss of ICT. The plan allows Fingrid to cut off large consumers when major disruptions occur and special arrangements are in place with DSOs for rationing of electricity based on quotas.
Exercises organised by NESA help operators to test their business continuity plans and provide good lessons learning opportunities within the pool, especially those conducted in real conditions. Drills and emergency response exercises can help identify weak points and prioritise improvements. NESA works with the pools to regularly coordinate joint exercises and trainings, both table-top and real conditions exercises. The short list of recently conducted exercises in Box 4.3 demonstrates both the high demand for these exercises as well as the openness of operators to prepare for disruptions, including with the population. Complementary sharing of lessons learned from real incidents among operators fosters resilience improvements, and reflect the strong culture of transparency within the participants in the pool system.
Transboundary cooperation with Nordic countries and in Europe constitutes fundamental elements of Finland’s approach to security of supply in the electricity sector.
NESA and Fingrid engage in bilateral and multilateral cooperation to support the resilience of the electricity system in Finland because of its important dependency on electricity imports in winter time and of the need to cooperate in case of a transboundary crisis. The Nordic Cooperation on emergency planning and crisis management for the power sector (NordBER) provides a framework for preparedness against power disruptions across Denmark, Finland, Iceland, Norway and Sweden (NordBER, 2015). NordBER facilitates regular meetings between the TSOs and the respective national authorities responsible for electricity transmission and distribution contingency and preparedness issues for information exchange, regional drills and exercises, and policy coordination. The NordBER framework has allowed setting-up a cross-border coordination mechanisms in the case of large-scale energy shortage affecting one of its members. Fingrid is part of the Nord Pool wholesale electricity market and engages in the TSO community with neighbouring countries on the balancing of power. The company also works with its neighbours on strengthening cross border interconnections. The Finnish and Swedish TSOs have decided to move forward with the implementation of the third alternating current connection with the aim of taking it into use by the end of 2025. The replacement of the Fenno-Skan 1 interconnector between Sweden and Finland is under consideration for an investment in the late 2020s.
Box 4.3. Security of supply exercises recently conducted by NESA on electricity transmission and distribution disruption
Table-top exercises included for instance a black out affecting one town with the objective to balance production and consumption. Another exercise conducted in 2017 was to test how authorities would react in case of a disruption of electricity for two weeks, with a focus on communication methods and channels. In 2019, similar exercises will be implemented regionally. A real condition exercise in Lapland was carried out in 2014 with an arranged black out in one city for one hour resulting in a conclusion that it could take a day to restore power supply nationally. In Helsinki, an exercise of a half-hour to some hours black out in a large part of the city will be conducted soon.
Source: Interviews conducted by OECD, 2018
Governance effectiveness for resilience and challenges for the future
The revised governance model for power supply resilience in Finland shows great results in its first years of implementation
Finland’s governance model for the resilience of its electricity transmission and distribution system combines the power of a strong regulatory framework and a well-established cooperative model between the public and private sector to reach ambitious resilience targets. The 2013 Electricity Market Act, the pooling system, and the support of NESA provide together a comprehensive set of incentives for electricity operators to invest in resilience. The clear definition of roles between the regulator and NESA demonstrates the coherence of this stick and carrot approach to foster resilience: on one side, the Energy Authority oversees compliance with resilience regulations, and on the other side NESA facilitates the voluntary engagement of operators in resilience actions through a series of information-sharing, guidance, and peer-review tools. This appears as a good policy response to the large-scale disruptions caused by the Tapani storm in 2011, as well as to adjust to a dynamic risk landscape marked by increased interdependencies, climate change and rising concerns over cyber and hybrid threats.
The on-going implementation of this resilience policy shows a large engagement of the different operators who appear to adhere to both its objectives and approach. The pool system functions well and allows secured information-sharing as well as the co-construction of policies and implementation tools. NESA’s guidance and tools are utilised by operators, who largely participate in its activities. Operators are investing in the robustness of their network as per the regulation, which is well tailored to foster these investments: some operators calculated that the level of compensations they might have to pay to customers could reach one fourth of their turnover in case of a storm similar to Tapani. In addition, the new policy created momentum for resilience investments targeted at other risks such as cyber.
As this approach starts having cost implications for customers, balancing public expectations on resilience versus price increase would require a close monitoring of the cost-effectiveness of resilience investments.
Resilience investments start having cost implications for customers, which would need to be closely monitored to ensure continuous public acceptance of this ambitious policy for the security of the country. Regarding compensation, the new scheme was first activated during the January 2018 winter storm, which left 40 000 people without electricity in northern Finland - some up to a week. As a result, 10 000 customers received compensation up to a total of 5 million euros. On the other hand, investments made in robustness led DSOs to improve in parallel the quality of their services, which per the regulation allowed them to raise distribution prices. In its 2017 yearly report, the Energy Authority indicated that household consumers saw a distribution price increase of 5.4% on average compared to the previous year (Energy Authority, 2017). In some instances, the increase reached 30%. Strong public and political reaction led to the adjusting of the Electricity Market Act to cap yearly price increase at 15%, which can create cash-flow problems for some operators. Transmission costs, while they remain low per European standards, have gone up two-fold over the last 10 years.
This demonstrates the importance of carefully considering public expectations and their change overtime when designing resilience policy instruments, as well as to conduct a close dialogue with operators on the most affordable ways to increase resilience. There should be an optimal balance between costs, investments and reliability of services, in order to ensure both that public expectations on the reliability of power are met and that cost increases remain acceptable. In the aftermath of the 2010 and 2011 storms, society expressed a high demand for improved reliability levels. Policy-makers responded with the ambitious objectives set in the revised Electricity Market Act, which operators acted upon by investing in resilience. As the memory of this disaster slowly fades away, so does the willingness to pay. While it is essential to maintain a stable regulatory environment in this sector where long-term investments are needed, there could be a way to discuss with operators on the cost-effectiveness of the resilience measures they take. Complementary solutions to underground cabling might be cheaper.
Differences between transmission operators’ resources and capacities has implications on the way they implement resilience measures across the country and its overall resilience
The large diversity among the 77 DSOs operating in Finland means that they have varying capabilities and resources to meet the 2028 resilience targets. The largest operators often cover densely populated urban areas. They have mobilised significant resources to invest in resilience and are on a good track to meet targets. On the other side, the smallest operators in rural and isolated parts of the country face financial constraints and technical difficulties to do so. Large operators, those with private shareholding in particular, are maximising their profitability within the new regulatory framework. This explains why underground cabling in the densest part of the country has been the most prevalent option so far and fits well with the priority established on the most critical points of the network. Nevertheless, there are concerns over the growing disparities in terms of resilience of distribution networks across the Finnish territory. In remote areas, electricity cuts can generate significant impact for the populations, with long restoration times, which may call into question the overall benefits of the new regulation. On the other hand, smaller DSOs fully benefit from the exchange of good practices from their peers within the pool system, to improve their awareness and structure their business continuity plans, including those for cyber risks.
Going forward, preparations for future updates of the governance model could reflect upon ways to support the resilience of small DSOs. Other cost-efficient options are available besides underground cabling, such as setting up more redundancies, removing trees from the lines or other innovative solutions. In this case, co-financing options could be explored to complement market-based solutions, as a way to ensure that all DSO’s have the opportunity to reach resilience targets.
Future-proofing power supply in Finland would require more joint action with interdependent sectors, as well as to further connect policy agendas on innovation, climate and resilience.
NESA’s drive towards a system-approach to the governance of critical infrastructure resilience does not yet materialise in cross-sectoral cooperation, which is particularly important between the electricity and ICT sectors. As flagged in the NESA Security of Supply Scenario 2030, the electricity sector is currently going through transformative changes, and these will affect security of supply (NESA, 2018). Mutual interdependencies between electricity transmission and distribution and the ICT sector are rising fast, with the deployment of automated control systems and smart grids by DSOs and TSO. However, continuity requirements differ between the two sectors, investment time-lines and returns do not align, and information exchange between the respective pools is not optimal. Interdependency mapping could be improved to jointly strengthen the resilience of these sectors to common risks, from telecommunication or electricity outages to cyber-attacks. In light of the disruptions experienced after the Tapani storm in 2011, there is room to leverage the pooling system to foster cross-sectoral information sharing, facilitate in-depth analysis of resilience, interdependencies, and critical failure points between sectors, as well as prepare a multi-sectoral resilience action plan.
Other transformative changes in the energy sector driven by innovation and climate change provide opportunities for improving resilience but could also challenge security of supply and operators business models. Finland’s climate strategy proposes a strong increased of renewable energy to replace coal generation, and the deployment of smart systems is central to its innovation strategy. On one side, these evolutions could result in increased flexibility and back-up capacities to balance supply and demand, and facilitate network’s operations. On the other side, more intermittent production and off-grid local generation and distribution are raising concerns on security of supply. There is a risk that returns on the on-going investments in the resilience of electricity network might be lower than expected, if these new capacities are not utilised as planned. There is a need for all stakeholders in the pool as well as at the policy level to carefully reflect on how DSOs and TSO resilience business models could be affected by these evolutions.
Box 4.4. Recommendation for Finland
For strengthening the resilience of its critical infrastructure in the electricity transmission and distribution sector, Finland could consider the following set of recommendations:
1. Maintain a continuous dialogue with operators on the cost-effectiveness of the resilience measures they take to foster diversification of solutions.
2. Strengthen awareness of the population on risks to network disruptions and communicate progress made on resilience to facilitate societal acceptance of cost increases.
3. Explore options to further support smaller operators in their efforts to reach resilience targets.
4. Leverage the cooperative model of the pooling system to strengthen interdependency analysis and joint action between the electricity and the ICT sectors.
Facilitate the development of mutual aid agreements between operators on a voluntary basis.
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