The Value Of Constant Electricity Supply In The Residential Sector

Security of the electricity supply is a fundamental requirement for well-functioning modern societies. Representing 30% of global electricity consumption, the residential electricity sector expects electricity supply to remain at its high level or improve (in developed countries) or to improve noticeably (in developing countries).

However, thanks to climate change, through increased storm magnitude/frequency, increased heat waves and sea-level rise is expected to put considerable strain on existing and future energy infrastructure and electricity supply. This is particularly true in the northwest of England, where much of the energy infrastructure is located in coastal areas. The selection and design of appropriate measures to address these challenges require knowledge about costs and benefits of constant electricity supply to residential consumers.  However, the costs and benefits arising from power outages in the residential sector are a black box.

In contrast to businesses where lost turnover can be used as a proxy for the value of constant electricity supply, the costs to households during a power outage are more complex. Non-monetary losses such as inconvenience or fear, as well as monetary losses such as spoiled food, occur side-by-side in the case of power outages. Nor is the monetary value or benefit of constant electricity supply clear from the cost of a household’s electricity bill. For example, the monetary value of knowing that you have constant electricity supply is not included in a household bill. Choice Experiments offers a method that can be used to account for both the monetary and non-monetary costs the true value that households place on reliable electricity.

Choice Experiments presents a set of choice cards, each showing hypothetical scenarios that consist of several characteristics of the good or service being examined with a price element attached. Figure 1 presents an example of one of the choice cards that respondents in our study were presented. In this instance, respondents were asked to indicate if they would favor spending £1 to avoid a 20-minute power outage, at peak time, during the week and in the Winter months, or whether they would rather pay £25 to avoid a 4-hour power outage, during peak times, at the weekend during the summer.

By considering each of the 4 characteristics and then choosing which price to pay, respondents are indicating the value that they associate with that bundle of characteristics.

We asked respondents in the northwest of England to partake in this exercise to gain an understanding of their value of constant electricity supply. Using the Choice Experiment framework we found that households in the northwest of England are willing to pay £5.29 to avoid having power outages in peak periods, £7.37 to have outages during the week rather than the weekend or bank holiday, and £31.37 to avoid power outages in winter.

This study found that households in northwest England place a high monetary value on constant electricity supply, particularly during the winter. These results provide data for the “price” and importance of constant electricity supply to domestic customers. Through engagement with policymakers and industry leaders, these “price signals” may be used to justify future investments and policies made in the electricity sector.

These findings are described in the article entitled The cost of electric power outages in the residential sector: A willingness to pay approach, recently published in the journal Applied Energy. This work was conducted by Karyn Morrissey from the European Centre for the Environment and Human Health, and Andrew Plater and Mary Dean from the University of Liverpool.