Framework for Identifying Optimal Risk Reduction Strategies to Minimize the Economic Impacts of Severe Weather Induced Power Outages

Arkaprabha Bhattacharyya, Purdue University

Abstract

Every year power outages cost billions of dollars and affect millions of people. Historical data shows that between 2000 and 2016, 75 percentage of the outages (in terms of durations) were caused due to severe weather events. Due to the climate changes, these severe weather events are becoming more frequent. The National Association of Regulatory Commissioners have recently emphasized the importance of building electricity sector’s resilience thus ensuring long term reliability and economic benefits for the stakeholders. These severe weather events are often considered to be High Impact Low Frequency or HILF events, which means that these events may not occur every year but when they happen the impact is likely to be severe. Therefore, it is imperative that the risk of power outages due to severe weather events and their economic impacts is persistent. To mitigate this risk, utilities need to invest heavily for building resilience so that the impact due to these HILF events can be minimized. Under this situation, the utilities face three key questions (1) where to invest (2) how much to invest and (3) how to justify the investment. However, before investments can be planned for building resilience in the electricity sector, it is equally important to understand the cascading impacts of the sustained power outages during natural disaster events. The existing frameworks to assess the benefits and costs of the severe weather induced power outages grossly undermines the overall economic impacts. Therefore, there is a need to have a framework for the risk-based decision making, which can holistically gauge the economic impacts of severe weather induced power outages and provide the optimal strategies for minimizing the economic impact under different budget conditions. This research has established (1) a methodology to assess the economic loss due to severe weather induced power outages in terms of the nation’s Gross Domestic Product (GDP) and (2) a framework for risk-based decision making for identifying optimal risk reduction strategies for minimizing the economic impact. The framework proposed in the research has the flexibility to accommodate the risk appetite of the decision maker. The framework can be used by the investor owned utilities for rate approvals from the state utility regulatory commissions by justifying the importance of their resilience building projects to the state’s economy

Degree

M.Sc.

Advisors

Hastak, Purdue University.

Subject Area

Climate Change|Economics

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