It’s getting hot in here

It seems that power blackouts are not just limited to developing countries. This time last year the big blackout in the news was India. This time it’s Italy. The country suffered power cuts in late June when a heatwave led to droughts and soaring power demand. Weeks later, a still concerned Civil Defense chief, Guido Bertaloso said “there was a risk that the water crisis will affect the network in a way that could create a blackout right across the northeast.”

The lack of rain has been worst in northern regions such as Piedmont, Lombardy, Veneto and Emilia Romagna. Big power plants along the River Po ” which is at its lowest in decades ” lack the water they need for cooling.

We have all seen abnormal weather conditions such as heatwaves cause extraodinarily high demand but should they cause blackouts? In truth, in most cases the real problem is not so much the hot weather as a lack of forward planning and under-investment. The hot weather merely serves to expose any underlying weaknesses.

According to reports, Italy’s electricity demand peaked at about 56 000 MW compared to an average of 40 000 MW. This is indeed a massive increase above the norm but it is no secret that Italy has been failing to keep pace with demand. Italy has the fastest growing rate of consumption in the EU and GRTN, the national grid operator, has repeatedly warned that power demand is growing faster than supply and that electricity imports will not be able to compensate for insufficient production.

Efforts are now being made to plug the shortfall. Edison said t will invest J1.5 billion by 2007 to increase its capacity by 4000 MW. In June, Enel said it will add 1600 MW over the next two years by re-starting idle plant as well as building new plant. Meanwhile Eni, Italy’s biggest oil and gas group, announced that it was investing J550 million in a 1170 MW plant in southern Italy. Yet with a little more forward planning and forecasting, the situation would not have become critical.

But more than anything, the blackouts demonstrate the need for greater investment in transmission. Italy is highly dependent on power imports and its problems were exacerbated by the fact that it was unable to import the electricity it needed from France. Now there are plans which should see interconnector capacity increased by 40 per cent over the next two years to increase power imports. It is anticipated that the country will increase its imports to 70 TWh by 2010, catering for just under 20 per cent of consumption.

The transmission issue and the need for greater power trading between countries is one of the most important facing the EU. There has been a lack of investment in transmission systems, which in certain parts of the European (UCTE) grid, threatens security of supply in some countries. This, combined with charges for cross-border power trade, has hindered power exchange and slowed the development of an integrated European power market.

Yet at last hope is at hand. EU energy regulators have finally agreed to abolish a J0.5/MW charge on cross-border electricity sales. As of January 1, 2004, no additional network charges will be made for cross-border electricity transactions in the internal market. They will be treated as national transactions and charged in the same way. Certainly this is a major breakthrough but there is still need for substantial investment in transmission if bottlenecks are to be avoided.

Italy is now paying the price for a lack of planning and problems with power imports but as Europe moves towards further integration and liberalization, this scenario could theoretically become more widespread. Liberalization certainly makes generation planning more complex and calls for increased electricity trading. Further, market liberalization does not seem to be providing positive signals for fresh investment in the networks – especially given the high capital costs and difficulties in gaining planning approval for new transmission systems.

Last month’s heatwave across Europe was expected to result in decreasing cooling capacity at nuclear power stations, which will force plant operators to cut output in Germany and surrounding countries. And with the reduced nuclear capacity, short-term power prices reached record highs.

As liberalization takes hold and the EU grows, it will be interesting to see how fluctuating prices in individual countries affected by weather, as well as cheaper imports from new EU members, affects national economies. Right now in Europe we may be having a heatwave but as the EU continues to break down the barriers to power trading, things promise to get a lot hotter.

Junior Isles, Managing Editor & Associate Publisher

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