The Cost of Power Outages

Power outages could turn very costly for businesses. For many types of companies, a few minutes of down time can have serious repercussions that will translate into thousands of lost dollars. The cost could add up for businesses and facilities that are not prepared for the outage. Even a short period offline in a manufacturing plant could mean that production will stop and costs will increase. There will be no ordering system. Refrigeration units will stop cooling, and perishable inventories will be spoiled. The disruption will continue down the line to the farmers and ranchers that supply the raw materials used in the production. Power outages can create a snowball of complicated problems. 

The electric grid is one of the most important infrastructures in the country. It allows Americans to function and attain progress. However, the grid is highly vulnerable and could go offline due to natural and man-made causes.

To minimize the disruptive effects of power outages, the electric grid was designed to be redundant. Redundancy allows other plants to be brought online the moment one generating plant and its transmission lines go down. Planners created redundancy in the system as a safeguard against possible disruptions caused by inclement weather or sabotage. The cost of outages is the most important factor in determining the value of the redundancy system.

Neither economists nor policy makers can come up with the exact figure of the lost value from power grid disruption. The estimate is called the “value of lost load” and refers to the amount that consumers are willing to pay in order to avoid an outage. The amount is what regulators and planners spend in the creation of backup or redundant systems.

The estimated monetary value of the lost load ranges from a low of $2 per kWh to a high of $20 per kWh. This amount varies by region and season. As an example, a California household that consumes 25 kWh of electricity per day during spring when not much air conditioning is used will lose $50 per day in a power outage.

The estimate is higher among non-residential users of electricity. Power outages in the manufacturing sector, data centers, and industries that handle perishable products could prove highly complicated to quantify in terms of the value of the lost load.

Businesses that will be hit hard by power outages should prepare by having standby commercial generators that will immediately provide electric power once the main grid cuts out. With a standby generator, losses can be minimized significantly.