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Assessing the Cost of Large‐Scale Power Outages to Residential Customers

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  • Sunhee Baik
  • Alexander L. Davis
  • M. Granger Morgan

Abstract

Residents in developed economies depend heavily on electric services. While distributed resources and a variety of new smart technologies can increase the reliability of that service, adopting them involves costs, necessitating tradeoffs between cost and reliability. An important input to making such tradeoffs is an estimate of the value customers place on reliable electric services. We develop an elicitation framework that helps individuals think systematically about the value they attach to reliable electric service. Our approach employs a detailed and realistic blackout scenario, full or partial (20 A) backup service, questions about willingness to pay (WTP) using a multiple bounded discrete choice method, information regarding inconveniences and economic losses, and checks for bias and consistency. We applied this method to a convenience sample of residents in Allegheny County, Pennsylvania, finding that respondents valued a kWh for backup services they assessed to be high priority more than services that were seen as low priority ($0.75/kWh vs. $0.51/kWh). As more information about the consequences of a blackout was provided, this difference increased ($1.2/kWh vs. $0.35/kWh), and respondents' uncertainty about the backup services decreased (Full: $11 to $9.0, Partial: $13 to $11). There was no evidence that the respondents were anchored by their previous WTP statements, but they demonstrated only weak scope sensitivity. In sum, the consumer surplus associated with providing a partial electric backup service during a blackout may justify the costs of such service, but measurement of that surplus depends on the public having accurate information about blackouts and their consequences.

Suggested Citation

  • Sunhee Baik & Alexander L. Davis & M. Granger Morgan, 2018. "Assessing the Cost of Large‐Scale Power Outages to Residential Customers," Risk Analysis, John Wiley & Sons, vol. 38(2), pages 283-296, February.
    • Handle: RePEc:wly:riskan:v:38:y:2018:i:2:p:283-296
    DOI: 10.1111/risa.12842
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    References listed on IDEAS

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    1. Sue Wing, Ian & Rose, Adam Z., 2020. "Economic consequence analysis of electric power infrastructure disruptions: General equilibrium approaches," Energy Economics, Elsevier, vol. 89(C).
    2. Botelho, Vinícius, 2019. "Estimating the economic impacts of power supply interruptions," Energy Economics, Elsevier, vol. 80(C), pages 983-994.
    3. Vennemo, Haakon & Rosnes, Orvika & Skulstad, Andreas, 2022. "The cost to households of a large electricity outage," Energy Economics, Elsevier, vol. 116(C).
    4. Gorman, Will & Barbose, Galen & Pablo Carvallo, Juan & Baik, Sunhee & Miller, Chandler & White, Philip & Praprost, Marlena, 2023. "County-level assessment of behind-the-meter solar and storage to mitigate long duration power interruptions for residential customers," Applied Energy, Elsevier, vol. 342(C).
    5. Rafal Ali & Ikramullah Khosa & Ammar Armghan & Jehangir Arshad & Sajjad Rabbani & Naif Alsharabi & Habib Hamam, 2022. "Financial Hazard Prediction Due to Power Outages Associated with Severe Weather-Related Natural Disaster Categories," Energies, MDPI, vol. 15(24), pages 1-25, December.
    6. Ikramullah Khosa & Naveed Taimoor & Jahanzeb Akhtar & Khurram Ali & Ateeq Ur Rehman & Mohit Bajaj & Mohamed Elgbaily & Mokhtar Shouran & Salah Kamel, 2022. "Financial Hazard Assessment for Electricity Suppliers Due to Power Outages: The Revenue Loss Perspective," Energies, MDPI, vol. 15(12), pages 1-24, June.
    7. Farhad Billimoria & Filiberto Fele & Iacopo Savelli & Thomas Morstyn & Malcolm McCulloch, 2023. "An Insurance Paradigm for Improving Power System Resilience via Distributed Investment," Papers 2302.01456, arXiv.org.

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