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Development and application of a cost-benefit framework for energy reliability: Using probabilistic methods in network planning and regulation to enhance social welfare: The N-1 rule

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  • de Nooij, Michiel
  • Baarsma, Barbara
  • Bloemhof, Gabriël
  • Slootweg, Han
  • Dijk, Harold

Abstract

Although electricity is crucial to many activities in developed societies, guaranteeing a maximum reliability of supply to end-users is extremely costly. This situation gives rise to a trade-off between the costs and benefits of reliability. The Dutch government has responded to this trade-off by changing the rule stipulating that electricity networks must be able to maintain supply even if one component fails (known as the N-1 rule), even in maintenance situations. This rule was changed by adding the phrase "unless the costs exceed the benefits." We have developed a cost-benefit framework for the implementation and application of this new rule. The framework requires input on failure probability, the cost of supply interruptions to end-users and the cost of investments. A case study of the Dutch grid shows that the method is indeed practicable and that it is highly unlikely that N-1 during maintenance will enhance welfare in the Netherlands. Therefore, including the limitation "unless the costs exceed the benefits" in the rule has been a sensible policy for the Netherlands, and would also be a sensible policy for other countries.

Suggested Citation

  • de Nooij, Michiel & Baarsma, Barbara & Bloemhof, Gabriël & Slootweg, Han & Dijk, Harold, 2010. "Development and application of a cost-benefit framework for energy reliability: Using probabilistic methods in network planning and regulation to enhance social welfare: The N-1 rule," Energy Economics, Elsevier, vol. 32(6), pages 1277-1282, November.
    • Handle: RePEc:eee:eneeco:v:32:y:2010:i:6:p:1277-1282
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    6. Bouwmeester, Maaike C. & Scholtens, Bert, 2017. "Cross-border investment expenditure spillovers in European gas infrastructure," Energy Policy, Elsevier, vol. 107(C), pages 371-380.

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