Officials in North America are continuing to investigate last week's massive power outage that affected the northeastern United States and parts of eastern Canada. The cause is still unclear, but the outage has highlighted the dilapidated state of the electrical infrastructure and the problems associated with deregulating power markets. In Europe, officials are asking themselves whether such an outage could happen on this side of the Atlantic.
Prague, 22 August 2003 (RFE/RL) -- Could it happen here? That's the question energy authorities in Europe are asking themselves after last week's massive power outage in the United States and Canada.
It's not clear yet why some 50 million people in seven U.S. states and Ontario in Canada lost electricity -- in some places for more than two days.
The immediate cause appears to have been a simple transmission line failure in the state of Ohio that spread out quickly along the national power grid. But the blackout illuminated the dilapidated condition of much of the U.S. electricity infrastructure -- and the possible role that deregulation has had in discouraging capital investment and making blackouts more likely.
Nick White, an energy expert at the Arthur D. Little consultancy in London, says it's too early to say whether the same type of blackout could happen in Europe.
"If [the North American blackout was] an 'act of God' failure of a component of the transmission system, then it can happen in any network at any time. The consequences of such an 'act of God' technical failure depend on the degree of redundancy that has been built into [the system]," White says.
White says in Europe the chances of a continental blackout are remote because of the amount of excess generating capacity still available in the system. He says blackouts are possible within individual countries, but that the consequences of any power outage would depend on where it occurred.
He uses Germany and France as examples. He says a power failure in Germany would be less severe than in France, because Germany's infrastructure is denser.
"The German system is a lot more highly meshed. There's a lot more redundancy in the system. And therefore if there were a technical failure, the likelihood is the system would be able to withstand that up to a certain point, and even if the system did fail, it probably wouldn't ripple out to cover large parts of the country like it did in North America last week," White says.
In France, power plants -- usually nuclear plants -- are situated in remote areas along coasts and rivers -- far from consumers. White says, as a consequence, any failure would likely cover a larger part of the country.
The blackout in North America has cast a shadow over market deregulation -- once heralded as a way to transform sleepy, state-owned power monopolies into modern, efficient corporations.
In the past 20 years, many U.S. states have abolished their monopoly utilities and opened up their electricity markets to competition. Europe too is in the process of eliminating energy monopolies, and the European Union is to be fully deregulated by 2007.
Supporters of deregulation say that greater competition among power suppliers leads to greater efficiencies and lower prices for energy consumers.
Detractors concede that may be true, but argue deregulation discourages heavy investment in infrastructure since private companies are often unwilling to commit large amounts of capital they may never recoup.
White says, in general, deregulation does tend to discourage capital investment since private companies are reluctant to invest in spare capacity. He says the situation is different for state monopolies, which can simply pass on to consumers -- in the form of higher electricity rates -- the costs of unproductive investment:
"In any deregulated industry, asset owners are always reluctant to over-invest. When you have a monopolistic industry, there is the assumption that even if you over-invest, the customer will end up paying for it anyway -- whether they wanted that investment or not," White says.
Neil Cornelius, an energy consultant with ICF in London, says the success of any deregulation depends very much on how it is carried out. He says the rules must provide incentives for companies to make what he calls the "right" kind of investments.
"One of the things you need to be very careful of when you're designing deregulated power markets is that you provide the correct incentives for the companies participating in the market to make the right kinds of investments in all aspects of the power system. Those incentives need to be sufficient, they need to be transparent and it has to be clear that the companies are going to be able to capture a sufficient return on their investment," Cornelius says.
He says in the United States, deregulation rules have not provided for sufficient investment in transmission systems -- in other words, the lines and relay systems that carry power from generating plants to end-users. This has happened while the number of power plants has risen and demand for electricity has increased.
"The probability of a blackout [in the U.S.] is higher than it should be primarily because of a lack of investment over the past -- long-term, say past 20 years -- into the U.S. transmission system. You've had rapid demand growth and a lot of new power generation added into the system and the transmission system has failed to keep pace with those developments," Cornelius says.
Both White and Cornelius say Europeans are watching the U.S. experience as they plan their own deregulation.
"I'm sure that the U.S. experience with the recent blackouts will be a factor that will feed into the ongoing debate about the best way to govern the transmission systems and regulate the transmission companies in the European context," Cornelius says.
He says the EU is still at a relatively early stage in the deregulation process in terms of legislation and has yet to agree on a consistent set of rules.
Prague, 22 August 2003 (RFE/RL) -- Could it happen here? That's the question energy authorities in Europe are asking themselves after last week's massive power outage in the United States and Canada.
It's not clear yet why some 50 million people in seven U.S. states and Ontario in Canada lost electricity -- in some places for more than two days.
The immediate cause appears to have been a simple transmission line failure in the state of Ohio that spread out quickly along the national power grid. But the blackout illuminated the dilapidated condition of much of the U.S. electricity infrastructure -- and the possible role that deregulation has had in discouraging capital investment and making blackouts more likely.
Nick White, an energy expert at the Arthur D. Little consultancy in London, says it's too early to say whether the same type of blackout could happen in Europe.
"If [the North American blackout was] an 'act of God' failure of a component of the transmission system, then it can happen in any network at any time. The consequences of such an 'act of God' technical failure depend on the degree of redundancy that has been built into [the system]," White says.
White says in Europe the chances of a continental blackout are remote because of the amount of excess generating capacity still available in the system. He says blackouts are possible within individual countries, but that the consequences of any power outage would depend on where it occurred.
He uses Germany and France as examples. He says a power failure in Germany would be less severe than in France, because Germany's infrastructure is denser.
"The German system is a lot more highly meshed. There's a lot more redundancy in the system. And therefore if there were a technical failure, the likelihood is the system would be able to withstand that up to a certain point, and even if the system did fail, it probably wouldn't ripple out to cover large parts of the country like it did in North America last week," White says.
In France, power plants -- usually nuclear plants -- are situated in remote areas along coasts and rivers -- far from consumers. White says, as a consequence, any failure would likely cover a larger part of the country.
The blackout in North America has cast a shadow over market deregulation -- once heralded as a way to transform sleepy, state-owned power monopolies into modern, efficient corporations.
In the past 20 years, many U.S. states have abolished their monopoly utilities and opened up their electricity markets to competition. Europe too is in the process of eliminating energy monopolies, and the European Union is to be fully deregulated by 2007.
Supporters of deregulation say that greater competition among power suppliers leads to greater efficiencies and lower prices for energy consumers.
Detractors concede that may be true, but argue deregulation discourages heavy investment in infrastructure since private companies are often unwilling to commit large amounts of capital they may never recoup.
White says, in general, deregulation does tend to discourage capital investment since private companies are reluctant to invest in spare capacity. He says the situation is different for state monopolies, which can simply pass on to consumers -- in the form of higher electricity rates -- the costs of unproductive investment:
"In any deregulated industry, asset owners are always reluctant to over-invest. When you have a monopolistic industry, there is the assumption that even if you over-invest, the customer will end up paying for it anyway -- whether they wanted that investment or not," White says.
Neil Cornelius, an energy consultant with ICF in London, says the success of any deregulation depends very much on how it is carried out. He says the rules must provide incentives for companies to make what he calls the "right" kind of investments.
"One of the things you need to be very careful of when you're designing deregulated power markets is that you provide the correct incentives for the companies participating in the market to make the right kinds of investments in all aspects of the power system. Those incentives need to be sufficient, they need to be transparent and it has to be clear that the companies are going to be able to capture a sufficient return on their investment," Cornelius says.
He says in the United States, deregulation rules have not provided for sufficient investment in transmission systems -- in other words, the lines and relay systems that carry power from generating plants to end-users. This has happened while the number of power plants has risen and demand for electricity has increased.
"The probability of a blackout [in the U.S.] is higher than it should be primarily because of a lack of investment over the past -- long-term, say past 20 years -- into the U.S. transmission system. You've had rapid demand growth and a lot of new power generation added into the system and the transmission system has failed to keep pace with those developments," Cornelius says.
Both White and Cornelius say Europeans are watching the U.S. experience as they plan their own deregulation.
"I'm sure that the U.S. experience with the recent blackouts will be a factor that will feed into the ongoing debate about the best way to govern the transmission systems and regulate the transmission companies in the European context," Cornelius says.
He says the EU is still at a relatively early stage in the deregulation process in terms of legislation and has yet to agree on a consistent set of rules.
