Risk-based methods for reliability investments in electric power distribution systems

Abstract: Society relies more and more on a continuous supply of electricity. However, while underinvestments in reliability lead to an unacceptable number of power interruptions, overinvestments result in too high costs for society. To give incentives for a socioeconomically optimal level of reliability, quality regulations have been adopted in many European countries. These quality regulations imply new financial risks for the distribution system operator (DSO) since poor reliability can reduce the allowed revenue for the DSO and compensation may have to be paid to affected customers.This thesis develops a method for evaluating the incentives for reliability investments implied by different quality regulation designs. The method can be used to investigate whether socioeconomically beneficial projects are also beneficial for a profit-maximizing DSO subject to a particular quality regulation design. To investigate which reinvestment projects are preferable for society and a DSO, risk-based methods are developed. With these methods, the probability of power interruptions and the consequences of these can be simulated. The consequences of interruptions for the DSO will to a large extent depend on the quality regulation. The consequences for the customers, and hence also society, will depend on factors such as the interruption duration and time of occurrence. The proposed risk-based methods consider extreme outage events in the risk assessments by incorporating the impact of severe weather, estimating the full probability distribution of the total reliability cost, and formulating a risk-averse strategy. Results from case studies performed show that quality regulation design has a significant impact on reinvestment project profitability for a DSO. In order to adequately capture the financial risk that the DSO is exposed to, detailed risk-based methods, such as the ones developed in this thesis, are needed. Furthermore, when making investment decisions, a risk-averse strategy may clarify the benefits or drawbacks of a project that are hard to discover by looking only at the expected net present value.