Are the increasingly frequent failures in electricity supply the result of privatisation and deregulation?
Occasional failures of the electricity supply remind us how completely life today depends on it. Most power cuts are limited and quickly rectified. But recently big disruptions have been more common. In 1998, supplies to the central business district of Auckland were disrupted and it was seven weeks before power was fully restored. California suffered regular power losses in 2000. This summer, power cuts across the north-east US were followed by an incident that left London commuters fuming in crowded rush-hour trains. Copenhagen was shut down last week and on Sunday Italy was plunged into darkness.
As I sat in the dark at Rome airport, I pondered the question many people were asking: is there a connection between the increased incidence of major failures and the widespread reorganisation of the electricity supply industry, focused on privatisation, deregulation and new markets?
Big failures are usually prompted by some freak event – a surge in demand, an accident or a component failure. These events will happen even in the best-run networks. Usually the consequences are controlled quickly. The efficiency of damage limitation depends on the skill and experience of the engineers on duty and the amount of redundancy in the system – the extent of spare capacity and alternative transmission paths.
It is easy to determine the immediate cause of a failure – in Italy it was a fallen tree. But the real story is harder to untangle. No organisation can be blamed for falling trees or extreme weather: but a perfect organisation would be able to contain the failure and quickly remedy the problem. There is a link between the effectiveness of an electricity supply business and the incidence of breakdown. But rarely is this conclusive: there is rarely a smoking gun.
We are inclined to interpret complex events in accordance with the views we already hold. But we should adapt our opinions to the facts. And the case for restructuring the electricity industry looks less persuasive today than it was five years ago.
Preventing and controlling system failure depends on the judgments of people who have seen similar situations. Any reorganisation, even if beneficial in its overall consequences, reduces the availability and value of this tacit knowledge. It imposes unfamiliar demands on system controllers and many experienced people hold different positions or are no longer employed. Mercury Energy, responsible for the Auckland breakdown, was massively overmanned before it was restructured: but it is likely that among those who took early retirement were people with a lifetime of experience who knew what to watch out for if the weather became very hot.
A primary objective of reorganisation was to remove some redundancy in the system – to reduce excess capacity and achieve better value for money. This led to lower costs and lower prices for consumers but it has also increased the risks of breakdown. It is difficult to strike a balance between over-designing a system so it is too expensive for its purposes and saving money by stripping it to the bare essentials that leave no margin for error. Traditional state enterprises prized engineering excellence. And the French electricity network, run by men who regard liberalisation of the European energy industry as a personal affront, emerged unscathed last weekend while the Italian system collapsed.
It probably is true that more frequent system failure is the price we pay for structural reform. This does not prove that liberalisation is a bad idea. The world is rarely as simple as ideology. Britain’s state-owned electricity industry wasted billions of pounds on nuclear reactors that failed to provide power to budget or on schedule. The privatised industry would not – could not – do the same because investors would not put up the money. But a more market-oriented electricity business, perhaps more efficient overall, is more vulnerable to system failure than one that is centrally co-ordinated. There are trade-offs. And if the reaction of fellow passengers in the unlit departure lounges of Rome airport is any guide, tolerance of system failure in electricity supply is very low.