Eliciting the economic value of electricity supply security a European valuation

This paper contains the methodology and the results from SESAME, a currently conducted European research project on electricity supply security (ESS) during which the technical, social and economic issues of ESS are analysed. SESAME is a collaborative project of nine project partners from various European countries. Among them are transmission system operators (TSO, such as Transelectrica, Romania), technical universities (Politecnico di Torino, Italy, University of Delft, Netherlands), policy makers (BKA, the federal Austrian chancellery and its energy security department), consultants (Deloitte, Spain), energy regulators (e-control, Austria) and other distinguished partners. The Energy Institute at the Johannes Kepler University is the leading partner of the socio-economic analysis of electricity supply security. The motivation for research related to ESS has risen significantly; as has the analysis of the consequences of power outages to society and the economy. One reason behind this development is the fact that the European Union (EU) issued a directive (2008/114/EG, [1]) which requires member states to quantify the "economic after-effects" of the power supply infrastructure failing. In this paper an easy to use model which meets this requirement of scenario-based evaluation of the after-effects in the case of widespread blackouts, is presented. Using this economic impact assessment tool (EIAT), it is possible for the first time to collect data on the value of supply security on the basis of blackout costs for companies, institutions and establishments, and of households' willingness to pay (WTP) to avoid power cuts. However, the reasons for quantifying the value of electricity supply security using a uniform methodology for 27 countries as well as highly accurate and comparable data inputs go beyond legislative requirements. Elaborated economic assessments of the value of electricity supply security are essential especially in the discussions on necessary investments for maintaining and upgrading the current transmission and distribution infrastructure. Thus, we provide a rationale for electricity supply security enhancing investments and energy policy decisions. Profound knowledge of the damages faced by businesses in the case of power outages and of households' preference structures is paramount with regard to the challenges for the future electricity system. Regulatory authorities, which are represented in the consortium have also shown great interest in implementing such an easy to use model for quantitative assessments of the value of lost load, the total damage per sector in every country of the EU (at NUTS 2 level), as well as of the energy not supplied in the case of blackouts. In this contribution to Cigré's 2013 symposium we thus present the newly developed and easy-to-use economic impact assessment (EIAT) tool which can be used to elicit the costs of power outages to different private and business consumer groups ad hoc. As the elicitation of power outages' consequences used to be a highly complicated issue which required significant scientific resources to accomplish, EIAT makes it possible for the first time to asses trans-European (as well as nationally or regionally limited) power outages with regards to their socio-economic effects. Depending on the desired level of detail, using EIAT, this is now a matter of about two minutes and five to ten mouse clicks. In addition to the model presentation we explain the applied econometric outage cost assessment techniques and summarize the data collection process for the assessment of the outage costs of businesses, institutions and the public sector. With regards to households, we conducted a beyond state-of-the art analysis of their willingness-to-pay (WTP) to avoid power outages using data of the conducted in-depth survey among 8,336 households. Furthermore, we assessed household vulnerabilities in the case of power outages as well as their socio-demographic and a set of energy related characteristics. We additionally provide a summary of the capabilities of the economic impact assessment tool. To do this and in order to provide a very vivid example, this paper also contains a case study of the economic and social effects of the September 28^th 2003 power outage in all of Italy. For this case the economic assessment concludes that this Italian outage caused aggregated macroeconomic costs of € 904 million (m.). This can be calculated for each user group (households and different economic sectors), which is paramount in identifying especially vulnerable consumer groups. The majority of damages are due to the outage costs of agriculture, the producing sector and public administration. We econometrically quantified the damages of every sector for every region in Italy (depending on the length of the outage, which lasted for four hours in the north up to 16 hours in Sicily) and find that total damages to the non-household sector amount to € 697 m. Households' Willingness to pay to avoid this specific power cut is quantified to be € 207 m in total. Residential customers are a highly important customer group and bear about 22.8% of the total costs of such power outages. The economic assessment tool allows the industrial, regulatory or household users to quantify and interpret power outages from the period of 2000 until 2020 using intuitive and highly accurate methods.