BI policies unlikely to respond as Spain and Portugal search for cause of mega blackout

As things begin to get back to normal for companies and households, Spain and Portugal are trying to understand the cause of the mega power outage that left both countries without electricity for several hours on 28 April.

The Spanish government has attributed the blackout to a sudden loss of 15 GW of energy for just five seconds at around midday, which led to the collapse of the electricity transmission system across the Iberian Peninsula.

What caused this unheard of loss of energy, however, remains a mystery.

As the outage began, rumours spread in both countries about a possible cyberattack. But experts have told the Spanish media that this is unlikely based on information currently available.

Portugal’s prime minister Luis Montenegro said there was no indication that the power grid was targeted by hackers. REE, the company that manages Spain’s electric system, said it has now all but discarded the possibility that the problem was caused by a cyber incident

According to some energy experts, the blackout may be related to tensions observed in Spain’s electricity system for some time and caused, among other reasons, by excess electricity production from solar sources.

For its part, Portugal’s national energy utility REN said the outage was caused by a rare meteorological phenomenon known as an “induced atmospheric vibration” after sudden temperature changes in parts of Spain.

Getting electricity back up and running took several hours in both countries because the interlinked electric system had to be reinitialised from scratch. In Spain, hydroelectric plants were the first to resume connection to the system, followed by thermoelectric energy. France and Morocco, which are part of the same electricity interconnected system, contributed to the recovery by pumping energy into Spain.

The experience provided a powerful illustration of the impact that a general power outage can have on economies. Although telecommunications were not directly impacted, it soon became clear that normal communication with friends and family would be severely hampered by the lack of electricity.

Early yesterday afternoon, it was still possible to get some information from social media in Spain, although connections were in and out. By the end of the afternoon, the information blackout was almost complete. Internet connections dropped 90% in Portugal and 80% in Spain comparted to the peaks of previous weeks, according to Reuters.

Businesses were clearly impacted. As lights remained off, most shops and stores closed their doors and industries had to interrupt production as emergency generators ran out of power. Financial daily Expansión reported that car makers Renault, Volkswagen and Seat were forced to stop production of thousands of new vehicles.

At least two dozen fast trains were caught mid-travel between some of Spain’s largest cities, leaving thousands of passengers stranded. Regional rail links came to a complete halt, as did Madrid’s and Barcelona’s metro systems. Airports were less impacted, although some 350 flights were cancelled. Traffic came to a standstill at peripheral roads in the Spanish capital.

Spain’s public radio became the only reliable source of information, groceries could only be purchased with cash and millions of households went into the night without electricity.

The question now is who will pay for the losses that Spanish and Portuguese companies and households suffered during the half-day long event.

Spanish risk management association Agers noted in a statement that most business interruption (BI) covers include a time deductible of two days before cover kicks in, which makes it unlikely that losses will be paid by insurers. The exception would be policies where BI cover is triggered by estimated economic losses.

For its part, Madrid-based law office Legalitas has urged consumers to consider reclaiming any loss of foodstuff or other damages from electricity and telecommunications utilities. It also said that home insurance policies can cover damages caused to electronic goods and other losses incurred during the day.

However, lawyers have warned that “acts of God” exclusion clauses can be deployed to deny claims.

Much will depend on how governments classify the event. On Monday, the Spanish government declared a state of emergency, taking over a number of regional administrations. But that decision is unlikely to last or evolve to a state of catastrophe, which could trigger the nat cat pool managed by Consorcio de Compensación de Seguros (CCS).