(November 2008) Economic uncertainties are raising doubts over utility returns. Will regulators feel the need to consider broader economic effects when engaging in ratemaking? While...
What Price, Resiliency?
Evaluating the cost effectiveness of grid-hardening investments.
evaluation metrics must be considered to capture fully the reasoning and rationale for the investment decisions related to hardening and resiliency investments. Specifically, the hardening of the system goes toward addressing costs associated with recovery from events driven by extreme circumstances and includes a review of the likelihood of extreme events; the recovery cost associated with such events; the costs of lost load, including impact on consumer income and business revenues; and the direct costs to business to recover from loss of operations. It further includes an assessment of the resulting impact to the overall economy of increased rates due to the investment. Typically, one would evaluate these costs and benefits on an expected lifetime (NPV) basis rather than an annual impact basis, given the probabilistic nature of considering the costs of individual events.
The analytical framework provided here for considering the cost effectiveness of grid resiliency investments is based on approximate analysis with hypothetical numbers. However, it offers a theoretical construct under which to evaluate the efficacy of additional investments in electric grid resiliency. Individual utilities will have to develop their own specific data, and along with customers, regulators and other stakeholders engage in discussions about how resilient we want the grid to be – and at what cost.