Estimation of power outage costs in the industrial sector of South Korea

Abstract

This study estimates the power outage costs of the industrial sector by not only considering production loss but also the customer's inconvenience and various damages. For the estimation, we used a Type II Tobit model with firm-level survey data for 430 firms, and considered factors affecting the outage cost such as outage duration, average annual sales, and average monthly electricity consumption, among others. In addition, we analyzed the effect of the preannouncement of a rolling blackout on outage cost savings, and also examined the value of an emergency generator. From the estimation results, we found that the estimated outage cost is 1.24–1.3 times greater than the simple value of lost load (VoLL), and this difference increases when companies have emergency generator. The commercial and public service sector can reduce the outage cost the most compared to other sectors when a preannouncement is provided, and operating emergency generators can lower the outage cost in these sectors. Finally, we confirm that South Korea's rolling blackout in the predetermined order by the industry is appropriate to minimize the outage costs for the national economy when the outage is preannounced, but is not appropriate when there is no preannouncement.