Spain Blackout: Just the Tip of the European Energy Crisis Iceberg

On April 28, the entire Iberian Peninsula experienced the most extensive and severe blackouts in Europe’s living memory. Much of Spain, Portugal and the south of France were plunged into darkness for over ten hours. Thousands of train and metro passengers were left trapped for hours, and millions were left without phone or internet coverage.

People were stuck in elevators and in just Madrid alone, emergency workers were dispatched to 286 buildings to free people. Nobody could access cash from ATMs, card payments were affected by the outage, and there were reports that several petrol stations closed too. A resident of Madrid told the BBC that people were "hysterical" and “panicking”: “It was quite chaotic really. No-one understood anything. Businesses were closed and buses were full.” Hospitals were forced to switch to emergency protocols, flights were impacted, and the supermarkets and local shops that remained open experienced intense panic buying and would only accept cash payments.

It all sounds like an opening scene from a blockbuster sci-fi movie, but it was all too real for those who experienced it. In fact, it must have been particularly terrifying, given that the memories of the early days of the pandemic hysteria are still extremely fresh, especially in European minds. The worst part was that nobody had any answers. The authorities themselves didn’t know what happened or how long it was going to last which obviously fueled the public fear and panic more. As many of the witnesses highlighted, not knowing was what scared them the most: Was it a terror attack? Was it a cyber-attack? Was it something even worse, given there is a war raging with Russia at Europe’s doorstep?

Eventually, when the power came back on and the dust settled, it was revealed that it was none of the above. To the relief of most affected citizens, this shock event wasn’t orchestrated by a hostile entity or a foreign attacker. It was actually self inflicted, which is arguably even worse. It was the direct result of a long-standing political agenda, many years of targeted laws, flawed regulations and misguided incentives that created extreme distortions and malinvestments in the entire European energy industry.

The fierce political fanaticism behind the “Green agenda” in Europe saw a dramatic escalation over the last decade. While its seeds had been planted in 2019 already, the idea that sustainable energy should replace fossil fuels and that it should do so immediately really took over most key European economies with the launch of the “European Green Deal”. It set the EU on a course towards a full energy transition, and it very ambitiously aimed to achieve climate neutrality by 2050. Although the policy’s stated mission sounded positive and noble, its actual implementation proved to be disastrous.

The extremely generous incentives, including grants and tax breaks, towards renewable energy production and towards corporate “green initiates” massively encouraged “greenwashing” practices, i.e., efforts by companies to appear to be environmentally friendly on the surface, without actually making any meaningful changes. What was a lot more destructive, however, was the penalization side of the policy enforcement push: It led to the extremely premature closure of nuclear plants all over the continent, that were, up until that point, providing critical support for the continent’s energy supply.

The first results of these policies came soon after the start of the Russia-Ukraine war. Having relied on, and having grown increasingly dependent on, Russia to supplement its energy needs, Europe suddenly found itself in a very tight spot. In the years following the implementation of the Green Deal, it became clear that wind and solar sources were not enough to cover the gap left by the forcibly decommissioned plants; the EU had to increasingly rely on imports to keep the lights on. By the end of 2022, the block’s energy import dependency had reached 62.5%, the highest level since at least 1990. What followed after trade with Russia was suspended was entirely predictable: energy prices skyrocketed throughout Europe to the extent that countless household found themselves facing a previously unthinkable dilemma, “eat or heat”, something we examined in detail in previous analyses.

This self-inflicted energy crisis was also combined with the inflationary pressures that resulted from the unprecedented stimulus that European governments unleashed during the covid crisis. The aggressive spending that flooded the economy with cash from subsidies, “pandemic relief” checks and emergency business loans quite predictably pushed consumer prices higher and eventually propelled them to record levels.

Political sectarianism vs public interest

In a very interesting analysis following the Spain blackout, economist and fund manager Daniel Lacalle explained: “Governments have been dedicated to closing nuclear power plants, making them unviable with abusive and confiscatory taxation; penalizing investment in distribution with absurd regulations; imposing a volatile and intermittent energy mix; and burdening energy with elevated taxes and administrative delays…. Renewable energies, while essential in a balanced energy mix, cannot provide safety and stability due to their volatility and intermittent nature. That’s why it is essential to have a balanced system with base-load energy that operates all the time, such as hydropower, nuclear, and natural gas as backup. Destroying access to nuclear energy with unnecessary closures and confiscatory taxation has been part of the fundamental causes of the disaster and the blackout.”

And it’s not just Spain, or even the EU, that is in this unenviable position. One would think that blackouts should have been a thing of the distant past by now. However, they are becoming more frequent. Other “advanced” countries have suffered similar problems: Australia (2016), Germany (2017), and the United Kingdom (2019) have all experienced blackouts or near-blackouts.

And yet, some nations’ political obsession with pushing these failed policies to this day seems to be relentless. Following the blackout, the Spanish government is still sticking to its commitment to retire all seven domestic nuclear reactors over the next ten years and to shut down its last coal plant before this year ends, in defiance of numerous appeals to reconsider the strategy. Despite their transition efforts, nuclear energy still provides approximately 20% of the country’s electricity.

What lies ahead

Germany, one of the staunchest opponents of nuclear energy, only last month took a step back from its fight to eliminate it from the entire European bloc. Following the energy crisis of the past years, France and other countries have tried to push for nuclear power to be treated on par with other renewable energy sources in EU legislation, after realizing they had painted themselves into a corner. Germany’s previous government, however, had remained steadfast in its opposition and even went ahead with closing the country’s last three nuclear power stations even as energy prices were reaching new record highs.

Friedrich Merz, the new Chancellor, signaled he will no longer block French efforts to reintroduce nuclear energy to the bloc’s regulatory strategy. This could mean there is some hope of energy security in the EU’s future, especially since a few other key members have also reevaluated their stance. The Netherlands and Belgium have now embraced atomic energy, having previously announced their own plans to shut reactors.

However, it is still important to remember that the wheels of government turn excruciatingly slowly in Brussels, not to mention in most EU member states as well. Therefore, it is rather unrealistic to expect the damage done over the last decade to be undone anytime soon.

For us at BFI, we’ve always had a Business Continuity Management (BCM) concept in place. When it comes to the possibility of a blackout scenario like we saw in Spain, we started seriously planning for these possibilities in 2021, at a time when it wasn’t “on the radar” for many.

While we consider the probability of a blackout in Switzerland to be very low, that kind of scenario would potentially have implications across all BCM dimensions and can, without being properly prepared for, turn into a serious disruption that of course needs to be avoided. In our preparations for such a scenario, one main goal would be to still be able to communicate with our clients and partners. Clearly, circumstances may not allow us to offer the ordinary level of access, service, or responsiveness everyone is used to. However, we have set up an array of information and communication channels to ensure that clients and partners are informed and able to contact us.

With the plans we have made, BFI would be able to retain its operability for several weeks in the event of a disruption caused by electricity shortages. Next to other preparations, we have secured electricity independence; we have acquired satellite internet and satellite telephone capabilities; and we have supplies and equipment for our emergency team’s wellbeing and safety.

As we’ve repeated many times before, being forewarned is forearmed.