How UK paid a record price to dodge blackout

Last week, unbeknown 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% higher than the typical price — did the UK 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 industrialised 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 pm on July 20 via the so-called NEMO interconnector that links the UK 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 UK 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 Ltd, a consultancy. “It was the price to keep the lights on. The security of supply was a 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 UK 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 UK, and the rest of industrialised 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.

—Bloomberg