Rolling blackouts are rolling in

Gently into the 'good night'?

Do not go gentle into that good night, Old age should burn and rave at close of day; Rage, rage against the dying of the light. - Dylan Thomas

On Thursday past week, Paris was hit with a large-scale power outage. Der Spiegel reports that 125.000 households were without power. The outage appeared as French authorities were running simulations on rolling blackouts.

I do wonder, where’s the European emergency plan of restoring our energy-independence? In many countries, like Finland, no such preparation is visible even at the national level. Several energy analysts have been stating that this crisis will last at least four years and that next winter would be even worse, because there are serious doubts whether Europe will be able to fill her gas storages.

The worst scenario, to where we seem to be heading, is that Ukraine will lay in ruins, possibly taken over, for most part, by Russia and Europe sinks into an economic abyss, driven by blackouts, de-industrialization, and banking, sovereign and currency (the breakup of the Eurozone) crises. This is a real risk, but very few seem to acknowlegde it and even fever politicians seem to be willing to do something to stop it. Is this utter incompetence or deliberate (in-)activity?

In any case, French authorities are running simulations for blackouts, which are expected to appear in January, across Europe. I worry that we will see a multitude of shocks hitting at the same time early next year. There’s a convergence of developments threatening to create a ‘perfect storm’, like I and we have been warning.

But, let’s take another look at the situation with natural gas and electricity markets to guide use, where we are heading.

Coming gas shortages and deindustrialization

I have been gathering information on the global market of liquified natural gas, or LNG, used to replace gas flows from Russia. Recently, I came across an article, in Oilprice.com, which summarized the gravity of the situation:

The United States and Qatar, the world’s top exporters of LNG, will have a lot of new capacity after 2025, easing the potential supply crunch but unable to help Europe with a new wave of gas supply either for the next winter or the winter after that. 

The International Energy Agency, IEA, warned that if Russian gas remains off-line and China returns to its normal consumption levels, Europe would see a deficit of 30 billion cubic meters of gas next summer (the maximum storage capacity in Europe is around 108 bln cubic meters).

Alas, the global LNG market will remain extremely tight, without Russian gas, at least for the next two winters. If Russian pipeline gas supply to Europe remains shut, a global shortage of LNG could reach 7.6 million tons by January 2025. This is around a tenth of European LNG imports in 2021.

Essentially what this all implies is that, without Russian gas, it will be very challenging for Europe to fill its gas storages during the summers of 2023 and 2024. It also means that competition in global LNG markets will get brutal, implying that some countries will be cut off from the gas supply, because natural gas prices are likely to go thought the roof. Most likely this will include the poorest nations, as they lack to funds to pay the same what Europe and rich nations in Asia will be offering.

Rolling blackouts loom

Alexander Stahl, a commodity and energy analyst, has published an excellent Twitter thread going through the issues in the European electricity markets and the grid. I’ll explain and summarize the main points here.

First of all, the European electricity grid is “a modern miracle”, as it’s the largest synchronous electricity grid in the world with 520 million end-users in 32 countries. In 2019, total electricity consumption, or “load”, of the grid was 2635 Terawatt hours (TWh).

The most important point is to understand, and I cite Alexander directly here, is that:

The grid builds on physics, not ideology. One such law says that the alternating current that flows through the grid needs to match generation with consumption – that is 525,960 minutes per year - because electricity cannot be stored in the grid.

Essentially this means that the frequency of the grid needs to be maintained between a certain tight corridor to avoid infrastructure damage or shutdowns. This directly implies that the European electriticity grid has been made fragile by the introduction of vast amounts of wind and solar energy. So, the functionality of European electricity grid depends crucially on the “top-up energy” to be enacted, when there’s no wind and/or sun (dunkelflaute). This comes mostly from nuclear, coal, gas and hydro power plants.

Because many central European countries have shut their nuclear and coal power plants down, especially in Germany, their ability to meet the load (the demand) with production during winter-time is lacking with the deficit worsening in accordance of planned closures of nuclear power plants (some of these decisions have now been reversed, thank God). The incapacity of domestic top-up energy production is a threat to the stability of the European electricity grid.

Moreover, during peak consumption, natural gas has saved the day until now. The question is, how long can gas be used to provide support during peak times? As noted previously, storages are already emptying and in the worst case (cold winter), e.g., German storages could be empty by late January/early February.

This is why Europe is threatened by rolling blackouts.

Essentially, the stability of the European electricity grid depends on the Nordic (mostly Norwegian) hydro power. Currently, the NordPool (Nordic electricity market) hydro reservoir content is about 69.4% of full capacity. The median (2000-2019) level, at week 49, is 75.8%. So, hydro reservoirs are clearly below their long-run average and they have been falling rapidly during the past few weeks (winter arrived to the Nordics). If this trend continues, Norway will be forced to cut electricity exports to central Europe sometime during the winter.¹ This would probably guarantee that we will see rolling blackouts in Europe during this winter.

The worrying ease of self-destruction

What worries me the most is the ease our politicians are pushing Europe ‘into the good night’. That is, to de-industrialization and severe economic decline.

Energy crisis is already hitting the European small- and medium-sized enterprises (SME’s) hard. I have seen a report from Germany stating that 40% of SME’s fear that they will not survice the winter. Factories are shutting down production or even planning to relocate outside Europe, like Volkswagen.

If there is a wave of bankruptcies of SME’s, how do think our already teetering banking sector will cope? Not well, is the only plausible answer.

It’s very difficult to turn the heads of politicians on energy policy, as it has been so agenda-driven, but that’s what we should try. All means aimed at preparing for rolling blackouts and serious banking issues should remain as the highest priority of personal and corporate policy.

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Disclaimer:

The information contained herein is current as at the date of this entry.  The information presented here is considered reliable, but its accuracy is not guaranteed.  Changes may occur in the circumstances after the date of this entry and the information contained in this post may not hold true in the future.

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1. Norwegian Prime Minister has sworn that Norway will supply Finland, which will be running a deficit in energy production during peak cold, in all circumstances. However, she has warned rest of Europe that Norway may be forced to cut her electricity exports.