Assessing energy supply security: Willingness-to-pay to avoid power outages, and to accept compensations for unplanned outages

The paper provides insights on the societal appreciation of security of energy supply in (select) EU countries. In particular, surveys were conducted on households to estimate their marginal willingness-to-pay to avoid electricity outages, and their willingness-to-accept compensations for unplanned outages.

Today, European households enjoy a high quality of electricity supply. However, to maintain this level, significant investments will be required over the next two decades, the costs of which will be passed-on to the end consumers. Thus, a deep(er) understanding on society's appreciation of security of supply is essential, that is, to assess if consumers are willing-to-pay for preserving the existing supply standards, or if they'd prefer a lower quality for a lower price.

The costs of electricity outages for households cannot be captured by markets, given that power outage avoidance solutions are generally not available to households and small businesses (electricity storage solutions tend to be expensive), nor does the insurance market offer solutions. Thus, these need to be assessed through other means, which in our case is the analysis of preferences stated by electricity users facing hypothetical future changes in the reliability of the system.

In this context, a Discrete Choice Experiment (DCE) was designed and conducted. This is a survey-based technique used to investigate the trade-offs that people are prepared to make between different goods or policies. It is a stated-preference technique, in that it relies on individuals declaring what they would do under hypothetical circumstances, rather than observing actual behaviours in marketplaces.

Households were presented with alternative scenarios of electricity interruptions arranged according to the principles of experimental design, and asked to choose their preferred scenario from the available set. To establish trade-offs between the electricity interruption characteristics and money, one of these characteristics was the cost of the bundle. When customers choose one bundle (package of electricity services) over others, they implicitly reveal their trade-off between money and the single services included in each bundle in their choice set. Such a trade-off is the
marginal value of that characteristic of the complex good.

The surveys were conducted in Estonia, Greece, the Netherlands, and Portugal. The (initial) results indicate a very large discrepancy between willingness-to-pay and willingness-to-accept, as well as significant differences between residents of rural and urban areas, those belonging to different age groups, and among countries.

The results can inform policy-makers in designing support schemes for large-scale energy infrastructure projects. For example, such surveys signify the preferences of consumers for maintaining the level of security of electricity supply, that is, whether they prefer.

The results can also contribute to a better design of the indicators contributing to the security of supply dimension considered for the selection of energy Projects of Common Interest (EU Regulation No 347/2013), and in the implementation of the Energy Union.

Future research regards conducting the surveys in more EU member states.