The global energy crunch, adverse weather and security challenges are combining to increase the likelihood of power shortages worldwide over the next three months. We examine the impacts of, and risks posed by disruptions to power supply.
Short-term power shortage drivers
Several factors are likely to be driving power shortages in the short term:
Many African countries are highly dependent on fuel imports for power generation, increasing risks to power availability while the global energy crunch persists. Mali, for example, relies heavily on imported oil products. As a result of ageing infrastructure and fuel shortages, power supplies also remain generally unreliable in Nigeria, posing a significant (and costly) challenge to business.
In South Africa, national power utility Eskom has warned of further scheduled blackouts (known locally as load shedding) in the coming months (June-August) as it continues to contend with ageing infrastructure and frequent breakdowns stemming from lack of maintenance. Power cuts, in turn, could fuel an uptick in social unrest and criminal activity.
In the US, the North American Electric Reliability Corporation (NERC) – an industry group overseeing power grids in the US and Canada – in mid-May forecast a high risk of power shortfalls in June-August in parts of the US due to high temperatures, drought, generator retirements and supply chain disruption. The southern and eastern US also faces an elevated threat of power disruption from a forecast above-average Atlantic hurricane season (June-November) – as indicated by record storm-related flooding in Florida state in early June. Meanwhile, the drought-stricken western US is entering a very active wildfire season (typically peaking in July-September).
An active Atlantic hurricane season also poses elevated infrastructure risks throughout the Caribbean – still recovering from major hurricanes in 2017 – and parts of eastern and southern Mexico. Mexico also faces localised power outages stemming from criminal attacks on power transformers. Elsewhere in Central America, Honduras faces further power outages over the coming months stemming from inadequate infrastructure and poor maintenance.
After a historic drought caused hydropower shortages in 2021, Brazil continues to face elevated power infrastructure risks in 2022. Most recently, adverse winter weather in late May damaged infrastructure and caused widespread power outages in southern Brazil.
A record-breaking heatwave across southern Asia in recent months triggered widespread power outages in Pakistan and India, both of which have sought to reinforce power grids with additional capacity. India narrowly avoided depleting coal fuel stocks during the late 2021 global energy crunch and still reports more than 80 power plants (representing 200GW of generating capacity) at “critical” coal stock levels. The monsoon season over the next three-to-four months will bring some relief from high temperatures but related flooding poses additional power supply risks.
Seasonal monsoon flooding also caused widespread power outages in Bangladesh in late May and poses a threat in the next few months to power infrastructure in Myanmar (also hit by rising fuel prices and currency depreciation) and Cambodia (where downed power lines caused outages in the capital Phnom Penh in May).
Available forecasts suggest that La Nina climate pattern-related conditions in the Pacific basin are likely to contribute to a below-average Asian typhoon season. However, power reliability is a persistent operational risk in Taiwan, which in March 2022 experienced a major power outage reportedly caused by maintenance issues and cascading transmission failures (following similar incidents in 2017 and 2021). Likewise, ageing power infrastructure increases the likelihood of power outages in the Philippines during peak demand months (March-May).
High fuel costs – particularly for LNG – are a concern for Japan and South Korea, though we assess that major power outages are unlikely. Conversely, Vietnam is bracing for power cuts during peak temperature months (June-July) when demand increases and hydropower generation declines, especially in northern Vietnam. Power outages are likely to persist amid Sri Lanka’s worsening economic and political crisis and Laos is also grappling with fuel shortages. In response to high prices, several countries have turned to coal to tide over periodic power disruptions, delaying planned energy transitions.
In Afghanistan, meanwhile, militant and criminal group attacks on power infrastructure and transmission lines have caused outages in the capital Kabul and other locations since late 2021.
Governments across Europe anticipate energy shortages over the coming months due to the conflict in Ukraine, which is driving high regional fuel costs (for both coal and natural gas) and retaliatory fuel cut offs by Russia. Russian suppliers since late May have cut off European gas shipments to Bulgaria and Poland (in retaliation for EU sanctions), Finland (for applying to NATO), and Denmark (for opting into EU defence policy), though impacts have been blunted by seasonal drops in demand.
Nonetheless, the EU’s decisions to ban imports of most Russian oil, phase out reliance on Russian gas, and continue to ship weapons to Ukrainian forces sustain the likelihood of further gas cut offs in the coming months. (Germany is keeping coal power plants online just in case and accelerating approvals of LNG import terminals.)
Concurrently, in France, maintenance issues have taken a significant proportion of nuclear generating capacity offline since late 2021, causing power shortages in April during a cold snap.
Middle East and North Africa
Conflict-affected countries in the wider MENA region, including Libya, Syria and Yemen, will continue to face general infrastructure and power deficiencies in 2022. Ongoing shortages of fuel imports in Lebanon will also likely drive power and internet outages over the coming year – even for those with private generators. Kuwait faces a latent risk of occasional power shortages in the coming months.
However, other major energy producers including the UAE and Saudi Arabia are less likely to face increased power disruption risks over the next few months, even as they seek to transition towards increased renewable power generation. Egypt has also reduced the frequency and scale of power outages after crippling shortages ten years ago, with plans to increase renewable power generation to 20% this year. Qatar has expanded power generation capacity ahead of the 2022 FIFA World Cup tournament later this year.
General advice for companies
Power outage risk will vary between and within countries based on generation sources, domestic and international grid interconnectivity, and vulnerability to natural hazards and security threats. Companies should ensure that they have a good understanding of specific risks to power generation and grids in the areas where they operate. We are receiving regular requests from our clients for assessments of power supply risks to specific assets and operations.
Power shortages are familiar to many companies operating in countries with inadequate or unreliable power grids. Nonetheless, companies should review provisions for backup power generation to ensure that it is sufficient to operate or wind down critical functions in an orderly fashion. Companies should consider their ability to procure and pay for fuel for backup or onsite generators given elevated prices and limited supplies in some areas, which could worsen in the coming months.
Companies should engage with building managers and function leads to understand how (and for how long) outages will impact access control, security and IT systems, and if outages could impact time sensitive or critical business processes (such as payroll). For example, Control Risks is aware of cases where electronic (magnetic) door locks either unlocked automatically or became inoperable during power cuts. Companies should review how they will identify and respond to power outages impacting assets outside of normal business hours.