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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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Author Info

  • 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.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 32 (2010)
Issue (Month): 6 (November)
Pages: 1277-1282

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Handle: RePEc:eee:eneeco:v:32:y:2010:i:6:p:1277-1282

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Valuing supply interruption Cost-benefit analysis Reliability of electricity supply;

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Cited by:
  1. Luise Röpke, 2013. "The Development of Renewable Energies and Supply Security: A Trade-Off Analysis," Ifo Working Paper Series Ifo Working Paper No. 151, Ifo Institute for Economic Research at the University of Munich.
  2. Klaus Friesenbichler, 2013. "Innovation in the energy sector," WWWforEurope Working Papers series 31, WWWforEurope.

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