Picture: 123RF
Picture: 123RF

Singapore/Washington/Oakland — California is at risk of blackouts as a sprawling heatwave smothers the western US. Cities across China’s industrial heartland are rationing electricity. European power prices are far higher than usual for this time of year. Droughts are drying up reservoirs from Brazil to Taiwan.

Welcome to the future of rising temperatures and the escalating fight just to keep lights on.

Mix extreme heat and longer droughts, surging post-pandemic power demand, rising fossil fuel prices and a bumpy transition into renewables, and the result is a severe global power crunch. For millions of households and businesses around the world it could be a long, hot summer of higher bills, periodic rationing and, in the worst case, blackouts. Higher energy costs will also add to the inflationary pressures coursing through the global economy.

The extreme weather — even before the onset of hurricane and typhoon seasons — highlights the real world impact of climate change. Higher temperatures boost energy use as people switch on the air-conditioners, but power systems, especially those trying to navigate away from coal and other fossil fuels, are often vulnerable to the volatility in demand.

“Climate change is all about seeing more frequent and more extreme weather events, so we need more investment in the grid to protect us from that,” said Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis.

In the US, much of the nation is bracing for blackouts this summer as temperatures rise from New England to California.

California’s grid is being swamped with demand, with temperatures forecast to exceed 43°C this week, heightening fears of a sequel to the rolling outages that darkened parts of the state in August 2020.

The operator of the Texas power grid asked customers to cut back on electricity use this week as a heatwave grips the region. The request comes only four months after a winter energy crisis there that plunged much of the state into darkness and killed more than 150 people.

“The weather is more volatile,” said Katie Bays, an analyst at FiscalNote Markets. “So the models we’ve used to design the power system are less accurate and not as adequate at insuring that there’s sufficient supply to meet demand.”

Weather is only one part of the problem. The situation is being worsened as economies roar back from the pandemic. Electricity demand, which crashed as the coronavirus locked down cities from Beijing to Frankfurt, is surging with the return of workers to offices and factories.

Economic rebound

Some regions in Europe are seeing demand jump back to pre-pandemic levels. With gas inventories low, utilities have turned to burning more coal even though the rising prices for the fuel itself and the cost of buying carbon permits makes it an expensive choice. That means power prices in several EU countries are far higher than usual for this time of year — costs in Germany have reached a record for July.

China’s power consumption climbed 15% through May from 2020. That’s leading to shortages, with the country’s four largest provinces predicting they’ll be short of peak power generation this summer. Japan is expecting tight electricity supplies and the government has requested that utilities stock up on fuel supplies and consumers conserve electricity.

Idled plants are affecting the nuclear sector, and droughts are lowering the availability of hydropower — the Hoover Dam’s reservoir is at its lowest level since 1937. Though in a development that’ll bring some relief in China’s power-starved Guangdong province, the massive 10.2-gigawatt Wudongde hydropower plant was fully connected to the grid on Wednesday.

Energy prices are soaring across the globe amid the scramble for supplies. In China, coal prices have surged to a record as mining output has dropped amid a government-led safety campaign, while an unofficial ban on Australian coal has meant it doesn’t have enough to meet soaring post-pandemic demand, making generators less keen to ramp up thermal power output.

Extreme cold this past winter has also contributed to the supply problem. In Europe, a longer-than-usual winter has left gas storages depleted. 

“If we do get extreme heat that nullifies the wind power we are seeing right now, we will have to rely on solar and gas, but gas storage is very low, so prices may not come down,” said Tim Partridge, head of operations and trading at consultants DB Group. 

In the Middle East, where the power load roughly doubles in the summer compared with winter, Kuwait has already hit record demand, forcing it to burn hundreds of thousands of barrels of oil every day. Iran, which has been facing blackouts since May, has banned bitcoin mining.

Around the world, energy developers are replacing greenhouse-gas emitting coal and gas-fired power plants with wind and solar farms. But they aren’t always adding enough batteries or keeping enough backup power on hand to buttress those clean sources of power for when the sun sets or winds die down.

“Markets are moving toward renewables that have less base load, and what that means is, they are less quick to react to sudden demand and supply,” said Daine Loh, power and renewables analyst at Fitch Solutions.

For wind power, she explains, you can’t predict wind speeds will exactly match demand. Battery technology, meanwhile, is currently not sufficient for balancing the whole power system.

Government policies are also contributing to the chaos, according to Tony Wood, energy programme director at the Australia-based Grattan Institute think-tank.

Some political leaders have been reluctant to acknowledge the increased regularity of what might previously have been one-in-100-year weather events, he said. In other cases there’s been a rush to invest too quickly in renewables, or a push to extend the lives of coal-fired power plants.

“Our policy responses to address climate change are also not necessarily that well co-ordinated,” Wood said. “That’s also having an impact that we’re struggling to cope with.”

Bloomberg News. More stories like this are available on bloomberg.com

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