Development and application of a cost-benefit framework for energy reliability: Using probabilistic methods in network planning and regulation to enhance social welfare: The N-1 rule

Michiel De Nooij, Barbara Baarsma, Gabriël Bloemhof, Han Slootweg and Harold Dijk

Energy Economics, 2010, vol. 32, issue 6, 1277-1282

Abstract: Although electricity is crucial to many activities in developed societies, guaranteeing a maximum reliability of supply to end-users is extremely costly. This situation gives rise to a trade-off between the costs and benefits of reliability. The Dutch government has responded to this trade-off by changing the rule stipulating that electricity networks must be able to maintain supply even if one component fails (known as the N-1 rule), even in maintenance situations. This rule was changed by adding the phrase "unless the costs exceed the benefits." We have developed a cost-benefit framework for the implementation and application of this new rule. The framework requires input on failure probability, the cost of supply interruptions to end-users and the cost of investments. A case study of the Dutch grid shows that the method is indeed practicable and that it is highly unlikely that N-1 during maintenance will enhance welfare in the Netherlands. Therefore, including the limitation "unless the costs exceed the benefits" in the rule has been a sensible policy for the Netherlands, and would also be a sensible policy for other countries.

Keywords: Valuing; supply; interruption; Cost-benefit; analysis; Reliability; of; electricity; supply (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (6)

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