A research paper co-authored by Brattle principal Johannes Pfeifenberger addresses the economics of resource adequacy planning and demonstrates that an economic simulation of bulk power reliability events and their costs and benefits can provide an improved understanding of resource adequacy risks.
The paper discusses how utilities have historically set their target reserve margins within the context of resource adequacy planning based on the “1-in-10” reliability standard, or one day of firm load shed in 10 years, which doesn’t explicitly determine whether the particular target reserve margin is reasonably cost-effective or otherwise economically justified. Mr. Pfeifenberger, along with co-authors Kevin Carden and Nick Wintermantel of Astrape Consulting, use a case study to illustrate the advantages of supplementing the 1-in-10 standard with an analysis of the economic costs and benefits associated with a given level of planning-reserve margins. Their analysis shows that sole reliance on physical reliability standards can result in setting target reserve margins that are either too low or too high to be cost-effective and economically efficient, depending on system size and characteristics. The paper, “The Economics of Resource Adequacy Planning: Why Reserve Margins Are Not Just About Keeping the Lights On,” was featured in the National Regulatory Research Institute’s (NRRI) April newsletter and is available for download on the NRRI website.