Optimal preventive maintenance: Balancing reliability and costs in the electricity market

This study addresses the challenge of achieving optimal preventive maintenance within power systems, aiming to balance reliability and costs effectively. The primary focus is on understanding the relationship between preventive maintenance expenditures and the failure rate of essential transmission components, particularly transformers in substations. We contribute to the existing literature by providing two key insights. Firstly, we establish a theoretical framework for determining the optimal level of preventive maintenance, which can be extended across various electricity facilities. By analyzing the relationship between preventive maintenance costs and failure rates, our goal is to identify the investment level that ensures a reliable power system while minimizing financial burdens. Secondly, we explore the functional form that accurately characterizes the link between preventive maintenance costs and failure rates. The diminishing marginal rate of failure, dependent on different functional forms, highlights the variability of optimal preventive maintenance expenses. Utilizing Lasso regression, we identify the functional form that optimally characterizes the relationship between outage occurrences and maintenance costs. These insights extend well beyond the confines of the Korean power industry, offering a sustainable approach to managing transmission facilities and enhancing the overall stability and efficiency of global electricity networks.