Part of International Bank for Reconstruction and Development’s International Development Association Energy, Water and Telecommunications Department Research Working Papers Series, 18th August 1976, with J J Warford
One of the most important determinants of costs in the design of a power system is the reliability standard to be achieved. The trade-off between the greater security provided by substantial excess capacity and the lower capital requirements of a less reliable system suggests that a cost-benefit approach should be employed to optimize investment levels. However, as is often the case with public utility projects, while the determination of marginal costs is fairly straightforward, the measurement of the economic benefits derived from fewer outages is much more difficult. This paper develops a method for estimating those benefits (or avoided costs) for both residential and business consumers.
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Reproduced with permission of World Bank