The crisis, which unfolded quietly in the control room of Britain’s electricity system, shows the growing vulnerability of energy transmission networks – power grids and gas and oil pipelines – across much of the industrialized world after years of low investments and non-in- opposition from my backyard.
Most of the time, bottlenecks lead to skewed costs. Sometimes this results in exorbitant prices where energy is scarce when it is needed. On other occasions, prices can drop to zero or turn negative when generators cannot sell their electricity into a congested transmission system. Increasingly, this puts the whole system at risk. Talk to most industry executives and you’ll quickly get the impression that we’re sleepwalking to more blackouts. Discuss the problems with the engineers who manage the system day in and day out, and this danger appears even closer. The price of £9,724.54, settled between midday and 1pm on July 20 via the so-called NEMO interconnector which links the UK to Belgium, was the highest price Britain had ever paid to import from electricity, almost five times higher than the previous record. The absurdity of this level is evident when compared to the year-to-date average for spot electricity in the UK: £178 per megawatt hour.
“It was an absolute shock,” says Phil Hewitt, who has been monitoring electricity prices for more than two decades and is now chief executive of EnAppSys Ltd, a consultancy. “It was the price to pay to keep the lights on. Security of supply was an issue.
The actual amount of electricity purchased at the record price was tiny: enough to power just eight homes for a year. More electricity was purchased at slightly lower prices. The payouts, however, highlight the desperation: buying through the channel was, for about 60 minutes, the only option to balance the system. If Belgium had not provided its assistance, the network would have been forced “to undertake a control of demand and to disconnect households from electricity”, explains a spokesperson for the network.
In a normal situation, without grid congestion, the UK should have been able to send power to the South East of England from elsewhere in the country – even from across the country. Scotland, where offshore wind farms are producing more than ever. . The problem is that the UK and the rest of the industrialized countries are not investing enough in their networks, leaving the system exposed.
The world invests about $300 billion a year in power grids, an amount that has barely changed since 2015, according to the International Energy Agency. It’s not enough, as the global economy becomes electrified and faces a shifting generation map, with intermittent renewables like solar and wind replacing dirty – but reliable – coal and gas power plants. .
Now, network bottlenecks create perverse situations. In Spain, for example, there are times when solar power generators in the south have to turn off their plants while, in the north, gas-fired power plants turn on to meet demand. In parts of the United States, electricity prices often fall below zero as power plants are forced to sell their power due to grid constraints. Meanwhile, in other corners of the United States, consumers are facing calls to reduce demand for electricity on peak days and deal with record prices.
Aging infrastructure, often 30 or 40 years old, needs to be replaced. But the renovation and expansion are facing local opposition to more pylons and overhead cables. In the UK, the authorities are circumventing popular resistance by moving parts of the network offshore, using submarine cables. “Fish don’t vote,” the industry joke goes. It is, however, an expensive undertaking.
High metal prices make building new networks even more expensive. The cables are made of copper or aluminum which, at current prices, represent nearly a third of what will be spent on a new network, up 10 percentage points from investments made between 2010 and 2020. In the United States In the United States and Europe, utilities and network operators must invest billions of dollars in digitizing the network to enable demand-side load management that would reduce peak-hour consumption, often via hourly rates. Peak demand management will become even more important as millions of households switch to electric vehicles, creating a new source of electricity consumption.
Last year the UK paid just under £1,600 per megawatt hour in a day to import power and avoid a short squeeze. On July 18, he paid just over £2,000, which became the record. Two days later the price rose to nearly £10,000. The pattern is clear. At some point, even exorbitant prices will no longer suffice. Then, a blackout would belatedly expose the consequences of our ways of underinvesting.
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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former Bloomberg News reporter and commodities editor at the Financial Times, he is co-author of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”
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