London paid a record price to dodge a blackout last week

Unknown to most outsiders, London was remarkably close last week to experience a blackout, even though it was still recovering from the hottest day of British history.

Surging electricity demand and a grid bottleneck caused a short-term blackout in the east of London on July 20.

The UK was able to avoid its homes and businesses going black by paying an unprecedented £9,724.54 (about $11,685) per megawatt-hour — more than 5,000% above the average price. This was the price that Belgium paid to make old electricity plants available for the English Channel.

After years of low investment, and opposition from not in my backyard, the crisis quietly unfolded within the control room for the British electricity system.

Most days, bottlenecks lead to distorted costs. It can lead to sky-high energy prices when there is not enough of it. Other times, prices can plummet to zero or even go negative when producers are unable to sell their power into congestion-prone transmission systems. It puts the entire system at risk. You will quickly sense that the industry is slipping into more blackouts if you talk to executives. Talk to the engineers responsible for the system’s management and you will see that the danger is even closer.

The price of £9,724.54 was paid between noon and 1:00 p.m., July 20, via the so-called NEMO interconnector, which links the UK to Belgium. It was nearly five times more than the previous record. It is easy to see the absurdity in this price compared with the current year-to-date UK spot electricity average of £178 per megawatt-hour.

Phil Hewitt, who for more than two decades has been watching electricity prices, says that it was a shock. Hewitt is the executive director of EnAppSys Ltd., a consulting firm. It was the price of keeping the lights on. It was the security of supply that was at risk.

The amount of electricity purchased at record prices was actually very small: enough to power eight homes for one year. The prices were slightly lower for more power. Despite this, the payments highlight the desperation: for about 60 minutes, buying across the channel was the only way to balance the system. A grid spokesperson said that if Belgium hadn’t stepped in, the grid would have been forced to “undertake Demand Control and Disconnect Homes from Electricity.”

If the grid was normal, and without traffic jams, the UK would have been able to send power to the southeast from any other part of the country. This includes all the way from Scotland, where there are more offshore wind farms than ever. The problem is that both the UK and other industrialized countries aren’t investing enough to upgrade their grids. This leaves the system vulnerable.

According to the International Energy Agency, power grids are being invested in around $300 billion annually worldwide. This figure has not changed much since 2015. As the global economy electrifies, it isn’t enough. With intermittent renewable energy such as solar and wind replacing polluting but reliable, coal- and gas-fired power stations, this isn’t enough.

Grid bottlenecks can lead to perverse situations. For example, solar electricity producers in Spain have to shut down their plants at times. In the north, however, the demand is met by gas-fired power stations. Electricity prices can drop to zero in some parts of the US. Power plants are forced to sell their electricity due to grid constraints. In other parts of the US, consumers face increasing pressure to lower peak demand and record prices.

It is necessary to replace the infrastructure that is often more than 30 or 40 years of age. Local opposition to the addition of overhead cables and pylons is a problem with refurbishment and expansion. The UK authorities have moved some grid sections offshore using undersea cables to bypass popular resistance. The industry joke is that fish don’t vote. However, it is a costly undertaking.

Building new grids is becoming more expensive due to high metal prices. Cables made from copper or aluminium account for almost a third of the cost of a new grid at current prices. This is up 10 percentage points on investments between 2010 and 2020.

Grid managers and utilities across the US and Europe need to invest billions in the digitalization of their networks. This will allow for demand-side load management, which would lower consumption at peak times. As electric cars become more popular, managing peak demand will be even more critical.

The UK spent just below £1,600 per megawatt-hour last year to import electricity and avoid a short squeeze. It paid almost £2,000 for electricity on July 18, which was the record. The price rose to almost £10,000 two days later. This is the pattern. The pattern is clear. A blackout would then belatedly expose the results of our underinvesting ways.

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