The quest to quantify the value of lost load: A critical review of the economics of power outages

Estimating the benefits of policies that improve the reliability of the electricity grid is challenging. This paper critically examines the Value of Lost Load (VoLL) literature and provides a framework to describe the complexity of measuring the costs of power outages. The VoLL metric, which is too often presented as a singular point estimate, influences electric reliability decision-making. This paper improves on prior work by clearly distinguishing applications of the VoLL metric between (1) cost-benefit analyses which inform centralized, reliability-enhancing infrastructure investments and (2) decentralized rationing decisions during times of electric supply shortage. Revealed preference approaches to VoLL estimation are introduced that offer attractive theoretical advantages over traditional estimation methods. The underlying uncertainty inherent to estimating the costs of power outages implies that cost-effectiveness analysis should remain a key tool for electric reliability decision-makers.