The Prospects After Power Blackouts.

As in the US (see OMT & DT), Europe needs huge new electricity generating capacity and transmission systems. The demand for new capacity will be particularly strong in Italy and Spain and in the 10 less developed countries that are due to join the European Union in May 2004.

The energy market in Europe this year had a series of catastrophic power failures which plunged many cities into darkness in August and September. At dawn (3.25) on Sept. 28, the whole of Italy - with the exception of the island of Sardinia and smaller isles - lost electric power and the night resounded to the wail of alarms. In August, the Italian authorities had reassured the people that a New York-style blackout in their country was "impossible".

In those two months, power failures also hit Spain, the UK and Scandinavia. In addition, droughts in Europe reduced the amount of hydropower available and concerns over nuclear safety - mainly in France - led to warnings about possible further blackouts.

In London the blackout that crippled the underground train system during rush hour was caused by the incorrect installation of a two-amp relay instead of a five-amp one. The power cut spawned a new set of urban myths: (1) that it was caused by lack of investment in the UK electric network, owing to the regulator's insistence on forcing down energy prices; (2) that Britain's liberalised market framework, established under new electricity trading arrangements in March 2001, does not provide sufficient incentives for investment in generation capacity; and (3) nostalgia for what one former UK energy minister had called "the previous overcapacity which historically the state system built in for us". These myths led many to raise the spectre of widespread blackouts in the UK this winter.

The blackout in Italy was caused by a combination of problems, rather than just a cut in power supplies from Switzerland and France. The Italian and Swiss authorities continued to blame each other for the blackout well into October. About 55m Italians were affected by the outages, which lasted up to 18 hours in some parts of the country.

Italy imports up to 17% of its electricity requirements from France and Switzerland in large part because of its decision, following the Chernobyl disaster, not to build the nuclear reactors necessary to keep up with rising demand. Two days after the blackout, the worst in Italy's history, Industry Minister Antonio Marzano described the country's energy situation as "critical...since a long time" and said the risk of power failures would remain until at least the end of 2004. Italy's imports grew to 48,400 gigawatt hours in 2001 from less than 1,000 in 1973 - virtually all from France or Switzerland.

Experts called the power cut a rare exception: in a fluke of nature, storms over the Alps briefly knocked out at least two of the supply lines that enter Italy from France and Switzerland. But the failure, and the very slow recovery of power during the day in the under-developed south of Italy, underscored several problems inherent in this country. A major part of Italy's power system is old and in some regions generating plants have been running at maximum capacity for years. French officials said Italy had long been warned of the need to take measures to reverse its 17% dependence on imported electricity and modernise its grid, particularly the southern parts of the network.

Italy's dependence on imports of electricity had grown steadily for the past 30 years, because of its failure to build enough new power stations, the result of its poor public administration and a national referendum in 1987 that blocked a nascent nuclear energy programme. Inefficient power plants mean Italians pay over 25% more than the European average for their electricity. So it was easier and cheaper for Enel, Italy's largest power utility, to buy the nuclear energy from France than to build its own power generators. Enel's CEO Paolo Scaroni was on Sept. 29 quoted by The Financial Times as saying: "Italy is particularly fragile because of the imports, and the only solution is more generators. That's difficult because of the 'nimby' factor - not in my backyard".

The FT quoted a spokesman for EU's Energy Policy Commissioner Loyola de Palacio as saying Italy had long been one of the weakest links in the trans-European power network. In 2001, a European Commission study listed Italy's inter-connection capacities with France, Switzerland, Austria and Slovenia as some of the most critical in the EU.

In Spain, as in Italy, rising demand for air conditioning has meant increasing burdens on summer electricity supply, especially this year when soaring temperatures hit large parts of Europe. But even in electricity-abundant France the heatwave caused grave concerns, with authorities warning that rising river water temperatures had threatened the cooling of nuclear power stations. So even France, the EU's biggest surplus electricity producer, was obliged this summer to import supplies, as a quarter of its 58 nuclear power plants were shut down due to problems associated with the drought and the heatwave.

Concerns have been raised over the way in which new electricity trading arrangements, designed to make the market more competitive, have forced down electricity wholesale prices, inhibiting new investment in power stations and forcing companies to mothball uneconomic facilities. But the problem of under-investment due to liberalisation in Europe is not as acute as the one in the US.

Whereas in Europe there are multiple utilities and the power sector is a more monolithic industry, in the US liberalisation has made a complicated system even more complicated and has helped prompt a lack of investment in transmission lines. About 250 transmission companies in the US spent only $800m on their system in 2002. That was a little more than what was spent by three companies in the UK on a transmission system 15 times smaller.