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Using insurance to manage reliability in the distributed electricity sector: Insights from an agent-based model

Fuentes, Rolando and Sengupta, Abhijit (2020) Using insurance to manage reliability in the distributed electricity sector: Insights from an agent-based model Energy Policy, 139, 111251.

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High penetration of distributed technologies would call for a different way to manage electricity reliability for semi-independent households. One option could be to allow customers to withdraw power from the grid when their home system fails. This behavior, however, could constitute an existential threat for utilities: if consumers use the network less, and continue to pay according to their usage, the utility might be unable to recover its costs. This paper investigates whether the creation of a reliability insurance market would help to deal with these concerns. We propose a business model where utilities offer insurance to semi-independent, yet risk averse households, against the prospect of a blackout, when a pay as you go system is no longer available. With the use of an Agent Based Model, we test if contracts from this market can converge into a theoretical optimal contract where bounded perception of risks and losses impact the price of insurance and potential revenues of utilities. We find that such a market could exist as consumers efficiently transfer all or a portion of their risk to the utility, based on their willingness to pay and risk profiles, which allows them to avoid blackouts at the margin.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > Surrey Business School
Authors :
Fuentes, Rolando
Date : 30 January 2020
DOI : 10.1016/j.enpol.2020.111251
Copyright Disclaimer : © 2020 Published by Elsevier Ltd.
Uncontrolled Keywords : Distributed energy resources; New business models; Utilities of the future; Agent based models; Utility death spiral;
Additional Information : Embargo OK Metadata OK No Further Action
Depositing User : James Marshall
Date Deposited : 19 Aug 2020 09:02
Last Modified : 20 Aug 2020 08:47

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