Building grid resilience through structured stress testing

This paper highlights the importance of scenario planning and stress testing to support ERM strategies and meet the demands of the energy transition in the Indian Power Sector, amid challenges posed by climate change, geopolitical, regulatory, and cybersecurity risks.

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Abstract

The authors propose a structured framework for scenario planning and stress testing to identify priorities and analyse governance models, aligned with electricity policy, regulations, markets and grid realities.

Introduction

The traditional Enterprise Risk Management framework assumes that risks behave independently, that correlations remain stable, and that disruptions can be managed through incremental controls. However, in today's business environment, ERM tools need to adapt to the evolving risks facing the power sector. Recent global events have shown how risks once considered unrelated can suddenly exacerbate one another, resulting in cascading failures that overwhelm traditional ERM controls.

In India, the power sector is expected to catalyse economic growth through large-scale renewable energy integration, transport electrification, and grid modernisation, amid financial stress, fuel shocks, supply constraints, market volatility, and climate change. Scenario planning and stress testing are tools that provide a resilient approach to strategic decision-making.

Conceptual foundations

Institutional mechanisms need to be set up, based on the following concepts, to integrate these tools into the framework:

• Scenario planning: Helps evaluate multiple plausible futures by examining key drivers of uncertainty and their implications on strategy formulations and organisational controls.

• Stress testing: Examines the impact of low-probability, high-impact events, quantifying the outcomes, e.g. financial losses, liquidity depletion, service interruptions and time-to-recover.