Avoided Cost Comparison Levelized Cost of Energy ($/MWh)

“three nines”—i.e. 99.9 percent, far lower than the
Japanese grid with its “five nines” reliability. 66 Costs
of disruption to the power system are estimated to
be as high as $80 billion annually. 67 Of this, 73 percent,
or $53 billion, is from losses in the commercial
sector and 25 percent, or $20 billion, in the industrial
sector. 68 The estimate for residential losses is $1.5
billion, or only about 2 percent of the total.
There are two main causes for system outages:
1. Capacity Deficiencies
2. Faults and Failures
Capacity deficiencies are interruptions deliberately
deployed when demand exceeds supply and
refer to (i) inadequate supply of power to meet
market demand, (ii) an inadequate contingent
supply of electricity for an unexpected event. 69
Faults and failures refer to events over which
utilities have little or no control. Faults are short
circuits in the transmission or distribution systems
that are caused by an external event, such as
contact with trees or animals, or lightning strikes.
Failures refer to outages due to human error or
equipment malfunction, usually in high-voltage
bushings, transformer windings or lighting arrestors.
70 Around 94 percent of all outages occur due
to faults and failures most of which happen in the
distribution system. 71 Outages are short, but have
a widespread impact. 72
The burdens on the centralized power system are
compounded by requirements to integrate large-
66 Galvin Electricity Initiative. “The Electric Power System is Unreliable” (http://www.galvinpower.org/resources/library/fact-sheets-faqs/
electric-power-system-unreliable).
67 K. Hamachi-La Commare and E. Joseph Eto, “Understanding the Cost of Power Interruptions to the U.S. Electricity Consumers,” September
2004.
68 However, given the significantly higher number of commercial sector customers (14.9 million) compared to industrial customers (1.6
million), the industrial sector’s cost per outage per customer is significantly higher than those of the commercial customers.
69 Timothy J. Brennan, “Electricity Markets and Energy Security: Friends or Foes?” Resources Fall/Winter 2008. (http://www.rff.org/
Publications/Resources/Pages/ElectricityMarkets.aspx).
70 Ibid.
71 Edison Electric Institute, Underground vs. Overhead Distribution Wires: Issues to Consider, May 2000.
72 Alexander E. Farrell, Lester B. Lave and Granger Morgan, “Bolstering the Security of the Electric Power System,” Issues in Science and
Technology Spring 2002. (http://www.issues.org/18.3/farrell.html).
aSSESSIng THE ROlE OF dISTRIBuTEd POwER SySTEmS In THE u.S. POwER SECTOR
28
Reliability Metrics
Electric power system reliability is measured
both on a local and regional basis. Local distribution
system reliability performance typically
is measured using industry accepted statistics
that measure the frequency and duration of
sustained interruptions to electricity consumers.
These are referred to as System Average
Interruption Frequency Index (SAIFI) and
System Average Interruption Duration Index
(SAIDI), respectively.
On a regional basis, reliability is measured by the
loss-of-load probability (LOLP) metric. LOLP
is a function of the generation and peak load,
however, it does not include any failures in the
T&D systems. Loss-of-load probability characterizes
the adequacy of generation to serve the
load on the system. It does not model the reliability
of the transmission and distribution system
where most outages occur. Although based
upon a probabilistic analysis of the generating
resources and the peak loads, the LOLP is not
really a probability. Rather, it is an expected value
calculated on either an hourly or daily basis.
A typical LOLP is “one day in ten years” or “0.1
days in a year.” This is often misinterpreted as
a probability of 0.1 that there will be an outage
in a given year. Loss-of-load probability characterizes
the adequacy of generation to serve
the load on the system. It does not model the
reliability of the transmission and distribution
system where most outages occur.