Spain's 2025 power cut was a regulatory failure

The Iberia power cut (Source: here)

At long last, we know with certainty what caused the Iberian blackout on 28 April 2025, which plunged all of Peninsular Spain and mainland Portugal into darkness for the better part of a day.

This means that we can also finally put to rest the endless speculation by media and interest groups, which assigned blame for the power cut on culprits ranging from the renewables sector and cyber-attacks to 'atmospheric vibrations' and weird government experiments.

The truth, it turns out, was far more mundane: Spain and Portugal lost power due to a conventional regulatory failure. This underlines the old edict that the only thing worse than no regulation is bad regulation. The warning must be heeded not just in Spain and in the power sector, but across all Western economies at a time of very strong momentum to deregulate everything ranging from the environment, finance, and healthcare to Artificial Intelligence (AI) and Crypto currencies.

Regulation, it turns out, has its uses.

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Let me quickly summarise the technical reasons, why the Iberian blackout occurred. The Spanish electrical system cut out, because fluctuations in power within the grid suddenly spiked until they exceeded the system's tolerance limit. At that point, the system shut down. It took the better part of 24 hours for grid managers to turn the power back on.

Fluctuations in power, or oscillations as they are called in the power sector, are naturally occurring phenomena. They happen in all large systems involving frequencies and they are analogous to the sudden large unpleasant 'feedback' noises that can occur in large speaker systems. They are caused by tiny variations in frequency arising within the individual power stations, but can give rise to system-wide fluctuations in power when they resonate with frequencies on other nodes in the system.

The circumstances under which oscillations arise in conventional power plants are well understood. Oscillations are therefore normally very easily controlled by grid managers, who issue commands to individual power plant operators to make adjustments that neutralise the oscillations.

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On 28 April 2025, the system failed. The Iberian black out was a failure in oscillation control and it occurred for two very specific reasons.

First, the ability of the Spanish grid system to handle oscillations was too low to begin with. Over the last few decades, Spain has invested heavily in renewables, but the renewable sector was never required to participate in oscillation control, which remained the exclusive domain of conventional power plants. While exempting renewable plants from oscillation control may have been sensible, when solar and wind were still infant industries, by 2025 renewables were contributing a whopping 55% (150,988 GWh) of Spain's total electricity supply. Each renewable power plant contributed to oscillation, but none participated in their containment.

Second, in April 2025 the already stretched capacity of Spain's dozen or so conventional power plants to control oscillations dropped even lower than normal due to a fire in one of Spain's main conventional power plants. As luck would have it, the intended replacement power plant could not be brought online for operational reasons.

These two developments inter-locked on 28 April, when the capacity of the conventional system to control oscillations finally fell below the critical threshold. The entire Spanish electricity grid cut out and power supply to Portugal was shut down too.

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Technical explanations of this kind are insightful, but they only get you so far in terms of preventing future occurrences. To prevent repeats, you need to look at the regulatory environment. Why were the technical problems allowed to arise in the first place?

It is now clear that blame for the Iberian power cut must be placed squarely at the door of the Spanish electricity regulator, which failed on two counts. First, it failed to prevent the system's oscillation controls from dropping to unsafe levels. Second, it exempted renewable plants from participating in oscillation control for far too long.

In other words, this was a classic case of regulatory capture; the Spanish electricity regulator was too weak to stand up to lobbying pressure from the increasingly powerful renewables sector to maintain exemptions from oscillation control. The regulator was also too weak to stand up to the Spanish government, which itself was very strongly in favour of renewables.

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The regulatory failure in Spain's electricity sector is analogous to the better-known regulatory failures we have seen within many banking systems. In Spain, renewables are now as critical to the country's overall energy supply as, say, banking is to the overall supply of credit. Bitter experience shows that banks, when left un-regulated, take excessive risks and rely on government bail-outs when things go wrong. In the Spanish energy sector, operators of renewables plants expanded capacity knowing full well that in so doing they would also add to system-wide oscillation risks, but they did not assume any of the responsibility to contain them.

The primary use of regulation is to prevent precisely this kind of moral hazard. Going forward, the Spanish government must formally recognise that the country's hugely successful renewables sector has grown up. It has become systemically important. It must therefore be regulated properly. In particular, it must be made to contribute to oscillation control, just as conventional power plants do.

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Let me be very clear. I am hugely in favour of Spain's push for renewable power. It is laudable and visionary, the right thing to do. And long may it continue. The main lesson here is not that renewables are bad, but rather that regulators must be on their toes, especially during periods of rapid change.

This lesson extends far beyond Spain and renewable energy. As we look across the global economic landscape, it is self-evident that Artificial Intelligence requires regulation. Crypto also requires regulation. Like renewable energy, both these technologies have enormous upside potential, but they will only be net positive contributors to society if their many harmful facets are contained.

The entire Western world, led by the United States, is currently pushing hard for more and more deregulation in the hope that greater corporate freedom can somehow generate more prosperity. This is false reasoning. Blanket deregulation, or regulatory capture of the kind that happened in Spain, can inflict huge costs on society.

Spain's power cut should prompt policy makers in the Western world to take a fresh look at regulation. The current obsession with de-regulation has gone way too far. Small businesses tend to be over-regulated, but large businesses are often allowed to get away with murder, in large part due to their capacity to lobby policy makers. Continuing failures to regulate large internet monopolists, such as Amazon, Google, Apple and others, push up inequality and the cost of living. Ongoing de-regulation of banks and other financial institutions are already inflating the next bubble. The de-regulation of vaccination programmes in the United States is causing measles cases to spike. Dismantlement of environment protections and measures to counter climate change are wiping out unprecedented numbers of species and raising global temperatures.

It is time to wake up. Regulation can be awful if regulators are weak or inept, but regulation is ultimately a good thing - essential even - as an instrument to address known market failures in our economies.

The End