Mitigation and Resilience Tradeoffs for Electricity Outages
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Large-scale electricity outages have the potential to result in substantial business interruption losses. These losses can be reduced through a number of tactics within the broader strategies of mitigation and resilience. This paper presents a methodology for analyzing the tradeoffs between mitigation and three categories of resilience. We derive optimality conditions for various combinations of strategies for a Cobb-Douglas damage function and then explore implications of a less restrictive Constant Elasticity of Substitution damage function. We also calibrate the model and perform Monte Carlo simulations to test the sensitivity of the results with respect to changes in major parameters. Simulation results highlight the possibility that substitution away from mitigation towards resilience may lower total expected costs from large-scale outages for a given level of risk reduction expenditure when the marginal benefit of resilience is high relative to the expected marginal benefit of mitigation.
KeywordsElectricity outages Economic losses Reliability Mitigation Resilience Risk reduction trade-offs
The work described in this study was funded by the Transmission Planning and Technical Assistance Division of the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability under Lawrence Berkeley National Laboratory (LBNL) Contract No. DE-AC02-05CH11231. This paper benefited from helpful comments from Ben Hobbs and participants at the LBNLWorkshop on The Economics of Long Duration, Widespread Power Interruptions, Washington, DC, March 4, 2018.
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