The cost of electricity supply interruptions and value of lost load in Swedish electricity intensive industrial plants

The Value of Lost Load (VoLL) serves as a vital metric for assessing the economic consequences of electricity supply interruptions, particularly for electricity-intensive industries. VoLL quantifies the monetary cost of unsupplied energy (e.g., SEK/kWh or SEK/MWh), and helps assess the impact of outage across sectors and regions. While the concept is straightforward, accurately estimating VoLL remains a significant challenge.

The Value of Lost Load: A key metric for assessing economic impacts

The Value of Lost Load (VoLL) serves as a vital metric for assessing the economic consequences of electricity supply interruptions, particularly for electricity-intensive industries. VoLL quantifies the monetary cost of unsupplied energy (e.g., SEK/kWh or SEK/MWh), and helps assess the impact of outage across sectors and regions. While the concept is straightforward, accurately estimating VoLL remains a significant challenge.

Interruptions in electricity supply impose substantial financial burdens on industries, causing productivity losses, equipment damage, and operational delays. Policymakers, utility companies, and regulators rely on VoLL to guide infrastructure investments aimed at improving grid reliability and mitigating the effects of outages. By aligning reliability improvements with economic trade-offs, reliable estimates of VoLL can facilitate better resource allocation.

Challenges in Sweden’s energy landscape

In Sweden, the rising electricity demand driven by industrial electrification and transportation, coupled with increasing reliance on non-schedulable generation sources, integration with European electricity markets, and higher electricity prices, has intensified concerns about supply security. Against this backdrop, uninterrupted electricity access is critical for operations, particularly for electricity-intensive sectors.

Survey approach and data Integration

This analysis is based on a survey targeting the 1,000 largest electricity-consuming plants in Sweden, as defined by the ISEN group managed by Statistics Sweden. Key details of the study include:

• Survey scope: A questionnaire was sent to the targeted plants, receiving 359 responses after two reminder rounds.
• Focus areas: The survey addressed power outages, their associated costs, and broader consequences.
• Data integration: Survey responses were combined with plant-level production data from Statistics Sweden, to enable comparisons and robust analysis.

Insights on economic impacts

The study reveals that traditional metrics, such as value-added (VA) or production function approach, underestimate the economic impact of power outages.

• Underestimated costs (value per hour)
  • Average lost VA per hour: 68,000 SEK (based on reported data).
  • Stated cost per hour: 968,000 SEK (as reported by industries in the survey).
• VoLL discrepancies (value per kWh)
  • VoLL derived from VA: 26 SEK/kWh.
  • VoLL based on stated costs: 1,500 SEK/kWh for an average outage, 221 SEK/kWh for a one-hour interruption.

These findings emphasize the importance of incorporating stated cost data into VoLL estimations to more accurately reflect the financial burdens on industries.

Impact of outage duration and severity

The economic impact of power outages depends significantly on their length.

• High fixed costs for shorter outages:
  • Short interruptions are disproportionately costly due to immediate production losses, equipment impairment, and response efforts.
  • Marginal costs decline as the duration increases, spreading fixed costs over time.
• Longer-terms effects:
  • Restarting production and repairing equipment after prolonged outage can take months.
  • Many businesses report lingering effects of even a one-hour outage, with some unable to fully recover even a year later.

Electricity use patterns and industry vulnerabilities

The costs of power interruptions are more closely linked to electricity consumption than to the type of industry.

• Consumption as the key factor:
  • High electricity consumption strongly correlates with higher outage costs, regardless of sector (in this case forestry, steel, chemical, or mining).
• Continuous operations and vulnerability:
  • Plants with 24/7 production schedules report higher costs due to their reliance on uninterrupted energy supply.
  • However, the marginal effect of additional production hours on costs diminishes as total hours increase.
• Comparison with broader sectors:
  • Swedish energy-intensive plants report lower VoLL estimates than other sectors, that could suggest unique coping mechanisms and/or adeptness.

Reflections on the study’s assumptions and approach

This study employs a comprehensive approach, integrating survey responses with detailed production data. Key considerations can be summarized as follows.

• Strengths:
  • The combined dataset enables a nuanced understanding of outage costs for electricity-intensive industries.
• Limitations:
  • Findings are specific to the surveyed group and may not generalize to less electricity-intensive industries.
  • Traditional VA metrics can potentially underestimate costs, underscoring the need for stated cost data to improve accuracy.

Key insights and future directions

This study underscores the significant economic impacts of power outages on Sweden’s electricity-intensive industries and the limitations of traditional metrics like the VA approach in capturing these costs. By integrating stated cost data and refining analytical tools, stakeholders can develop more effective resilience strategies, and make better-informed decisions about balancing reliability improvements with economic trade-offs.

Expanding research to include less electricity-intensive industries and regional contexts will further enhance understanding and guide policies to foster a more reliable and sustainable electricity system.