Are we heading for a major electricity crisis?

by / Tuesday, 15 July 2014 / Published in Smartgrid-CI Blog

The price of electricity could hit record highs globally in 2015. It may just be a beginning.

The price of electricity has reached record highs in the US this year. According to numbers from the EIA this rise was 3% for the past year. It is the biggest jump since 2008. In some areas the rise is even more spectacular, reaching 31% in the next four years in Algiers, Louisiana, a town that has not experienced any rate increase in 28 years. Who is to blame? The polar vortex some say.

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Bad weather is one explanation, valid mainly for the US but according to experts this trend to more expensive electricity should be global and prices may actually be reaching record highs globally next year.

On top of short term issues, the electricity market is facing a set of circumstances almost everywhere that could impact prices for the long term. In many regions the situation is just as critical as in the U.S. because multiple factors create a situation of energy imbalance.

In Europe, the Energiewende (German energy transition) the imbalance comes from a rejection of nuclear power while renewable energy has not taken over yet. This situation is putting Western Europe under stronger dependence from Russian gas. In Japan, the consequences of the Fukushima’s catastrophe are having a double effect on energy prices with Japanese utilities having to invest more on security and at the same time to develop new sources of energy and the infrastructure that comes with them. In many developing countries a growing number of people are aspiring to electricity and access to power is becoming a serious political issue when governments are finding themselves more and more under strict financial control in order to limit high debt public debt. In Egypt where the energy crisis has reached alarming proportions the government has no cut electricity subsidies in an attempt to solve its financial crisis. The situation is very similar in countries like Indonesia, Nigeria or Pakistan.

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In other cases resources are started to be depleted. The U.K is one example of a country where oil resources are gone while renewable energy has not been sufficiently developed yet and where strong opposition to shale gas does not offer the possibility to smooth the transition.

In most regions, including the US, Europe, Japan, China, and India massive investments are needed in order to either catch up with population needs or to ensure the transition to the use of new energy sources. In Europe alone, €150B (about $210B) is needed over the next 15 years to adapt the distribution network to renewable energy.

On top of this transition to new energy utilities have to battle new regulations against climate change and greenhouse gas (GHG) emission. In the U.S. this translates into more investments aimed at limitting emissions from coal.

The rising price of electricity has already reached a political dimension in some countries. In France, unpopular government is trying to cushion the rise of electricity cost for households in an attempt to defuse critics about its energy policy; a sign of how serious the issue is.

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