The cost of power cuts: Millions of euros and sleepless nights

The Nationalist Party was quick to crunch the numbers and estimate that the cost of the power outages to the economy topped €200 million. 

This was based on a similar calculation made by former finance minister Edward Scicluna in 2009. Back then, Scicluna said a blackout of several hours would cost the country around €10 million. 

Meanwhile, MaltaToday reached out to economists Philip von Brockdorff and Marie Briguglio to understand the full impact of the power cuts on the economy, and all the variables that go into calculating it. 

Von Brockdorff noted that little is known at this stage about the full economic impact of widespread and long-duration power interruptions, especially in terms of indirect costs and related economy-wide impacts. 

“As a result, any estimated cost of such power interruptions without an in-depth analysis would be presumptuous or at best incomplete,” he said. 

Briguglio noted that the costs of the major electricity outages go beyond the obvious and directly quantifiable out-of-pocket costs, like lost working hours, tourist refunds and spoiled food.  

“The costs also include various non-market costs like loss of sleep and impacts on physical and mental health which can arise from the inability to cool living/working spaces, to cook, to work, to pump/heat water, to use lifts or other essential electric equipment, to use digital technology but also to plan ahead,” she said. 

There are also longer-term costs like reputational losses to Malta for foreign direct investment and tourism. 

“If the outages persist, they will also have multiplier effects – each shock creating a ripple effect in the broader economy.  For example, if one business contracts as a result of prolonged outages, it impacts another business negatively (e.g. its supplier), which impacts another and so on.” 

However, there are some economic players that could benefit from the outages. “The rush to repair cables and the infrastructural investment has created an injection and more demand for some construction companies,” Briguglio said. 

“Demand for repairs and maintenance of electric goods has increased, creating more work for electricians and technicians. Demand for electric substitutes like generators is likely to surge, while expenditure may also rise for goods and services that do not rely on electricity.” 

However, von Brockdorff said there is no question that the recent outages have cost millions of euros to businesses, with retail outlets, restaurants and hotels being hit hardest. “Of course, households have also been impacted and at a cost too,” he said. 

 Von Brockdorff referred to a published study that estimated the costs of a 48-hour power outage to the Austrian economy. “This was estimated to be about €1.7 billion, and by far, the largest costs associated with outages were business disruption and lost revenue. It is worth noting that these would be opportunity costs from the outage, rather than direct costs associated with fixing it.” 

While the Austrian economy is much larger than the Maltese one, applying the same methods of the study locally would lead to a total economic cost that would run into the millions. 

“That said, an ad hoc and in-depth analysis is required to estimate the economic costs based on the outages experienced in recent days. What is certain, however, is that businesses will claim compensation resulting from disruption and lost revenue. That could be substantial if estimations are based on opportunity cost,” he said. 

Regardless, von Brockdorff noted that overall business disruptions, whether due to outages or climatic factors, are infrequent compared to countries like the United States. “Hence, the outages experienced in recent days should be considered as an exceptional occurrence.” 

But this doesn’t negate the fact that these outages do not impact everyone the same way. Briguglio noted that the vulnerable, the ill and the elderly were particularly hit by the power outages. Lower-income households might also not have the financial means to take remedial action for the damage incurred. 

“In short, the outages create diverse economic impacts: short and long term, direct and indirect, market and non-market, negative and positive. They also do not impact everyone in the same way. This would make a great study and its results should inform Enemalta’s investment plans, going forward,” Briguglio said.

The 87 cable faults that left thousands without electricity 

Thousands of people were left fuming as Enemalta dealt with 87 faults on high-voltage cables throughout the 10-day heatwave in the second half of July. 

Faults on high-voltage cables normally impact large areas with Enemalta’s interactive online map becoming a go-to reference point each time electricity went out. 

Enemalta was not in a position to give us a breakdown of the faults by street but indicated the localities that were hit, or partially hit, by power outages. 

Mapping out the localities impacted by these 87 faults shows that very few localities were spared electricity outages during the period. The information obtained from Enemalta does not specify which areas within the respective localities experienced power outages since not all streets in a town were necessarily impacted by the faults. 

Furthermore, some localities like Naxxar, Zurrieq, parts of Mosta and Birkirkara, faced more hardship because of the length of time it took to restore energy. 

Enemalta scrambled several teams to fix the faults but multiple failures on the same localised network sometimes prevented the company from being able to provide an alternative supply of electricity to hit areas. 

Engineers have explained that the faults developed on cable joints that are the weakest links in the underground network. A heavier load of electricity passing through the network as people turned on their ACs for longer periods caused cables and joints to heat up more than usual. Heat from cables is normally dissipated into the ground but with a prolonged heatwave, even the ground was hot, preventing cables from cooling down. 

This build-up of heat caused joints to fail, creating major disruptions across the board and crippling the distribution system as multiple faults started to develop. 

Enemalta engineers have insisted that cable faults and electricity outages can never be completely eliminated but this could be mitigated by building more resilience in the network. 

This means the more substations, distribution centres and cable connections there are, the less downtime will be experienced by customers. 

On Friday, the government announced it was doubling the investment in the distribution network.