Large‐area, long‐duration power outages are increasingly common in the United States, and cost the economy billions of dollars each year. Building a strategy to enhance grid resilience requires an understanding of the optimal mix of preventive and corrective actions, the inefficiencies that arise when self‐interested parties make resilience investment decisions, and the conditions under which regulators may facilitate the realization of efficient market outcomes. We develop a bi‐level model to examine the mix of preventive and corrective measures that enhances grid resilience to a severe storm. The model represents a Stackelberg game between a regulated utility (leader) that may harden distribution feeders before a long‐duration outage and/or deploy restoration crews after the disruption, and utility customers with varying preferences for reliable power (followers) who may invest in backup generators. We show that the regulator's denial of cost recovery for the utility's preventive expenditures, coupled with the misalignment between private objectives and social welfare maximization, yields significant inefficiencies in the resilience investment mix. Allowing cost recovery for a higher share of the utility's capital expenditures in preventive measures, extending the time horizon associated with damage cost recovery, and adopting a storm restoration compensation mechanism shift the realized market outcome toward the efficient solution. If about one‐fifth of preventive resilience investments is approved by regulators, requiring utilities to pay a compensation of $365 per customer for a 3‐day outage (about seven times the level of compensation currently offered by US utilities) provides significant incentives toward more efficient preventive resilience investments.
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Estimating what US residential customers are willing to pay for resilience to large electricity outages of long duration
Climate-induced extreme weather events, as well as other natural and human-caused disasters, have the potential to increase the duration and frequency of large power outages. Resilience, in the form of supplying a small amount of power to homes and communities, can mitigate outage consequences by sustaining critical electricity-dependent services. Public decisions about investing in resilience depend, in part, on how much residential customers value those critical services. Here we develop a method to estimate residential willingness-to-pay for back-up electricity services in the event of a large 10-day blackout during very cold winter weather, and then survey a sample of 483 residential customers across northeast USA using that method. Respondents were willing to pay US$1.7–2.3/kWh to sustain private demands and US$19–29/day to support their communities. Previous experience with long-duration outages and the framing of the cause of the outage (natural or human-caused) did not affect willingness-to-pay.
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- Award ID(s):
- 1911819
- NSF-PAR ID:
- 10156486
- Date Published:
- Journal Name:
- Nature energy
- Volume:
- 5
- ISSN:
- 2058-7546
- Page Range / eLocation ID:
- 250-258
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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- Free Publicly Accessible Full Text
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Accepted Manuscript1.0
- Journal Article:
- https://doi.org/https://doi.org/10.1038/s41560-020-0581-1
