Power Outage Price Tag: Calculating the Consumer Costs
August 12, 2019— Power outages leave behind them a wake of destruction, whether tallied in lost worker productivity or a refrigerator full of spoiled food. Assigning a dollar amount to power outages is nothing new, however calculating the consumer costs of power loss is.
In their journal article, A flexible framework for modeling customer damage functions for power outages, JISEA/NREL researchers Sean Ericson and Lars Lisell lay out a methodology for estimating the customer cost of a power outage. Understanding how outage costs mount can guide businesses on backup generation options, grid operators on how to shed load, and utilities can prioritize recovery/repair operations.
The cost of an outage is dependent upon many variables, such as scale of the outage, timing, season, location, and duration. And these variables, in turn, make estimating the cost a challenging prospect.
The researchers’ approach focused on attributing the cost of an outage to individual customers, as opposed to looking at the cost of the outage as a whole.
The power outage costs were divided into three categories:
- Fixed costs: such as computer data loss and damage to machinery – these do not depend on outage duration;
- Flow costs: such as loss of emergency services or loss of leisure time – these costs grow as the outage duration increases;
- Stock costs: such as food spoilage, stolen or broken assets due to looting and vandalism – these costs correspond to the loss of perishable goods.
Demystifying non-monetary costs
While business losses in an outage can generally be linked back to profit loss, determining these values for consumers can be a bit more nebulous. Calculating consumer loss involves monetary costs, like spoiled food, as well as non-monetary costs, such as discomfort or lost leisure time.
Willingness to accept and willingness to pay methods can be applied to help determine these non-monetary costs. Pinpointed through customer surveys and macroeconomic approaches, willingness to accept is the minimum the customer would need to be paid to allow for a given increase in the rate of power outages; willingness to pay is the maximum a customer would be willing to pay to decrease the rate of power outages.
The cost of an outage for all customer types depends of five factors:
- Perspective: who/what experiences the loss of power;
- Timing: when the outage occurs;
- Magnitude: how much load is lost and overall impact;
- Duration: how long the outage lasts; and
- Advanced warning: whether the outage is anticipated or unexpected.
Modeling real life
As part of their model framework, the researchers separated outage costs into fixed, flow, and stock costs to demonstrate how outage costs vary by outage duration and constructed appropriate cost functions for each. They then implemented the model in the context of two cases studies: an outage at a representative manufacturing plant and an outage at a representative fire station.
The manufacturing plant outage costs were reported for the first 24 hours; for the fire station, the first three days. Both outages were unexpected and without backup power sources.
In the case of the manufacturing plant, researchers found that fixed damages led to a high initial cost, and stock spoilage resulted in incremental costs that increased between the first and fourth hour of the outage. As the outage continued, however, the spoilage effect reduces and incremental costs declined, as there was less and less stock to spoil.
In the example of the fire station, the average cost of the outage decreased as the outage length increased. Momentary outages resulted in high fixed costs, followed by a flat marginal cost due to a lack stock costs (perishable goods).
Looking ahead, this research could help lessen the consumer pain of power outages.
An initial step toward quantifying the customer damage in a power outage, grid managers could apply these findings to guide their decision making. Facility managers could consider this research when evaluating various options of backup power systems to serve critical loads, such as perishable items and medical equipment.
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