Why the Lights May Be Going Out Again All Over Europe...

Jul 03 - Sunday Business; London (UK)

SOUTHERN Europe faces a rerun of the summer of 2003, when a heat- wave caused French power cuts and a halt to electricity exports that left half of Italy sweltering in the dark. Although energy firms and politicians promised then that they would make sure there was no repeat of the crisis, it seems few lessons have been learned.

And while the governments in Paris and Rome are confident they have taken enough steps to forestall a repeat, other experts are not convinced. Consumers in both countries anxiously await the hotter months ahead.

With temperatures across France peaking at 40C last week, Electricite de France (EdF), the state generator, is running into hot water. The company's attention was focused on its Tricastin nuclear plant, which draws its cooling water from the Rhne, where temperatures upstream of the power station had reached 25.6C.

Although that exceeds the normal ceiling at which production must halt, the company has a special heat-wave dispensation that allows it to maintain operations until the river water downstream reaches 29C.

Some 33 departements, a third of the total, have imposed restrictions on water use, and in some regions, emergency plans for care of the elderly have been implemented. EdF has urged consumers to turn off appliances they don't need and those with air conditioning to throttle back, insisting blithely that "if the outside temperature is about 32C, a temperature of 27C will be sufficient to ensure your comfort".

Europe's biggest generator, which needs to present a competent image ahead of its planned E40bn (Pounds 26.7bn, $48.4bn) plus initial public offering (IPO) this autumn, insists it has learned lessons from its 2003 failures. Summer maintenance shutdowns, which contributed to power shortages two years ago, have been scheduled to allow more flexibility in case of a heat-wave, its spokeswoman insists. "We have tried to learn the lessons from 2003 and improve our planning," the company says.

This year, the company says that its four seaside plants at Gravelines, Pauly, Paluel and Flammanville, on the north coast, and which are untroubled by the hot water problem, will have 12 of their 14 reactors available throughout the summer.

In addition, it says plentiful snowmelt from the Alps has combined with better management of water stocks to ensure enough supply to the hydro stations it uses to top up peak demand.

But trouble is brewing. EdF's core problem is its heavy reliance on 19 giant nuclear generating complexes, 15 of them drawing water from rivers that can't provide sufficient cooling when air temperatures top 100F for protracted periods.

On Tuesday, the French, German, Dutch, Belgian and Luxembourg energy ministers agreed to order their power operators to study improvements to their national grid interconnections that would help the neighbouring European states meet demand peaks.

The rapid restructuring of the French power system to allow real competition, together with preparations for the flotation of EdF, ensures French power managers already have their hands full, however.

In Italy, the situation may be worse. The Italian electricity industry survived the June heatwave with its reputation intact despite record demand. But the real test will come later in the summer, especially if, as seems possible, it does not rain.

The high temperatures last week brought back memories of the 2003 drought. The electricity grid all but collapsed under unprecedented levels of demand and the operator was forced to start cutting power to large parts of industrial heartland in the north.

In the autumn the grid finally did collapse. A power line brought down by a tree in Switzerland set off a chain reaction which overloaded Italy's system and switched off the lights throughout the country. It may not have been the weather that caused the catastrophic failure but it highlighted the fragility of the national grid.

Since then the there have been efforts made to improve things. Last week the government expressed confidence that there will be no repeat of the 2003 fiasco.

Davide Tabarelli, senior economist at Ricerche Industriali ed Energetiche, an energy research consultancy in Bologna, agrees - at least for the time being. "A new electricity trading exchange and other improvements have created 6,000 megawatts of extra capacity. There is also less demand from industry because of the recession. But we are only at the beginning of the summer," he said.

Italy's national grid operator, GRTN, says that there is now 12% of reserve capacity to cover periods of intense demand compared to 2% in 2003. GRTN plans to spend E2.4bn over the next nine years partly on boosting capacity further but also on measures to ensure prices for consumers come down.

Early this year, Italy's energy regulator said that efforts need to be made to increase competition. It said the former public monopoly, Enel, still has a dominant position which allows it to influence price levels. Consumer groups say that Italians pay E100 more than other Europeans.

Enel, on the other hand, has seen its own trading position helped. Since the trading exchange was started last year, the electricity producers have been better remunerated for boosting supply in times of need.

Italy's power companies have to to use older, less efficient plants to increase supply. But they were not able to pass on the higher costs to consumers.

The new exchange means that the government can pay extra for electricity that costs more to produce. Supplies from abroad, without which Italy's lights would go out regularly, have also become more efficient. The main line that carries electricity across the Alps from Switzerland has been expanded so that another country- wide power cut like the one in 2003 is no longer possible.

But water, or the lack of it, is still going to be crucial to electricity supplies. Italy's largest river, the Po, is already down to a trickle because of the smaller amount of snow in the Alps over the winter. In 2003 it only reached this level at the end of July. Several power stations on the banks of the Po use the water from the river to cool the generators.

Last week demand for electricity last week hit an all-time peak as consumers turn up the air conditioning in record June temperatures. Consumption of 54,100 megawatts was well short of the 60,000 megawatts capacity. But any power stations put out of action will compromise Italy's efforts to keep supplies going.

And there are still problems at a local level. There were several power cuts in central Milan last week including one in the area around the stock exchange.

Italy's national grid says that the city was receiving adequate supplies at the time. It was therefore a problem of the city supplier AEM. The Milan company believes the high temperatures in the centre caused the failure in the local network.

The government is hoping that June will prove to have been a freak month as far as the weather is concerned. It has repeatedly rejected fears of another power crisis.