Estimates of the value placed by households on security of supply have grown and, as such, the financial penalties networks face for outages should be increased. Understanding customer’s willingness to pay to avoid power outages helps to ensure that networks are suitably resilient.
Power outages impose a cost on industrial and domestic consumers. Networks should account for these costs when determining the appropriate level of investment in the network. The higher customers’ willingness-to-pay to avoid power outages, the more should be invested to ensure security of supply. Network regulation addresses this through the use of so-called, KILE (Cost of Energy Unserved) rates, which network companies must pay in the event of power outages.
To get the appropriate level of network investment, it is important to know what value customers place on security of supply. The costs they experience in the event of a power outage take the form of both direct economic losses and inconvenience that they would be willing to pay to avoid. The current KILE rates are based on values drawn from a 2001 survey and NVE and Statnett therefore commissioned a new survey of households’ willingness to pay to avoid outages.
This new analysis was prepared by Vista Analyse and Thema Consulting Group over the last half year. Two major surveys were conducted as part of the work: one related to all Norwegian households and another targeting households that had recently experienced a long power outage. The results indicate that the value that households place on security of supply is significantly higher than previously thought. Avoiding an outage lasting one minute is worth almost then times todays’ KILE rates, while avoiding outages lasting one to six hours is worth twice as much the current rate.