Dancing in the Dark

At 9:38p.m. on Saturday, November 4, 2006, Europe suffered yet another major blackout. Although the blackout was short-lived, at about one hour long, it was extensive, affecting around 10 million people in eight different countries, and led to curtailment of about 13,000 megawatts (MW) of demand.

This event has the following key implications:

* CERA expects efforts to be redoubled in reinforcing the German transmission grid to alleviate the North-South constraint which is believed to be one cause of the blackout. Outstanding investment plans for the transmission grid in Germany already include a number of North-South projects, and we expect that these will progress more quickly in the aftermath of this blackout.
* This event affected 8 countries and 12 grid operators (Germany currently has 4 separate grid operators). Improving coordination and the transfer and transparency of information across the grid operators is key to preventing a recurrence as electricity markets are subject more and more to market economics. At the same time, better processes within grid operators are needed as complex electricity systems and "rules of thumb" do not work well together.
* We expect that EU Competition Commissioner Neelie Kroes may use the blackout to bolster her arguments on ownership unbundling. This would be on the basis that pure transmission system operators, when compared to vertically integrated organizations that are also involved in production and supply, would have less to fear in embracing the needed increased transparency of information and greater coordination.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.