Social cost benefit analysis and energy policy

Most research into the reliability of electricity supply focuses on the suppliers. Reductions in the number of power interruptions will often be possible, but also very costly. These costs will eventually be borne by the electricity users. This paper studies the value of supply security in order to determine the socially optimal level of security. The costs of interruptions are estimated for the Netherlands in terms of lost production and lost leisure time. Large differences in damage are found between sectors, regions and periods. Furthermore, electricity outages caused by electricity shortages create huge transfers, while outages created by network failures do not create transfers. These estimates can be used to make optimal decisions in the case of electricity shortages and to optimize investments in the network.