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Pricing power outages in the Netherlands

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  • Baarsma, Barbara E.
  • Hop, J. Peter

Abstract

In most Western countries, the power grid provides electricity more than 99% of the time. To maintain reliability at such high levels, energy companies have to continually invest in electric transmission- and distribution systems. Since customers of electricity cannot switch from one distribution network to another, no economic incentive exists that matches the supplied reliability to customer preferences. Either under- or over-investment in reliability may thus result. In order to introduce market-like incentives, the Dutch Energy Regulator introduced a regulatory system based on the (perceived) costs of power outages. An essential ingredient of the regulation is the cost of a power outage of a particular duration (i.e., 1minute). This paper measures these outage cost by using conjoint analysis. We find that the social cost of the present Dutch level of reliability — that is, one outage of two hours every four years — is €2.80 on average for every household, and €33.10 on average for every SME firm. The total costs to Dutch society are almost €50million.

Suggested Citation

  • Baarsma, Barbara E. & Hop, J. Peter, 2009. "Pricing power outages in the Netherlands," Energy, Elsevier, vol. 34(9), pages 1378-1386.
    • Handle: RePEc:eee:energy:v:34:y:2009:i:9:p:1378-1386
    DOI: 10.1016/j.energy.2009.06.016
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    References listed on IDEAS

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    More about this item

    Keywords

    Electricity; Outages; Economic valuation; Conjoint analysis; Regulation of reliability; Yardstick competition; Network company;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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