Using insurance to manage reliability in the distributed electricity sector: Insights from an agent-based model

Rolando Fuentes and Abhijit Sengupta

Energy Policy, 2020, vol. 139, issue C

Abstract: High penetration of distributed technologies would call for a different way to manage electricity reliability for semi-independent households. One option could be to allow customers to withdraw power from the grid when their home system fails. This behavior, however, could constitute an existential threat for utilities: if consumers use the network less, and continue to pay according to their usage, the utility might be unable to recover its costs. This paper investigates whether the creation of a reliability insurance market would help to deal with these concerns. We propose a business model where utilities offer insurance to semi-independent, yet risk averse households, against the prospect of a blackout, when a pay as you go system is no longer available. With the use of an Agent Based Model, we test if contracts from this market can converge into a theoretical optimal contract where bounded perception of risks and losses impact the price of insurance and potential revenues of utilities. We find that such a market could exist as consumers efficiently transfer all or a portion of their risk to the utility, based on their willingness to pay and risk profiles, which allows them to avoid blackouts at the margin.

Keywords: Distributed energy resources; New business models; Utilities of the future; Agent based models; Utility death spiral (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Using Insurance to Manage Reliability in the Distributed Electricity Sector: Insights From an Agent-Based Model (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:139:y:2020:i:c:s0301421520300136

DOI: 10.1016/j.enpol.2020.111251

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