In 2009, unconventional shale gas emerged as the dominant driver in North American natural gas markets. Rapid increases in shale gas production and shale-driven upward revisions to the U.S....

## Reconsidering Resource Adequacy, Part 1

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

evening on the hot summer weekdays that are most likely to experience extreme loads in most areas of the country, suggesting an average duration of roughly five hours for a rotating outage due to capacity shortages. With these assumptions, if a region is at 1-in-10, an incremental MW saves, in $/MW/year:

0.1 (expected events/year) x 5 (hours/event) x VOLL ($/MWh curtailed).

In general, the benefit of the last megawatt of capacity will equal the LOLE times the expected hours of operation during the typical outage times the VOLL. If an optimal level of resource adequacy is being provided, marginal cost equals marginal benefit, so:

Net CONE ($/MW-year) = LOLE x hours/event x VOLL.

Therefore, the optimal LOLE equals Net CONE divided by VOLL divided by 5, assuming five hours per event. *Table 1 * shows the optimal LOLE based on various VOLL and capital cost assumptions.

Most of the combinations of assumptions suggest an optimal LOLE in excess of one event per year. Only under the lowest Net CONE assumption, and the extreme value for VOLL ($20,000/MWh), is the implied LOLE value 0.4/year, which is still four times more frequent than one day in 10 years. Assuming a typical outage duration of less than five hours also would raise the optimal LOLE. In terms of the “nines” reliability measure, frequently used in such industries as telecom and information technology ( *e.g., *five nines being 99.999 percent), the range of estimated optimal values is 2.2 to 3.6 nines, compared to 4.2 nines for the 1-in-10 criterion. This analysis suggests that 1-in-10 is roughly an order of magnitude more stringent than the criterion that would provide the optimal level of resource adequacy. Put another way, it would be more economical for electricity consumers for capacity to be planned such that there would be approximately one outage per system due to resource shortage per year, rather than one per decade, taking into account the impact of the outages and the cost of capacity.

#### 1-in-10: The Customer’s Perspective

While “(not more than) one day in 10 years” could be interpreted as a reliability pledge to each and every customer, the 1-in-10 criterion generally is interpreted as pertaining to the frequency of curtailment or load loss on an electrical system. However, when outages due to insufficient resources occur, typically only a small fraction of load must be curtailed to bring the system into balance. Consequently, only a small subset of customers is affected each time an outage occurs, and the frequency with which any individual customer is curtailed will be much lower than the system-wide outage frequency.

The frequency of curtailment for the average customer can be roughly estimated. If the typical outage lasts five hours, during this time an average of 2 percent of a system’s firm load is curtailed in each hour, and the curtailment is rotated hourly, then in total 10 percent of the customer load is curtailed during each outage. These estimates are conservative and roughly based on an examination of hourly load shapes; more likely, one rotating outage event would affect less than