Mitigation and Resilience Tradeoffs for Electricity Outages

摘要

Large-scale electricity outages have the potential to result in substantial business interruptionlosses. These losses can be reduced through a number of tactics within the broader strategies ofmitigation and resilience. This paper presents a methodology for analyzing the tradeoffsbetween mitigation and three categories of resilience. We derive optimality conditions forvarious combinations of strategies for a Cobb-Douglas damage function and then exploreimplications of a less restrictive Constant Elasticity of Substitution damage function. We alsocalibrate the model and perform Monte Carlo simulations to test the sensitivity of the resultswith respect to changes in major parameters. Simulation results highlight the possibility thatsubstitution away from mitigation towards resilience may lower total expected costs fromlarge-scale outages for a given level of risk reduction expenditure when the marginal benefit ofresilience is high relative to the expected marginal benefit of mitigation.