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Valuing Resiliency

How End Users Can Estimate the Marginal Value of Resilient Power

Andrew R. Thomas and Mark Henning November 2017

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µGrid Cle

No Power to the People

National Academy of Science Report on Nation’s Electricity System

• “Recommendation 1 to

DOE: Improve understanding of customer and society value associated with increased resilience….”

September 2017.

So Why the Poor Understanding?

• Complexity of Electricity

Pricing.

• Lack of Uniformity in

Regulation or Industry Terminology.

• Value of Resiliency

Highly Dependent upon Circumstances.

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Who Might Be Interested in Resiliency?

• Universities
• Data and Financial

Centers

• Law, Accounting,

Consulting Firms

• Hospitals
• Emergency Services
• Food Services
• R&D Companies

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Strategies for Valuing Resiliency for Business

Avoided Cost Estimates

• Lower Business

Interruption Insurance Premiums

• Demand/Capacity and

Transmission Charge Reduction

• Reduced Investment

into On Site Resiliency Infrastructure Lost Opportunity Estimates

• Can Be Valued by Lost

Production

• Production Function

method of valuing lost load (VOLL)

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µGrid Cle 𝑊𝑃𝑀𝑀 = GDP for Industry ($) Electricity Consumption for Industry (kWh)

Production Function Approach to VOLL

Strengths

• data easy to obtain (BLS and Census Bureau)
• analysis at specific industry levels (3rd and 4th digit NAICS)

Weaknesses

• “averaging out” may not accurately reflect costs of outage timing or duration
• assumes a linear relationship between interruption duration and interruption costs
• effects of outage such as restart costs and damage to equipment are not modeled
• Non-manufacturing data available by cost only, so had to assume average price.

Identifying Industries that Value Resiliency by NAICS

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North American Industry Classification System (NAICS)

Level of Detail (broadest to narrowest) Numerical Classifier Number of Unique Codes per Level Sector 2-digit 20 Subsector 3-digit 99 Industry Group 4-digit 311 NAICS Industry 5-digit 709 National Industry 6-digit 1057

Source: U.S. Census Bureau 2017 NAICS Manual

Production Function Approach

Computer and peripheral equipment mfg., excluding digital camera mfg. Offices of other health practitioners Newspaper, periodical, book, and directory publishers Rental and Leasing Services Specialized design services Other professional, scientific, and technical services Truck transportation Offices of physicians Audio and video equipment manufacturing Household appliance manufacturing Other transportation equipment manufacturing Transit and ground passenger transportation Securities and other financial investments and related act. Water transportation Software publishers Advertising, public relations, and related services Administrative and Support Services Air transportation Cable and other subscription programming Home health care services Accounting, tax preparation, bookkeeping, and payroll services Insurance Carriers and Related Activities Legal services Management, scientific, and technical consulting services Computer systems design and related services

100 80 60 40 20

Industry Description VOLL ($/kWh)

Highest Values of Lost Load for All Industries 1 hour outage for 1 MW facility would cost “Securities and Financial Investment” company $50,000

µGrid Cle

Service Availability within Data Center Industry

Tier Service Availability Annual Expected Time Without Service (in minutes) Expected Service Time Gained at Higher Level (in minutes) 1 99.671% 1729

• 2

99.741% 1361 368 3 99.982% 95 1266 4 99.995% 26 69

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Total Cost Differences in Dollars Across Tiers per MW

Difference Between Tiers 1 and 2 Difference Between Tiers 2 and 3 Difference Between Tiers 3 and 4 Engineering and Preparation 61,725 648,109 123,449 Power Systems/Electrical Equipment 730,588 7,671,177 1,461,178 Environmental Controls 159,261 1,672,236 318,521 Security and Monitoring 15,565 163,430 31,129 Core Network Equipment 33,000 346,500 66,000 Electrical Maintenance 53,012 556,621 106,023 HVAC Maintenance 1,984 20,832 3,968 Other Systems Maintenance 1,032 10,831 2,063

Avoided Infrastructure Costs

Change in Service Availability (A) Additional Annualized Cost (B) Electricity Consumption at Higher Level of Availability for a 1MW Data Center (C) Additional Cost/kWh at Higher Level

• f Availability

(D) Additional Availability at Higher Level (E) Extra Service Availability per 1- cent at Higher Level (F) Tier 1 to 2 $150,063 8,737,312 kWh $0.02 0.07% 0.040% Tier 2 to 3 $1,575,659 8,758,423 kWh $0.18 0.241% 0.013% Tier 3 to 4 $300,125 8,759,562 kWh $0.03 0.013% 0.004%

Energy Policy Center

Andrew R. Thomas Mark Henning

Levin College of Urban Affairs Cleveland State University

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