Iberian power cuts exposed a lack of business resilience in a digital world

The widespread power cuts that shut down the Iberian Peninsula last month are a “wakeup call” to businesses that they are more vulnerable to energy security than ever before in today’s highly digitised world, according to two resilience experts from broker Marsh.

Álvaro Marin is a senior consultant in Marsh’s Madrid office, advising clients on business continuity and cyber security, and experienced the power cuts first hand. “Were most businesses prepared for an event on this scale? No, absolutely not. The blackout underscored that energy security is the foundation of resilience in the digital world,” he tells Airmic News.

“The collapse of power and communication systems halted digital operations, from production to transactions, and revealed the fragility of businesses reliant on interconnected digital infrastructure. While some sectors and businesses had invested in backup power generators, many had not, even on critical operations.”

Álvaro’s colleague in London, James Crask, managing director, global head of multinational clients, agrees that business resilience has not kept pace with the digital revolution:

“We have accepted with open arms the efficiencies that technology and digital communications have given us, but it has come at the expense of resilience. We no longer have manual equivalents of those systems and so when the electricity supply fails, you can’t deliver what you need to.”

Communication was biggest challenge

The blackout occurred on Monday 28 April at 12.33pm when approximately 15 gigawatts of electricity-generating capacity dropped from the system – the equivalent of around 60% of Spain’s power supply. By Tuesday morning all power supplies had resumed, but the cause of the blackout is still unknown and currently under investigation.

It affected Spain, parts of Portugal, the Basque region of France and parts of Andorra, and is considered to be the biggest power cut in European history. Preliminary estimates from the Spanish Confederation of Business Organizations (CEOE), suggest that it may have caused losses of approximately €1.6 billion, which represents around 0.1% of the national GDP.

As well as leaving millions of people without power, mobile and internet networks stopped working, traffic lights failed, transport systems grinded to a halt and banking customers experienced online and ATM outages.

Álvaro recalls people spilling onto the streets to try and understand what had happened. “At first it wasn’t clear what was occurring, we didn’t know it was a large-scale outage. There was a lot of disinformation from word-of-mouth on the street, some people saying it was a cyber attack, others talking about war. It was chaotic.”

Businesses across the region faced severe disruption and incurred significant financial losses, including from lost profits, material damage, loss of perishable stock and equipment failures.

The loss of communication was the biggest challenge, recalls Álvaro. “We knew some businesses that had really good business continuity and crisis management plans in place but they couldn’t even operate them because communications were completely lost,” he says.

A critical lesson learned was the benefit of running simulated exercises in which business continuity plans are activated without the normal communication channels.

“It is really important to have alternative measures to communicate with colleagues and with third parties such as authorities and suppliers. If you can’t communicate with everyone involved, it is really hard to proceed with the plans,” says Álvaro.

The blackout severely impacted several key sectors, each facing unique challenges. The food industry was one of the most disrupted as the failure of fridges and freezers broke the cold chain, causing spoilage of perishable goods and significant product losses in production, storage and retail.

Heavy industries such as metallurgy were also notably impacted from the extended downtime of furnaces which require lengthy reheating times. Equipment damage from sudden power cuts further compounded economic losses.

Retail, hotels and restaurants also suffered a massive cancellation of sales and bookings due to inoperative payment systems and ATMs, and workers in hospitality and commerce also reported heavy losses.

Could this happen in the UK?

Not only could a similar large-scale blackout event happen in the UK, but most companies do not take the risk seriously enough, believes James. “It could absolutely happen here,” he says. “It is unlikely given the resilience of our system, but the experience of Spain last month shows it is possible, and it’s happened elsewhere before, like on the east coast of America in 2003.”

There is a subconscious bias to plan for events that you have experienced yourself or seen someone experience close hand, he believes. “In much the same way that companies didn’t plan properly for a pandemic prior to Covid, people are not sufficiently planning for energy failures.”

He adds that there is a “failure of imagination” with the scenarios that they plan for: “People assume that the worst case isn’t going to happen: well, it does. And if it can it probably will at some point, especially if you’re a global business, it will happen in one of your jurisdictions.”

Álvaro and James agree that UK businesses can learn from the Iberian experience last month and use it to ensure that their business continuity plans have thoroughly thought through the practical reality of a large-scale black out.

Álvaro highlights the following seven key lessons:

• Test continuity plans rigorously: Businesses must conduct regular simulations of extreme scenarios, including total power and communication loss, to ensure continuity plans are effective and actionable.

• Invest in auxiliary systems: Implementing and maintaining backup generators and batteries, sized for prolonged outages, can protect critical systems, power them down safely and reduce downtime.

• Develop alternative communication protocols: Establishing satellite radios or other independent communication channels ensures coordination during network failures.

• Consider employee safety: Planning coordinated evacuations, ensuring safe working conditions in facilities without lighting or operational systems, and having contingency plans for employees stranded due to an immobilised transport system.

• Conduct energy audits: Identifying critical energy needs allows businesses to prioritise safe shutdowns and protect essential processes, minimising losses.

• Enhance cross-sector collaboration: UK businesses should work with suppliers, authorities and industry peers to build coordinated response strategies, learning from Spain’s challenges in resuming operations.

• Address disinformation risks: Clear crisis communication plans, with predefined messaging, can counter rumours and maintain stakeholder trust during disruptions.

If you would like to speak to Marsh about business continuity or any of the issues raised in this article, contact Álvaro on Alvaro.Marin@marsh.com or James on James.Crask@marsh.com.