An Insurance-Based Pricing Method of Power Supply Reliability in Electricity Retail Market

Abstract

After the deregulation of electricity retail market, to promote competitiveness of power company, financial incentives and consumer preference need to be considered in regulating electricity supply reliability. This paper proposes an insurance-based pricing method for reliability of power supply as a possible solution. The electricity price is settled by adding insurance tariff to basic electricity price. Consumers choose different reliability insurance grade based upon their demand and the insurance tariff can be fixed based on it. When reliability performance failing to meet consumer's demand, the power sale company is required to reimburse consumers for damage costs based upon unexpected interruption duration and interruption frequency. Case study shows that consumer's demand can be satisfied by the insurance-based pricing method and consumer's damage costs can be partly or fully covered by the reimbursement. And power sale companies can obtain effective economic signals to guide reliability investment from consumer's reliability demand and make profits.