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Frazer-Nash supporting Electricity North West with research into new Value of Lost Load (VoLL) model

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The Value of Lost Load, or VoLL, is the estimated average value that business and domestic customers place on the reliability of their electricity supply – and represents the financial and social cost of supply interruptions to these customers. It acts as a price signal for the adequate level of supply security in Great Britain (GB), and is a useful guide for determining how much should be spent to deliver security of supply. As such it can be used by government to inform policy decisions, such as network regulation and price control; and by electricity companies to direct their investment into critical systems.

Research for Ofgem in 2013, by economics consultancy, London Economics, produced a headline value of £16,940/MWh for peak winter workdays, based upon domestic and small-to-medium business customers’ stated willingness to accept, or to pay to avoid, an electricity outage. But six years later, this figure is believed to have increased, as Frazer-Nash Consultancy’s Power, Transmission and Distribution Business Manager, Anuj Nayyar, explains:

“A recent project by Electricity North West (ENW), involving 6,500 customer surveys, has suggested that VoLL is now notably higher than in 2013 – with an estimated increase to around £25,300/MWh. This reflects society’s greater dependency on electricity and changing needs and expectations.

“ENW’s research also found that a uniform VoLL can significantly undervalue the needs of certain customer segments – such as the fuel poor, or those dependent on Low Carbon Technologies (LCTs) – while over representing the needs of other customer groups.

“To address this, the electricity company is working with us at Frazer-Nash, and with market research consultancy Impact Research, on an 18-month project to explore the development of a new segmentation model. This will utilise the VoLL values established for different customer groups by ENW in their previous study. This model will show the true cost to today’s customers of lost load.

“The research, titled VoLL 2, will include strategic statistical analysis and industry consultation, and will explore the practicalities and regulatory implications for the implementation of an alternative, segmented VoLL model. It will also involve empirical customer research, to provide additional insight into changes in VoLL on a community, relative to the scale and duration of an outage. The customer research will also explore attitudes to cost socialisation and fairness.

“The new model will provide an effective tool that all distribution network operators (DNOs) can use without the need for new data flows. It should enable DNOs to make smarter investment decisions that are more reflective of their divergent customer needs; and to improve their strategies to mitigate the impact of lost load.”

Electricity North West’s Engineering and Technical Director, Steve Cox, said:

“Our VoLL project is of national interest and will inform the future decisions of DNOs across GB.

“We are pleased to be working with Frazer-Nash, whose expertise in economics and numerical modelling is supporting the development of a new VoLL Tool, which allows us to put customers at the centre of all our decisions.

“This more sophisticated approach will allow us to target our investments more efficiently, and ensure those investments are based on a much richer and more representative understanding of our customers’ needs.”