In less than three months, the Western world has suffered five serious blackouts. Four of them took place in Europe. The latest and most serious blackout occurred on September 28, when 57 million Italians were left without light for several hours because of rolling blackouts that also affected France and Switzerland. Suffocated by growing demand for electricity and a lack of investment in modernizing and expanding its networks, the Old World needs to integrate its energy markets in order to avoid such accidents in the future.


The giant wave of blackouts, which has raised doubts about the effectiveness of the European electricity sector, began last July in Mallorca, one of the most important tourist destinations in Spain. With the summer season at its peak, 330,000 people – mostly tourists – were left in the dark when the system collapsed due to increased demands. For the same reason, 300,000 people were left without power two weeks later in Andalusia, in southern Spain.


On August 27, London also experienced a cutoff in electricity supply that left southern and southwest sections of the city without power, and paralyzed trains and subways just as people were returning home from work. Sweden and Denmark have also suffered the consequences of a decline in the system. Two weeks ago, five million people were left without lights for hours.


Italy experienced the gravest of all the blackouts suffered in the Old World, more serious even than the events of August 14, when a failure in the United States Niagara electric power station unleashed a giant wave of collapses that brought darkness to New York, Toronto, Detroit and other cities for several hours.


Weak Links

Early one morning – between Saturday, September 28 and Sunday, September 29, at about 3:30 A.M. – all of Italy was plunged into prolonged darkness. The impact of that blackout, which also affected France and Switzerland, surpassed every previous record.  In all, 57 million people were left without light until dawn, when a recovery began in the North of the country, and in Sicily, Basilicata, and Calabria.   Rome and the rest of Italy had to wait until after midday.


On this occasion, the collapse of a tree in Switzerland, followed by another accident in Austria, was the reason for a short circuit in the high-tension line between France and Italy. “In this case, there was not any problem involving [power] generation. Fundamentally, what happened was a shoddy piece of engineering – a technical failure that should have been perfectly repaired by the system,” says Íñigo Herguera, professor at the Complutense University of Madrid.


When the blackout occurred, the Italian electricity grid failed to spike. So, why did this accident have similar scope? “The grid is like a chain. If you break one link, even if the rest is okay, the chain breaks,” notes Carlo Andrea Bollino, president of the managing organism of the Italian electricity grid, when he was asked to explain the failure.


Antiquated networks for nationwide distribution, insufficient connections between different states and a significant shortage of capacity are the main problems facing the European electricity sector. According to experts, in this situation, the solution is greater integration of the electrical grids of every country. Loyola de Palacio, superintendent of energy for the European Union, has already noted that “the creation of a unified market in this sector would allow us to put an end to the current situation in which some countries suffer from isolation. In several regions, our electrical grid suffers from chronic congestion. The bottlenecks are becoming a greater source of concern, and some countries are poorly connected.”


Nevertheless, Herguera notes that it is not so simple to find a solution to a problem that has such broad dimensions. “Global responses won’t do any good, because each country is a world in itself. If there were just one European market for electricity, would there be fewer blackouts?” asks Herguera. “Well, that’s not so clear. Italy’s blackout had its origins in Switzerland. As for Spain, a failure in the power network of another country would not affect Spain so much, because Spain barely has international connections.”


Currently, the countries of Central Europe have united their power grids more than in other regions. For example, Austria gets 31% of its electricity from outside its borders. In Belgium, that figure is 19.9%. Among other countries that import the most, in Holland the figure is 19%; and Italy, it is 16%. At the opposite extreme are France, which only buys 0.7%; the United Kingdom, which buys 2.7%, and Spain, which buys 5.9%.


The need to import electricity arises when a country is incapable of producing all the megawatts that it needs on its own. This situation occurs at peak hours i.e. when there is a higher level of consumption. In an effort to satisfy higher levels of demand, some countries buy electricity from their neighbors. Italy, for example, essentially does its importing from France, which last year sold Italy 19,025 gigawatts/hour, according to the Union for the Coordination of Transmission of Electricity (UCTE) and Eurostat, the statistical information bureau of the European Union.


“In principle, it’s consistent to think that we must advance toward a European market for electricity because that permits you to attract demand from other countries if you have lower demand [at home],” notes Herguera, adding, however, that there are pitfalls that the Old World must overcome in order for this picture to work out well. The first pitfall has to do with the physical networks that unite these countries. “They need significant investment and the debate is focusing around who must put up the money – governments or private operators,” he notes.


Obstacles and Advantages

A year ago, at a meeting of the 15 countries of the European Union, it was agreed that companies must take on these investments, but with the assistance of Brussels. “In principle, the [electrical] generation market is deregulated so that governments can recognize that this is a private-sector problem. What is happening is that companies aren’t constructing new plants at the same rate as demand is growing, and that it is leading to a shortage of supply whenever peak [power usage] is reached.”  Herguera believes that the key to solving this situation will be “incentives that the various governments give to the [private-sector] companies.”


Each country obtains its electricity from different sources, says Herguera. “In France, 80% is nuclear; while in the Nordic Countries the same percentage comes from water power. In the United Kingdom, it is a combination of gas, coal, nuclear power, and what the country imports from France. For Italy, gas, fuel oil and coal are the main sources, since nuclear power is prohibited by law. Germany obtains most of its power from coal, but it also has gas. In contrast, Germany has little hydroelectric power.”


This diversity of energy sources means that “you have to use caution when you make comparisons in electricity prices among the different countries. Each country uses different [sources of] energy,” says Herguera. Water provides the cheapest electricity, followed by nuclear energy; and then by power stations that use a combined cycle, which can function with gas but can also use fuel oil. Finally, there is fuel oil, and coal. “The safest model consists in adding water power to the combined cycle,” notes Herguera. In Spain, for example, 30 new plants of this sort are scheduled to begin operating by 2006 to satisfy growth in demand. “Currently, there are only eight power stations that are operating with combined cycle technology. Moreover, they are not being fully utilized.” That is not sufficient volume for a country that annually consumes 210,000 gigawatts per hour.


The great advantage of these plants is that the fixed cost needed to install them is not very high. Moreover, they generate electricity at a lower cost. “The amortization period for these power stations is about 15 to 20 years, in comparison with the 40 years needed for a nuclear plant. Moreover, they almost instantaneously produce electricity that, with a bit of foresight, can function in peak hours,” Herguera states.


The Distribution Problem

Electricity generation is not the only challenge confronting Europe. The networks for distributing electricity are another pending concern. Governments and the private sector face problems centering on the improvement of networks as well as the price at which electricity should be sold.


“One area that we have to address is payment according to power [made available]. That means paying the operators for making themselves available even if you don’t go on and use them,” says Herguera. In his opinion, one of the great advantages of integrating markets would be that “if a company asks a very high price for making itself available, you can always resort to using another company that offered a cheaper price, so your payments are lower.”


In Europe, almost every consumer prefers regulated prices. In countries like Spain, this allows electric companies to add to their spot prices a collection mechanism called “CTC” (Cost of the Transition to Competitiveness). This is an additional payment guaranteed [to electric companies] by the [E.U.] governments [to compensate electric companies for the cost of investments that result from deregulation.] This passes on the companies costs of moving out of the public sector, into the private sector, “and it comes out of the pocket of consumers,” notes Herguera.


Currently, Spain’s National Energy Commission (CNE) is drawing up a new mechanism for regulating the price of distribution. Herguera explains that “the departure point is: What would be the optimal distribution network in a specific location? What would be the implicit costs? Beginning from there, they will reward each operator as if it had a perfect network. For example, if in a specific locality the perfect network would require 120 kilometers of cable and the operator only had 70 kilometers, they would pay him according to those 70 kilometers. In that way, you compete with an ideal model, and penalize any inefficiency whatever.”


Nevertheless, Herguera recognizes that implementing this system will cost a great deal because of opposition from companies “that currently are remunerated in accordance with the average cost of all distributors. The way things are now, the average [cost] is inflated in order to get paid more.”