The value of supply security: The costs of power outages to Austrian households, firms and the public sector

a r t i c l e i n f o JEL classification: N74 Q43 Q43 O13 P28 Keywords: Power outage Value of supply security Empirical analysis End-user survey This paper presents a model for assessing economic losses caused by electricity cuts as well as Willingness-to-Pay to avoid these power outages as an approximation to the value of supply security. The economic effects for simulated power cuts from 1 to 48 h, which take the affected provinces, the day of the week and the time of day into consideration , can be calculated using the assessment tool APOSTEL. The costs due to power cuts are computed separately for all sectors of the economy and for households. The average value of lost load for Austrian households and non-household consumers in the case of a power cut of 1 h on a summer workday morning was calculated to be 17.1 € per kWh of electricity not supplied. In the past decades, Europe has experienced an unprecedented degree of electricity supply security. 1 Nevertheless, the current status of reliability should not distract from the fact that the future development of electricity supply security is uncertain as production as well as distribution experiences significant restructuring. This transformation is taking place at three levels potentially affecting security of supply: Firstly, challenges arise due to changes in the market framework or as a consequence of deregulation and unbundling imposed by EU directive 2003/54/EC (European Commission, 2003). 2 Secondly, the significant growth of electricity generation from renewable energy sources implies increasing levels of supply volatility thereby putting pressure on trans-Thirdly, the current and anticipated growth of electricity consumption in developed countries such as Austria 3 requires capacity enhancements and innovative solutions. From a technical and public acceptance perspective these infrastructure measures become increasingly difficult to implement (Netzentwicklungsplan, 2012). Together, these developments represent significant challenges to the power infrastructure and to the preservation of the current level of electricity supply security in the future. 4 Selection and design of the appropriate measures for addressing these challenges require knowledge about their costs and their benefits. Hogan (2008) and Eto et al. (2001) discuss issues of the electricity market structure in the United States and find the necessity to assess the economic value of supply security enhancing 1 According to CEER (2012), which periodically publishes reliability indices, the average duration of unplanned power cuts per market participant in Europe ranges …