Value of Lost Load

A Critical Parameter for Optimum Utility Asset Investment

Amir Hisham Hashim Daniel Andrew Sen Radzian A Rahman

Power Engineering Centre Dept. of Electrical Engineering Transmission and Dist. Dept
Universiti Tenaga Nasional Universiti Tenaga Nasional TNB Research

Abstract: In todays demanding business environment, determining the value of lost load (VoLL) is
important in order for utilities to make the right decision when it embarks on any form of asset
expansion. The VoLL is the aggregated or average value of outage costs across the whole range of
customers in the electricity supply industry (ESI). Determining the VoLL offers utilities tangible
numbers that can be used in balancing the cost of outages against the cost of investing in the network to
ensure system adequacy and security. This paper covers the uses and advantages of using VoLL,
particularly in determining optimum asset investment. Finally a demonstration of VoLL application in
utility asset evaluation will be shown where certain system expansion options will be evaluated.

Keywords: Value of Loss Load, Power System Reliability, Power System Economics, Utility Asset
Investment.

1. Introduction

Utilities are responsible for the generation, transmission, and distribution of electricity to customers.
Part of this responsibility is ensuring that system adequacy and security criteria are fulfilled. However,
this must be balanced against the investment and operating costs, which are increasingly important
factors to remain competitive.

Utility planning has traditionally been based on the electricity load demand forecast. The demand for
electricity initiates actions by the utilities to add or retire generation, transmission, or distribution assets
[1]. Retiring assets can be done fairly quickly, however, there is a long lead time required to plan and
construct new utility equipment. Decisions may need to be made from 2-10 years in advance [1] for
the need of a new utility plant.

System reliability is a central criterion during the planning stage. Reliability is the need to provide
both system adequacy and security. Adequacy is the existence of sufficient facilities such as
generators, lines, and control systems within a system to satisfy customer demand, whereas, system
security is the ability for the system to respond against a disturbance in the system such as the loss of a
generator or a lightning strike. The VoLL can be used in both adequacy and security assessment but
this paper will concentrate on the adequacy part.

While these criteria have served the ESI well in the past, the present environment requires a balance
between the planning and operation criteria, and the economic value customers assign to reliability in
establishing target reliability levels [2]. Customers needs range from those who would not mind
paying a premium for a highly reliable supply (because they would suffer a very large loss when there
are disruptions in their power supply) to the vast majority of customers who do not mind tolerating
outages in exchange for lower prices. Often, there is a mix of customers with various reliability needs
located in close geographic proximity.

Therefore, it can be quite hard for the utility to decide on the optimum reliability level. One method of
optimization is through value based planning, which is matching the level of investment in reliability
with customers reliability preferences [2]. Taking into account the economics during the planning
stage allows utilities to optimize their investment by investing in assets to boost reliability where
customers expect higher reliability levels than the status quo.
 2. Background of Asset Optimization

In mathematics, optimization is the discipline which is concerned with finding the maxima and minima
of functions, possibly subject to constraints [3]. When applied to asset investment in the ESI,
optimization is the process of trying to maximize the utilitys profit while, at the same time minimizing
the cost of adequacy and security. Planning engineers are constantly analyzing and managing risks and
the costs associated with those risks.

Two common methods of analyzing risks are the probabilistic approach and the deterministic approach.
The probability approach aims to determine the probability of an event occurrence using statistical
data. In this process, a sampling method is selected. To avoid biases, researchers employ random
sampling procedures [4]. Through statistical methods, for a given sample size, the mean, standard
deviation, coefficient of variation, and the level of precision can be calculated. This method allows
utilities to gauge damage perceived by customers due to a power interruption. The deterministic
approach, on the other hand, plans for contingency scenarios such as n-1 criteria and largest generator
tripping. In utilizing this method, the utility plans for various potential contingencies and estimates the
damage to the affected customers.

Reliability worth according to Billington [5] is the outage cost can be divided into three categories:
Outage Cost to Utility this includes loss of revenue, loss of goodwill, loss of future potential
sales and increased expenditure for maintenance and repair.
Outage Cost to Industry- this includes lost of production, damaged machineries and products
and corrective maintenance.
Outage Cost to Residential this includes lost of frozen foods, alternative energy cost.

Often outage cost to Industry and Residential outweigh the outage cost to utility. However, the outage
cost can be reduced through measures such as the construction of parallel lines which connect a power
source to the load.

Figure 1 below illustrates the costs utilities face in planning for asset investment. In the figure, there
are 2 types of costs: the reliability cost and reliability worth. The reliability cost is related to the cost of
purchasing and installing new equipment to increase the utilitys reliability. This cost increases with
increasing reliability. The reliability worth is the value the customer is willing to pay for increasing
power supply reliability. This cost decreases with increasing reliability. The total cost to the consumer
is the sum of the utility cost, which the consumer pays for through the electricity bill, and the consumer
cost due to outages [6].

Utility asset investment centers on reducing risk by increasing system reliability to provide system
adequacy and security. However, optimization would show that investment beyond point A is
economically inefficient because it leads to higher total cost. At the same time, investment below point
A would result in a lower than optimum reliability level, which also results in higher total cost.

Total Cost
Cost

Reliability Cost
(utility)

Reliability Worth
(consumer)
A
Reliability
Figure 1: Utility Asset Investment: Balancing Reliability Cost and Reliability Worth [7].
 3. Value of Loss Load (VoLL)

The Value of Loss Load (VoLL) is the estimated amount that customers receiving electricity with firm
contracts would be willing to pay to avoid a disruption in their electricity service [8]. The value of
these losses can be expressed as a CDF. A CDF is defined [9] as:

Loss ($/kW) = f(duration, season, time of day, notice)

Based on the calculated outage cost, a customer damage function (CDF) can be obtained for various
customer groups. Typically, there are three distinct groups of customers: residential, small and
medium commercial/industry and large commercial/industrial [10]. Figure 2 below illustrates the
incremental CDFs of these three groups.
$/kW interrupted

Small & Medium C/I

Large C/I

Residential

Outage Duration
Figure 2: Example Customer Damage Functions [10].

The CDF relates the magnitude of customer losses (per kW interrupted) for a given duration of a power
outage. While the general shapes of all three curves are similar, the magnitude of loss varies
dramatically depending on the customers size. Based on VoLL data from an EGAT survey in March
and April 2000 [11], it was estimated that the customers costs in the first hour for residential
customers was Baht 11.45/kW. For large C/I and small & medium C/I customers, the cost in the first
hour was Baht 29.55/kW and Baht 89.50 /kW respectively. Another research from EPRI [10] indicates
that residential customers cost tend to peak at USD 1.50/kW in the first hour and falls of to USD
0.46/kW in subsequent hours. On the other hand, large C/I and small & medium C/I suffer much
higher losses of USD 10/kW and USD 38/kW respectively in the first hour. This falls to USD 4/kW
and USD 9/kW respectively in the subsequent hours.

The CDF predicts the loss per interrupted kW based on factors that influence the outage. The CDF is
usually calculated based on defined market segments such as residential, commercial, and industrial.
This is done because there are large variations of costs across the utility market segments. However, in
a large area it is a normal practice that the interruption cost is aggregated to represent a general picture
of the load losses. The aggregated interruption cost is called the composite CDF.

To illustrate the interruption costs, the CDF values are derived from a U.K. Survey by Billington
(1982, 1985 and 1987). The customer interruption cost expressed in kilowatts of annual peak demand
($/kW) is tabulated as below.

Table 1: Interruption Cost with respect to Interruption Duration

Interruption Duration
User Sector
1 hour 2 hour 2.5 hour 5 hours 8.3 hours
Large User 1.005 1.508 2.225 3.968 8.240
Industrial 1.625 3.868 9.085 25.163 55.808
Commercial 0.381 2.969 8.552 31.317 83.008
Agricultural 0.060 0.343 0.649 2.064 4.120
Residential 0.001 0.093 0.482 4.914 15.690
Government 0.044 0.369 1.492 6.558 26.040
Office 4.778 9.878 21.065 68.830 119.160
4. Application of VoLL for Power System Investment Optimization

A power system experiences a blackout when all paths between a load point and its sources are
disconnected. It assumes that any branch is capable of carrying all the load demanded of it. The term
used to describe this situation is total loss of continuity (TLOC). When TLOC occurs, the load is
permanently lost for a period of blackout. This loss contributes to outage cost

A simple schematic and VOLL survey data based on different customer segments may be used to
illustrate the concept of VOLL. In this example, the number of parallel power lines that connect a
generator and the loads is varied to simulate networks of different reliability levels. Figure 3 illustrates
the reduction of outage cost by increasing reliability through the added number of parallel lines. The
example considers outage cost to the consumers.

Figure 3 shows a simple power system which consists of a source (generator) that supplies electricity to
three load points Load 1, Load 2, and Load 3. To further simplify this example, we assume that all
loads have the same value. This power system has three sub-networks:
the first sub-network consists of three parallel lines supplying Load 1, the n-2 case
the second sub-network consists of two parallel lines supplying Load 2, the n-1 case
the third sub-network is a spur line supplying Load 3

G Generator
Component 1:
Busbar

Lines 2, Lines 5 Line 7

3, and 4 and 6

Component 8: Component 9: Component 10:

Busbar Busbar Busbar
Load 1 Load 2 Load 3
Figure 3: Example of three networks with different reliability levels.

Each sub-network is made up of several components, such as busbars and lines, which have varying
individual failure rates, . Taking into account the individual failure rates, the overall reliability of
each subnetwork can be calculated. Reliability indices can be defined as below:

= Failure rate per year (frequency/year)

r = Number of outage hours (hours)
U = r = Number of hours per year (hours/year)
L = Load supplied (MW)
E = Annual outage time at load point (MWh/year)
C I = Interruption cost per kW ($/MW)
C A= Annual customer interruption cost ($/year)
An example system with these parameters is used to reflect the power system illustrated by the
previous diagram. The total loss of continuity for each load based on the failure of individual
component can be tabulated as shown below.

Table 2: Example Failure Events

Failure Event r U L E
Electricity to Load 1
Failure of 1 0.01 2 0.02 10 0.2
Failure of 2,3 and 4 8.0010-6 5 4.0010-5 10 4.0010-4
Failure of 8 0.01 2 0.02 10 0.2
Electricity to Load 2
Failure of 1 0.01 2 0.02 10 0.2
Failure of 5 and 6 4.0010-4 5 2.0010-3 10 0.02
Failure of 9 0.01 2 0.02 10 0.2
Electricity to Load 3
Failure of 1 0.01 2 0.02 10 0.2
Failure of 7 0.02 5 0.1 10 1
Failure of 10 0.01 2 0.02 10 0.2

As in any other indices, a composite CDF is aggregated through the usage of weightage which
resembles the load composition of the service area. This is based on the annual peak demand and
annual energy consumption for each customer segment. The load composition weightage based on
annual peak demand and annual energy consumption adopted from R. Billington (1995) showed that
for 2-hour and 5-hour durations, a VoLL of $1560/MW and $12140/MW was incurred respectively.
Using this value, the annual customer interruption cost, CA ($/year) can be calculated using the
formular below;

CA = CIL

Table 3: Annual Customer Interruption Cost

Failure Event r CI L CA
Electricity to Load 1
Failure of 1 0.01 2 1560 10 156
Failure of 2,3 and 4 8.0010-6 5 12140 10 0.9172
Failure of 8 0.01 2 1560 10 156
Total 312.92
Electricity to Load 2
Failure of 1 0.01 2 1560 10 156
Failure of 5 and 6 4.0010-4 5 12140 10 48.56
Failure of 9 0.01 2 1560 10 156
Total 360.56
Electricity to Load 3
Failure of 1 0.01 2 1560 10 156
Failure of 7 0.02 5 12140 10 2428
Failure of 10 0.01 2 1560 10 156
Total 2740
5. Discussion of Result

By adding more lines, alternative supply paths are created. The calculation tabulated above show that,
statistically, the increase of power lines is proven to reduce the annual outage time at a load point, and
thus the outage costs incurred. However, building lines incurs investment cost and these costs have to
be balanced against the outage cost. The quoted total price to lay an XLPE underground cable to
supply a 10MW load was RM500/meter [12].

Assuming the distance is 100m, the capital cost of building an additional line would be RM50,000.
The savings derived from adding another line to the spur network so that it becomes a double circuit is
RM2740.00 RM360.56 or RM2379.44 per year. Therefore, the initial investment of RM50,000 can
be recovered in a period of 21 years of service. Since most cable manufacturers recommend that cables
be replaced every 40 years, this represents a cost saving investment in the long run.

However, adding another line for a triple circuit or 3 feeder network is not cost effective because the
additional savings of RM46.64 per year derived from adding a third line is marginal and does not
justify the large capital cost. Therefore, the optimum topology in this particular example case is a
double circuit network.

VoLL is not the only factor in determining asset expansion. Current assets will have to be upgraded
and new nodes will have to be constructed due to increasing demand and the need for added system
security and adequacy. Current spur networks, as shown in this example, will have to be upgraded to
double circuit networks eventually. This means that there will come a time when the utility will have
no choice but to construct an additional line. This inherent necessity is a mitigating factor when
considering the capital cost of asset expansion as described in this example.

6. Conclusion

This paper has illustrated the use of the VoLL in an asset expansion scenario. Since this analysis can
give an indication of the cost of outage, it allows for reliability levels to be quantified which in turn
forms the core of a cost-benefit analysis. In this case, the 2 feeder option is deemed as the best option
among the 1, 2 and 3 feeder options. The variation of VoLL can also affect the solution. For instance,
the 3 feeder option can be the selected if the VoLL is really high, particularly for sensitive loads such
as semiconductor plants. Thus, this leads to the possibility of using VoLL for asset expansion in
specific geographic areas, given the mix of customer loading and will lead to an optimum investment
solution.

References

[1] H.G. Stoll, Least-Cost Electric Utility Planning, John Wiley & Sons, 1989, pp 167.

[2] Sullivan, M.J. and Keane, D.M., Outage Cost Estimation Guidebook, EPRI Research Project
2878-04 Final Report, December 1995, pp 1-1.

[3] Optimization - Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Optimization, 27

October 2005.

[4] Sullivan, M.J. and Keane, D.M., Outage Cost Estimation Guidebook, EPRI Research Project
2878-04 Final Report, December 1995, pp 6-1.

[5] R. Billington and R.N. Allan, Reliability Evaluation of Power Systems, Plenum Press.New York
and London, 1994, pp. 302 - 326 and pp.443 473.

[6] H.G. Stoll, Least-Cost Electric Utility Planning, John Wiley & Sons, 1989, pp 363-365.

[7] A.H. Hashim, MEE Course Notes, Universiti Tenaga Nasional, 2005.
[8] Vassilopoulos, P., Models for the Identification of Market Power in Wholesale Electricity
Markets, Industrial Organization, D.E.A 129, September 2003 pp 46 - 47.
[9] Sullivan, M.J. and Keane, D.M., Outage Cost Estimation Guidebook, EPRI Research Project
2878-04 Final Report, December 1995, pp 1-4.

[10] Sullivan, M.J. and Keane, D.M., Outage Cost Estimation Guidebook, EPRI Research Project
2878-04 Final Report, December 1995, pp 8-13.

[11] Electricity Outage Cost Study, http://www.eppo.go.th/power/ERI-study-E/ERI-ExeSummary-

E.html, 19 November 2005.

[12] Teleconversation with Mr. Norazman Atib, Tenaga Nasional Berhad (Distribution) on 16
November 2005.