To the extent transmission externalities exist, they apply to all of the electricity-generation options, such as coal, natural gas, oil, wind, and hydropower. However, intermittency in generation has the potential to affect the frequency of outage events, as well as power quality.

The Magnitude of the Electricity-Disruption Externality

To calculate the magnitude of this externality, one needs an estimate of the damages from outages and power-quality events and an estimate of the increased probability of these events occurring because of the consumption of additional electricity. The nature and severity of the impacts of an outage or power-quality disturbance vary and depend on the affected sector (manufacturing, commercial, or residential) and on the specific functions affected, as well as the availability of backup power, the duration of the outage, the time of the year, the time of day, the geographic region, and the extent to which customers are notified prior to the outage.

A number of empirical studies estimating the damages from outages and power-quality disturbances have been undertaken. Some are based on estimates of lost output and damage from actual outages; others value the prevention of an outage. Previous estimates are typically of the total annual cost, cost per kilowatt hour, value of lost load, or damage divided by total kilowatt hour (Primen 2001; Overdomain 2002; Lawton et al. 2003; LaCommare and Eto 2004; Layton and Moeltner 2005; van der Welle and van der Zwaan 2007; Mount et al. 2008). None of these estimates measures marginal damages per se. Table 6-2 provides estimates of average damages for different sectors.

In viewing the estimates in Table 6-2, it is important to note that SAIFI and SAIDI2 estimates were unavailable for the different sectors, so the same overall averages were used for the residential, commercial, and industrial sectors. Anecdotal evidence strongly indicates, however, that commercial and industrial establishments are likely to have backup power and thus less frequent loss of power (lower SAIFI values). Thus, the estimates in Table 6-2 of the average damage per kWh for the commercial and industrial sectors have probably been significantly over-estimated.

The most striking observation from Table 6-2 is that smaller commercial businesses are most vulnerable to outages and power-quality disturbances, especially the latter. Assuming for the purpose of discussion that the estimates of average damage per kWh consumed are over-estimates of these damages in the commercial and industrial sectors by, say, an order of

2

SAIFI is the System Average Interruption Frequency Index—the average number of interruptions a customer experiences in a year. SAIDI is the System Average Interruption Duration Index—the average cumulative duration of outages a customer experiences in a year.



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