Swedish evaluations of interruptions in the electrical supp- supp-

ly-In 1969 a Swedish committee on the evaluation of interruptions in the supply of electricity presented its report. The customers' evaluations of their outage costs were the basis for estimating these costs. Question-naires and interviews were used to uncover the customers' evaluations of interruptions in the electrical supply of various durations that occur without forewarning. The results have been used as the basis for dimen-sioning the electrical system in Sweden, especially the distribution system.

A new committee was appointed in 1979 and decided to use the same basic principles (Svenska Elverksföreningen [1981], p. 26). Using ques-tionnaires and interviews, customers were again asked about the costs associated with interruptions in the supply of electricity. The results are presented in the form of a fixed cost in SEK/kWh by intervals. Table 7.5 compares the results of the 1969 committee's report with those of the

1979 committee.

Table 7.5. Estimated outage costs in Sweden, 1969 and 1980.

Outage costs (SEK/kWh*) T h e estimates for 1969 have been inflated to correspond to 1980 kronor (one krona (SEK 1) cost an average of $0.236 in 1980).

The table shows that the outage costs for Sweden as a whole have more than doubled in the 10 year period. The greatest increases were for industry, offices and commerce. The increase was greater for the densely populated areas than for the sparsely populated. Costs for households and agriculture decreased, especially where interruptions of short dura-tion are concerned.

The main reason given for the increase in outage costs is the increased dependency on electricity. There has been considerable automation in industry and the size of the industrial units has generally increased.

New technologies, based on electricity, have been introduced into offices and commerce. There has also been increased use of electrical equipment in the home.

The committee also compares its results with a Finnish and a Canadian study, both of which use essentially the same evaluation principle, methods and division into categories used in the 1969 Swedish study.

The total values for all of the countries are of about the same magnitude, except for the longer interruptions, where the Swedish estimates are higher than the Finnish, and for light industry, where the Swedish estimates are considerably higher than the Canadian.

In applying the estimates obtained in this way, it should be noted that

* the estimates are maxima which do not apply at all hours of the day or days of the year;

• if the values are applied at maximal capacity, the costs for interrup-tions of maximal inconvenience are obtained;

• a reduction factor should be used for interruptions that occur ran-domly or else the outage costs should be applied at average capacity;

* the variations among the different categories of customers are quite large.

The committee's report note that the methods used have 'aroused certain criticism from some directions, including from England* (p. 26). The criticism has mainly been that 'the method of asking customers may lead to evaluations of interruptions that are too high'. Rather, the critics have prescribed 'a more strictly economic evaluation'. Here we have a fun-damental shortcoming of all interviews and questionnaires based on hypothetical situations. If the customers involved do not face the respon-sibility of actually paying the sums they indicate, they have a motive to

exaggerate their outage costs. This means that the practical value of this type of study is, unfortunately, verv dubious.

The customers should face actual, not hypothetical, situations (Bohm [1972] and Bohm and Nilsson [1981]). Of course, it is hardly a trivial task to apply this principle. To illustrate how it could be done, we can take as our point of departure an example given in the committee's report. If a group of users is presently being supplied with electricity on a radial system, then a break in the cable means that all users beyond the break will be without electricity. However, if the system is changed to a loop so that electricity can be fed to the users from either direction, then the subscribers will all be able to obtain power given a single break in the cable. With two breaks, all subscribers between the two breaks will be without electricity. Changing the system to a loop would thus increase the system's reliability, though differently for each subscriber.

The subscribers involved could be asked to specify how much they were willing to pay for the change, with the expectation that if the sum of all subscribers' willingness to pay exceeded the cost of making the change, then the change would be made and each subscriber would pay the amount he had specified. From this it should be possible to estimate the subscribers' evaluation of their outage costs. If a number of such situa-tions could be used in a similar manner, it might be possible to obtain an estimate of the true outage costs for various groups of subscribers rather than only their stated outage costs.

One problem with this method is the so-called free-rider problem. Since the increased reliability has some public goods aspects, it is possible for a subscriber to understate his willingness to pay in the hope that the sum will still be enough to pay for the project, so that he will enjoy the increased reliability at a discount compared to his true willingness to pay. See Bohm [1972] and Bohm and Nilsson [1981] for a detailed discussion of this problem and ways to circumvent it.

If the questionnaire or interview method is used to estimate outage costs, it is likely that the estimate will be greater than the true outage costs. However, some of the decision makers in the power industry may also mistrust the results. This may lead to different outage costs being used by different power companies in the system. This would lead to inefficiency in the system of a type similar to the inefficiency resulting from the use of different rates of interest in the different companies. It is, of course, very important that the 'correct' evaluation of outage costs be used consistently throughout the power industry.

This is our main criticism of the committee's report. Another point which casts a shadow on the results is that the rate of response to the

questionnaires was relatively low, e.g. 20% for offices and 40% for industry (Svenska Elverksföreningen [1981], p. 18 and p. 6).

By way of conclusion, we would like to emphasize one merit of this study of outage costs relative to the studies mentioned previously. This is that the committee systematically attempted to obtain the maximal costs for the different categories of subscribers for outages of various duration;

the longer the outage lasts, the lower the outage costs per kilowatt hour will be. This is in accordance with what would be expected.

7.4 Conclusions

The evaluation of shortage costs is a matter of key importance in determining the optimal reliability of a nation's electric power system.

This chapter has demonstrated the importance of distinguishing be-tween energy shortages and capacity shortages when evaluating shortage costs. To obtain a coarse measure of the cost of a capacity shortage, the average willingness to pay, particularly at peak periods, could be used. A coarse measure of the cost of an energy shortage might be the marginal willingness to pay. The average willingness to pay would correspond to a maximal measure of the expected social costs for a sudden interruption in the electrical supply, since there are always certain possibilities of directing the interruption, especially if it is owing to a fault in the production rather than in the distribution system, towards less vital uses. The marginal willingness to pay represents the maximal measure of the expected social costs for an energy shortage, since it would never be possible to direct the shortage completely to the users with the marginal willingness to pay.

Munasinghe and Gellerson [1979] criticize the idea of using the concept of willingness to pay to estimate shortage costs. They prefer using the value of production losses owing to the shortage of companies and the value of lost leisure for households to determine shortage costs. Their criticism is, however, based on a misconception. Correct estimates using either method should be identical. However, the method recommended by Munasinghe and Gellerson may have some practical advantages.

Bental and R&vid [1982] suggest that estimates for companies be based on the alternative cost of maintaining back-up power. This cost would be the maximum that a company would be willing to pay for power given a shortage that would otherwise deny them power. This seems to ba a valid method of considerable interest.

All of the studies of shortage costs that we are familiar with, except for that of Svenska Elverksföreningen, assume that shortage costs per

kilowatt hours are independent of the size and duration of the shortage.

Nor is the distinction between energy and capacity shortage usually made. Most of the studies apparently deal with capacity shortages.

Estimates are usually based on information obtained from question-naires and interviews concerning hypothetical shortage situations. The reliability of such estimates is highly questionable.

The Swedish power industry uses a constant energy shortage cost which is presently SEK 1 per kWh. However, there has been a discussion in which it was agreed that, in principle at least, the cost should depend on the size of the shortage.

A study of outage costs in connection with capacity shortages was made in Sweden using questionnaires and interviews for different groups of customers (Svenska Elverksföreningen [1981]). In this study an attempt was made to obtain estimates of costs for outages of various durations.

However, the study suffers from the same fundamental shortcoming as all studies based on hypothetical situations; if the persons questioned are not actually faced with paying the cost they say they would have, they may find it advantageous to exaggerate the consequences. Instead, studies should be made in which the customers are faced with actual decision situations. This is no easy task.

Chapter 8

Dimensioning Reserve Margins of