Electrical grids in the U.S. are designed in such a manner that when an interruption occurs in one generating plant’s transmission and distribution lines, other plants can immediately be brought online to continue the flow of electricity and keep lights on. Utility regulators and planners created redundancy to ensure that networks could weather possible disruptions with minimal fallout. So did the investment in backup capacity pay off? To determine that, it’s important to look at the cost of outages. This becomes the most important factor in determining the benefit calculations of the redundancy system.
Value of Lost Load
As policy makers and economists worked to come up with the exact figure of the lost value from power outages, they came up with a calculation known as the “value of lost load.” This refers to the lost electrical load in the event of an outage. The value of lost load is the amount that consumers will be willing to pay in order to avoid an outage.
The value of lost load is what regulators and planners then use to determine what they can spend for a redundant system that will prevent disruptive power outages.
Estimated Value of Lost Load
There are plenty of estimates on the value of lost load, ranging from a low of $2 per kilowatt per hour to $20 per kilowatt per hour. Most economists and energy regulators put their estimate at the low end of that range. The estimated value changes according to region and season. There are regions in the country where the cost of electricity is higher due to a number of factors. There are also periods during the year when consumption is high due to the prevailing weather conditions. A typical household in California that consumes 25 kilowatts per hour per day during spring when the weather does not require much air conditioning will have a value of lost load of about $50.
The estimated value of lost load will be different in entities other than residential homes. Other factors and intangibles need to be considered in estimating the value of lost load. Those factors include:
- Manufacturing sector – Power outage will bring not only an abrupt halt to the production lines, it will also translate to material loss, loss of productive time, breakdown of machinery, and shutdown of the supply chains. Losses in this area will be very difficult to quantify and estimate.
- Data centers – Data centers are the backbones of operation of most businesses. Power outage could lead to an unrecoverable loss of data and disrupt financial transactions.
- Perishable items – Many industries, such as food processing, pharmaceuticals, and petrochemicals are dependent on uninterrupted power supply. Perishables have very limited shelf life without refrigeration. Power outages can result in millions of dollars worth of spoilage, damage, and contamination of perishable goods.
We humans can control a lot, but not necessarily power supply. Nature can bring tornadoes and hurricanes that cause extended outages. The challenge is to allocate our resources wisely to cushion the blow.