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Reconsidering Resource Adequacy, Part 1

Has the one-day-in-10-years criterion outlived its usefulness?

Fortnightly Magazine - April 2010

cost of capacity and value of service to customers suggest that a balancing of marginal cost and marginal benefit would require an outage frequency substantially greater than 1-in-10.

The benefits of incremental capacity depend on VOLL calculations. The impacts of outages on business and residential customers include loss of productivity, potential damage to electrical devices, inconvenience or discomfort due to loss of lighting, cooling or heating, spoilage of refrigerated goods, waste due to interruption of a manufacturing process, traffic snarls or accidents due to inoperable traffic lights, or even missing a favorite TV show, to name just a few. Outages also can be contributing factors to injuries or deaths. The average impact of outages on electricity customers often is quantified as VOLL, expressed in dollars per megawatt hour (MWh) of curtailed load.

Of course, the cost of an outage will vary for each customer and depends upon the customer’s uses for electricity, the circumstances under which the outage occurred, the duration of the outage, whether there is any advance warning, and other factors. For some customers, a very high level of reliability is desired, reflecting the nature of the facility or uses of electricity. Many customers desiring higher electric service reliability self-provide it, by installing on-site backup generation, uninterruptible power supply (UPS) systems, or other approaches. To the extent such customers are protected from the impacts of electric service outages, their VOLLs for utility system reliability will be much lower, as suggested by a recent review of outage costs by Lawrence Berkeley National Laboratories (LBL). 2

In addition, utilities identify essential-use customers who (along with other customers fortunate to share the same circuits) are exempt from rotating outages. Essential-use customers typically include hospitals and nursing homes, prisons, police and fire stations, radio and TV stations, some water and sewage facilities, telephone switching stations, and emergency management and 911 systems. 3 In estimating a VOLL pertinent to rotating outages, the value of lost load for essential-use customers isn’t relevant.

It also can be assumed that customers adapt to some extent to the level of reliability they’re accustomed to receiving, and these adaptations reduce the exposure to the impacts of outages. In addition to adaptations such as self-provision of reliability, if they suffer frequent service disruptions, customers will be more likely to add battery backup systems to their computers, for example, or to at least set their software applications to auto-save documents.

A survey of the literature for ISO New England concluded that a wide range of values for VOLL, from $2,400/MWh to $20,000/MWh, can be “deemed justified by some source in the literature.” 4 The Midwest Independent Transmission System Operator, the RTO for a large region of the Midwest, uses VOLL as a parameter in its ancillary services, and recently has set it to $3,500/MWh. Estimates of VOLL for the New York Independent System Operator in 2004 identified a lower range of $1,000 to $2,500/MWh and a higher range of $3,000 to $5,000/MWh. 5 Other surveys, including the LBL outage cost review, also suggested a very wide range, with lower values for residential