Cyber Insurance for Energy Economic Risks

Abstract

The proliferation of information and communication technologies (ICTs) within smart cities has not only enhanced the capabilities and efficiencies of urban energy systems but has also introduced significant cyber threats that can compromise these systems. To mitigate the financial risks associated with cyber intrusions in smart city infrastructures, this study introduces a two-stage hierarchical planning model for ICT-integrated multi-energy systems, emphasizing the economic role of cyber insurance. By adopting cyber insurance, smart city operators can mitigate the financial impact of unforeseen cyber incidents, transferring these economic risks to the insurance provider. The proposed two-stage optimization model strategically balances the economic implications of urban energy system operations with cyber insurance coverage. This approach allows city managers to make economically informed decisions about insurance procurement in the first stage and implement cost-effective defense strategies against potential cyberattacks in the second stage. Utilizing a distributionally robust approach, the study captures the emergent and uncertain nature of cyberattacks through a moment-based ambiguity set and resolves the reformulated linear problem using a dynamic cutting plane method. This work offers a distinct perspective on managing the economic risks of cyber incidents in smart cities and provides a valuable framework for decision making regarding cyber insurance procurement, ultimately aiming to enhance the financial stability of smart city energy operations.