Investigation of the Value of Lost Load
The Electricity Industry Participation Code (Code) contains a VoLL of $20,000 / MWh (with $10,000 / MWh and $30,000 / MWh being applied for sensitivity analysis). In 2008 the Electricity Commission commenced a project to investigate whether these values are fit for purpose. Stage 1 of the project consisted primarily of conceptual analysis and research on VoLL. Stage 2, undertaken in 2010, consisted of a major survey of residential, commercial, agricultural and industrial consumers. The survey covered approximately 14,000 New Zealand electricity consumers. The Authority has now commenced the third and final stage of the VoLL project, which consists of further, smaller surveys that build on the work undertaken in 2010, followed by consultation on any Code amendments arising from the findings coming out of the survey analysis.
On 3 September 2008, the Electricity Commission issued a request for information (RFI) for an investigation of the value of lost load (also referred to as unserved energy) (the VoLL project).
- Request for Information - Investigation of the Value of Unserved Energy
- RFI enquiries and Electricity Commission responses
On 30 September 2008, the Electricity Commission released a request for proposal for stage 1 of the VoLL project noting that it would tender separately for stages 2 and 3 with a single RFT.
A report relating to the value of lost load, undertaken for VENCorp in Victoria, Australia, was appended to the RFT for general information purposes.
On 12 November 2008 the Electricity Commission engaged Concept Economics Pty Ltd and the Centre for Advanced Engineering (CAENZ) to provide consultancy services to the Electricity Commission for Stage 1 of the VoLL project.
The output of stage 1 of the VoLL project was a report by Concept Economics and CAENZ.
In November 2009, Strata Energy Consulting Limited was engaged as a preferred supplier of services for stages 2 and 3 of the VoLL project.
A key element of stage 2 of the investigation was a survey of New Zealand electricity consumers. In January 2010, a request for proposal was released for provision of services relating to the actual survey.
In March 2010, UMR Limited was engaged for the provision of services relating to undertaking the survey.
A large cross-section of electricity consumers were surveyed in stage 2.
Electricity consumers were categorised according to whether they were residential or non-residential, with the non-residential consumers categorised further by consumption, in accordance with the following levels:
- Non-residential small: less than 200,000 kWh per annum
- Non-residential medium: 200,000 kWh up to 999,999 kWh per annum
- Non-residential large: 1 GWh per annum and above.
A mail survey was not seen as appropriate for very large electricity consumers and hence approximately 35 major electricity users were surveyed via face-to-face interviews.
A trial (or pilot) survey took place in March and April 2010.
Following completion of the pilot survey, the survey forms were refined and a large survey was undertaken during July and August 2010.
The final survey forms can be found below:
Significant analysis was undertaken of the completed survey questionnaires received by the Electricity Commission. The analysis indicated that using a single VoLL to measure the value that electricity consumers place on unserved energy is likely to be inappropriate.
Commencing in August 2012, the Authority is undertaking similar, but smaller, surveys to the one undertaken in 2010. The purpose of these follow-up surveys is to validate or improve upon the findings in the 2010 survey, as well as test the development of a VoLL for a region of New Zealand, rather than for the entire country.
Investigation into the Value of Lost Load in New Zealand: report on methodology and key findings
The Electricity Authority has been investigating approaches for estimating the value that consumers place on avoiding interruptions to their electricity. This value is referred to as the value of lost load (VOLL).
The Authority has recently completed a study of the VOLL in New Zealand, which was commenced under the former Electricity Commission (the VOLL project). The summary key findings of this study are:
- the VOLL is a range of values that different kinds of electricity consumer consider to be the economic cost of power outages, and a single VOLL figure is an inappropriate measure of the value that New Zealand electricity consumers place on unserved energy
- a survey-based approach can be used to produce robust estimates of the VOLLs.
The Authority has prepared a technical report summarising the findings of the VOLL project and describing the research approaches.
The Authority has also prepared a guideline describing a suggested method for surveying VOLL.
The Authority published the results of its investigation of the value of lost load (VoLL) in July 2013 (see report and guideline above). The Authority considers that there is a long-term benefit for consumers if decisions about investment and use of electricity infrastructure are informed by VoLLs estimated using the survey-based approach identified through the project.
The Code specifies the use of a VoLL for variations to transmission services and reliability, and the VoLL is also relevant to the grid reliability standards and the core grid determination which are made under the Code.
Beyond those Code provisions, however, the Authority has a limited role in regulating decisions about investment and use of electricity infrastructure. In particular, the Code does not require Transpower or distributors to use VoLLs estimated using the survey-based approach in investment decision-making processes. Adopting the survey-based approach and further VoLL research depends on decisions by the Commerce Commission, Transpower and distributors.
The Authority believes that further work is desirable to assess the costs and benefits of amending the Code to require the use of VoLL estimated using the survey-based approach for existing Code-related purposes (eg variations to transmission services and reliability). However, the Authority will consider the timing of this work when developing the 2014/15 work programme and after taking other priorities into account.
The Authority is very happy to discuss the VoLL research with any interested party and would encourage parties who undertake VoLL research to provide the results to the Authority in order to establish a comprehensive VoLL research dataset available for all.