An electricity transmission tower near an illuminated street lamp in Upminster, UK, on Monday, July 4, 2022. The UK is set to water down one of its key climate change policies as it battles soaring energy prices that have contributed to a cost-of-living crisis for millions of consumers. Photographer: Chris Ratcliffe/Bloomberg

Last week, unbeknownst to many outside the power industry, parts of London came remarkably close to a blackout — even as it was recovering from the hottest day in British history. On July 20, surging electricity demand collided with a bottleneck in the grid, leaving the eastern part of the British capital briefly short of power. Only by paying a record high £9,724.54 (about $11,685) per megawatt hour — more than 5,000 percent higher than the typical price — did the U.K. avoid homes and businesses going dark. That was the nosebleed cost to persuade Belgium to crank up aging electricity plants to send energy across the English Channel.

The crisis, which quietly played out within the control room of the British electricity system, shows the growing vulnerability of energy transportation networks — power grids and gas and oil pipelines — across much of the industrialized world after years of low investment and not-in-my-backyard opposition.

On most days, the bottlenecks mean distorted costs. Sometimes, it results in sky-high prices where energy is in short supply when it is needed. At other occasions, prices can tumble to zero, or go negative, when producers cannot sell their power into a congested transmission system. Increasingly, it puts the whole system at risk. Talk to most industry executives and you quickly get the sense that we are sleepwalking into more blackouts. Discuss the problems with the engineers who manage the system day-in, day-out, and that danger appears even closer. The £9,724.54 price, settled between noon and 1:00 p.m. on July 20 via the so-called NEMO interconnector that links the U.K. with Belgium, was the highest Britain has ever paid to import electricity, nearly five times higher than the previous record. The absurdity of that level is apparent when comparing it with the year-to-date average for U.K. spot electricity: £178 per megawatt hour.

“It was an absolute shock,” says Phil Hewitt, who has been monitoring electricity prices for over two decades and is now executive director of EnAppSys, a consultancy. “It was the price to keep the lights on. The security of supply was at stake.”

The actual amount of electricity bought at the record price was tiny: enough to supply just eight houses for a year. More power was bought at slightly lower prices. The payments, nonetheless, highlight desperation: buying across the channel was, for 60 minutes or so, the only option to balance the system. If Belgium had not helped, the grid would had been forced to “undertake demand control and disconnect homes from electricity,” says a grid spokesperson.

In a normal situation, without the traffic jams on the grid, the U.K. should have been able to send power to the southeast of England from elsewhere in the country — even from all the way in Scotland, where offshore wind farms are producing more than ever. The problem is that the U.K., and the rest of industrialized nations, aren’t investing enough in their grids, leaving the system exposed.

The world is investing about $300 billion per year in power grids, an amount that has barely changed since 2015, according to the International Energy Agency. It isn’t enough, as the global economy electrifies and deals with a shifting generation map, with intermittent renewable energy like solar and wind replacing polluting — but dependable — coal- and gas-fired stations.

Now, grid bottlenecks create perverse situations. In Spain, for example, there are times when solar electricity producers in the south have to switch off their plants while, in the north, gas-fired power stations are turning on to meet demand. In some corners of the U.S., electricity prices often drop below zero, with power plants forced to sell their energy due to grid constraints. Meanwhile, in other corners of the U.S., consumers are facing calls to reduce power demand on peak days and face record prices.

Aging infrastructure, often 30 or 40 years old, needs to be replaced. But refurbishment and expansion come up against local opposition to more pylons and overhead cables. In the U.K., authorities are bypassing popular resistance by moving some parts of the grid offshore, using undersea cables. “Fish don’t vote,” goes the industry’s joke. It is, however, an expensive undertaking.

High metal prices are making building new grids even more costly. Cables are made of copper or aluminum which, at today’s prices, account for nearly a third of what will be spent on a new grid, up 10 percentage points from investments made between 2010 and 2020. Across the U.S. and Europe, utilities and grid managers need to invest billions of dollars into digitalization of the network to allow demand-side load management that would reduce consumption at peak times, often via hourly prices. Managing peak demand is going to be even more important when millions of households shift to electric vehicles, creating a new source of electricity consumption.

Last year, the U.K. paid just under £1,600 per megawatt hour on one day to import electricity and avert a short squeeze. On July 18, it paid just over £2,000, which became the record. Two days later, the price went to nearly £10,000. The pattern is clear. At some point, even sky-high prices won’t be enough. Then, a blackout would belatedly lay bare the consequences of our under-investing ways.

Javier Blas is a Bloomberg Opinion columnist covering energy and commodities.

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