Optimal electricity supply: Reliability, pricing and system planning

Abstract

This paper provides a state-of-the-art summary of recent developments in electricity supply reliability, pricing and system planning, with emphasis on the close interrelationships among these aspects. Economic theory indicates that net social benefits would be maximized if price was set equal to marginal cost while the marginal system costs of improving reliability were equal to the averted marginal outage costs. Attention is focused on the measurement of outage costs and a reliability optimizing model is used to develop an operational criterion for system planning in which the sum of system costs and outage costs is minimized. This approach subsumes the traditional criterion of minimizing only the system costs at an arbitrary target level of reliability. The results of a case study to test the new methodology are summarized and the use of reliability indices and techniques of estimating outage costs are also discussed.