The UK is now so dependent on its electricity networks and electronic communications systems that any significant interruption to electricity supply would have severe economic consequences, according to a report prepared for the Prime Minister’s Council for Science and Technology and published today by the Royal Academy of Engineering.
Evidence from previous economic modelling and from international case studies suggests that, although the likelihood of such a serious outage in the UK is very low, the economic impact of a severe and widespread power outage could potentially run into billions of pounds. Counting the cost: the economic and social costs of electricity shortfalls in the UK highlights growing uncertainties in the methods used to calculate the financial and social impact as dependence on electricity increases.
The Academy warns that the pace of change is so great that our understanding of the potential magnitude of these impacts is constrained by limited knowledge about the knock-on consequences that could occur across different sectors of the economy and society. Future shifts in the energy system may further increase our dependence on electricity, particularly if heating and transport become more electrified.
The report compares the methods used to examine the potential costs of electricity shortfalls, including the most commonly accepted method, Value of Lost Load (VoLL) calculations in £/MWh. The Academy report finds very high uncertainties within existing VoLL estimates for the UK. These calculations are highly sensitive to the nature of the power outage, depending on where and when it happens and which sector of society or industry is affected.
Basing crucial cost-benefit decisions on such uncertain estimates is highly risky, but developing a more robust assessment method would require considerably more detailed research.
The UK has not experienced serious interuptions in its power supply for 40 years, during which time dependence on electricity has increased greatly and living patterns have become much more fragmented and complex; this makes it very difficult to make a valuation of the overall costs to the economy.
Technical estimates are supplemented by studying real-world examples of previous blackouts to provide a broader overview of the impacts. The report contains several detailed case studies of major blackouts, such as a capacity crisis across California in 2001 caused by a number of factors, including a very hot summer in 2000 which increased demand for air conditioning. The Californian energy market had been established with strict price controls that limited the market’s ability to respond and resulted in rolling blackouts for nearly a year affecting over 1.5 million people. The power crisis is thought to have cost around $40 billion in additional energy costs for 2001-03 and cut the state’s GDP by 0.7-1.5%. Afterwards, electricity retail prices rose by 30-40% and California was placed on negative credit watch.
There are a number of relatively low-cost measures that can be taken to mitigate economic and social costs of shortfalls. Costs can be significantly reduced by improving communication, and it is vital that plans for communication in the event of an outage are regularly reviewed and updated in light of the rapid advancement of state-of-the-art communications technology – powered by electricity. Costs can also be mitigated by improved planning of outages, in particular to avoid peak load times for various sectors.
"In this report we have looked at the methods used to quantify the economic risk and the social impact, and found them wanting." says Dr John Roberts CBE FREng, a member of the report working group.
"A nationwide blackout lasting for longer than 48 hours could have a severe impact on society; while this scenario is highly unlikely we saw only last winter the impact of severe weather on the south of the country, with power cuts over Christmas. There are obvious political impacts as well – our historical high levels of supply in the UK mean we are accustomed to continuous power supply.
“Current estimates show that we need to spend upwards of £200 billion over the next decade to update and decarbonise our electricity supply infrastructure. We have not invested on that scale since the 1960s and we do not have a good yardstick to compare the potential cost of infrastructure investment with the cost to society of major power outages.”
Notes for Editors
The report Counting the cost: the economic and social costs of electricity shortfalls in the UK was prepared for the Prime Minister’s Council for Science and Technology by a group of expert Fellows and staff of the Academy.
Counting the cost: the economic and social costs of electricity shortfalls in the UK (581.35 KB)
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