The blackout in India last week, when a trippage occurred in one of the major power lines left the world in bewildered as one of the largest countries in the world struggled to restore its economy. Entire supply chains broke down, and exporters of goods and services were left apologizing to the world for the flaws of their system. Investors now see power failure as a major infrastructural risk with investment in India.

US blackout

Where India strives to move from the category of ‘emerging’ to an ‘emerged’ country, failures like these are a wakeup call that extensive reforms are needed in the power sector, before the country moves forward. Many analysts see the power outages as symbol of an overheated economy. The country has experienced faster economic growth than any developed country but does not have the capacity to support this growth.

This is exactly what happened last week,when one of the towns drew more power than their contractual amount and threw half the country into darkness. ‘Slow development of domestic resources, costly imported resources, burdensome regulations, and a lack of investment in distribution prevent India from meeting a growing demand for energy,’ said the analysts at Brookings Energy Security Initiative.

Furthermore, this problem will not stop here. In its International Energy Outlook 2011, the US Energy Information Administration (EIA) projects that electricity consumption in India will grow at an average rate of 3.3 percent per year, through 2035. To meet this growth, India will have to expand their current generation capacity by 234 GW.

It is widely believed that US is on the same path asIndia, when it comes to energy problems. Maintenance in the US has been limited, consumption continues to grow and the recent drought has cast doubts on the consistency of future power production.

According to EIA, net generation of electric power in 2012 up to May was 1,594,620 thousand megawatt hours, which was a decline of 1.8% over the same time previous year. The total consumption in May 2012 year-to-date is 1,445,187 thousand megawatt hours.

Though there seems to be no apparent shortfall, EIA’s short-term outlook in August 2012 indicated that the consumption of electricity in the US is expected to go up in 2013. The consumption of electricity experienced a spike with a 4.37% growth in 2010, but had been declining for the past 2 years. Consumption is expected to pick up again – 2013 growth to be 0.64% – and the grid system and production should be prepared to handle the load.

Another source of concern is the distribution of sources of power supply. A growing portion of total power production in the US comes from renewable resources rather than conventional sources as indicated in the figure below.

Data Source: EIA, August 2012

There has been a lot of hype about the environmental benefits of renewable energy but it seems that the widespread drought situation will cause not only food insecurity, but power shortages as well. Ethanol production will be reduced as crops, such as corn and sugar, deliver less than expected harvests. It was estimated that ethanol production fell from 920,000 bbl/d for the week ending June 8, 2012 to 809,000 bbl/d for the week ending July 27, 2012. EIA does not expect ethanol production to pick up again before the second half of 2013.

Some analysts are of the view that the drought will mean a reduction in power production from fossil fuels as well. Half of the water resources of the US are routed to power plants where they are used for cooling purposes.

Further threats to electricity transmission arise from the aging of the grid system. It has long been debated that the grid system in the US is in dire need of replacement and repairs. Substation transformers in the US have an average life of 42 years, which is two years more than the designed lifespan of a substation transformer. With the excess demand for power overburdening the flailing grid system, blackouts could be an inevitable outcome in the US, in the future.

Though parallels are being drawn by many, between India’s system and the US power grid, the fact remains that India, being a country where 40% of the population is deprived of electricity, is more equipped to deal with such failures than the US. Nearly every household and workplace has a backup power supply of some sort. If such a massive failure were to hit the US, its economy wouldn’t stand a chance. Then again, the US electric supply may be flawed, but it is decades ahead of India. So the possibility of such an event is minimal, if not absent.