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Generation Reserves: The Grid Security Question

A cost-benefit study shows the value of adding synchronized generating reserves to prevent blackouts on the scale of Aug.14.
Fortnightly Magazine - January 2004

(82.91-63.46), due to decreased unserved energy (or load curtailment). The production cost accordingly decreases by $3.93 million (23.93-20), due to decreased payments of unserved energy, which is assumed to be $200/MWh for load interruption. The impact of the lower production cost results in lowering of the market prices of electricity and $106 million (208-102) in direct benefits to ratepayers, because 19.45 GWh of additional energy was available at a lower price in a day (see Table 3).

Of course, the impact of the blackout to the society is not necessarily restricted to the direct cost of megawatt-hours of electricity loss. If we consider all the indirect costs such as loss of industrial/commercial production, and the temporary collapse of infrastructure, it may run to billions of dollars. For instance, the in its Aug. 28 issue estimates the Aug. 14 blackout cost to the entire society to be more than $4 billion. 3

The cost of providing additional reserve for an entire year may in fact be far lower than the societal cost.

As an example, consider that for a large system of 100 GW, an additional 4 percent of synchronized spinning reserve requires approximately 4,000 MW per hour. If we assume the cost of spinning reserve to be $5/MW, then the total cost per year is estimated to be $175.2 million (5x4,000x8,760), or $3.5 billion in 20 years-far less than the total societal cost of a blackout every 20 years of $4 billion (see Figure 1). In other words, if we can avoid even a single blackout in 20 years, then the cost associated with carrying 4 percent additional synchronized reserve is justified. Also, NERC already has recommended spinning reserve of 3 to 4 percent for each of the control areas.

Figures 1 (a) and 1 (b) show the impact of securing sufficient synchronized reserves on consumers' cost (payment) and production cost on a $/MWh basis, respectively. This reflects the ability of the system to respond efficiently by strategic selection of reserves, even without the use of contingency planning.

Contingency planning can further improve the ability of the system to handle emergencies, as the following results show. In Table 4, we show results with contingency planning, assuming a 3.5 percent synchronized operating reserve. The incremental values for consumers' costs and production costs shown are in comparison with the reference case in which 3.5 percent synchronized operating reserves and contingency planning also were in effect, but in which no outages or failures leading up to the blackout occurred.

This case can be compared to the 3.5 percent case without contingency planning in Table 3. Figure 2 summarizes the unserved energy for all four cases in scenarios 7 and 8. With contingency planning, we can see that unserved energy is 12.81 GWh, lower by 55 percent, and 45.90 GWh, 38 percent lower, in scenarios 7 and 8 respectively. Contingency planning involves preventive actions for the failure of a line or power plant that changes the flows across the power system, putting other lines at risk and creating new vulnerabilities, experts say. Sometimes the contingency analysis