The cost to households of a large electricity outage

Abstract

A large electricity outage is costly for households both directly and indirectly. The direct cost is the disutility from lacking electricity at home. The indirect cost is the disutility from lacking access to infrastructure services that depend on electricity, such as internet and mobile phones, public transport, shops and restaurants. Using a sample of nearly 5000 Norwegian households we estimate the direct and indirect cost of an electricity outage. We find that the indirect cost adds about 50% to the direct cost: households' willingness to pay (WTP) for a major electricity outage that hits several infrastructure services is about 50% higher than their willingness to pay for an outage that hits only their home. This information is important for investments in electricity networks. A high expected cost of outages indicates that additional investment into electricity reliability will be optimal.