Security of supply in electricity: an integrated approach

The combination of many countries deciding to pull out of nuclear energy with increased attention to environmental issues results in a major challenge for Europe in general, and Switzerland in particular: how to provide an increasing amount of "green electricity", in the right place, at the right time, at an affordable price. Given the delays involved in building new plants and improving the grid, the 30 to 40 year horizon to phase out nuclear plants may give a false sense of security. Early attention to these issues is essential to avoid being forced into short term, undesirable emergency measures (e.g. building gas plants because of their short construction delay) at the expense of a coherent long-term strategy. Although the area of security of supply has received increasing attention over the last decade, most of the work has focussed on isolated aspects: sufficient peak-load capacity, dependence on fuel imports, grid capacity, etc. What is lacking is (i) an overall view integrating these different aspects, (ii) the integration of this view with behavioural factors (customers' willingness to pay for security of supply) and (iii) a realisation that security of supply cannot be addressed meaningfully in isolation from the renewable energy and environmental debate. We propose to address these three issues by integrating consumer's willingness to pay for both security of supply and green energy in a conceptual model which incorporates the key components of both security of supply and environmental issues. Implementing this model as a System Dynamics based behavioural simulation model will enable us to perform a detailed policy analysis. More specifically, we propose a three stage approach. We will first develop a conceptual model (a contribution to the energy policy literature) by identifying the key components, how these interrelate and what the trade-offs are between economic efficiency, security of supply and environmental concerns. This will include a framework to identify the security of supply profile for a country or a region, thus providing guidance for policy makers. Next we will rely on the theories of stated and revealed preferences (a contribution to the economics literature) to quantify people's willingness to pay for both green energy and security of supply. While there is some evidence regarding consumers' willingness to pay for renewable energy, security of supply is a much more abstract concept: commercial customers may be able to attach an economic value to extreme events such as blackouts, but domestic customers would be very hard pressed to indicate how much they would be willing to pay for a reduced risk of blackout or to avoid rationing. This, combined with the fact that domestic customers take security of supply for granted, makes quantifying this element a challenge. The final objective is an integration of the two previous parts into a calibrated behavioural simulation model for Switzerland, which will enable us to derive insights to outline a viable long-term energy policy, integrating the planned changes (phasing out nuclear plants) and political objectives (an increasing share of renewables and security of supply), while taking into account the constraints imposed by the customers (willingness to pay for security of supply and green energy). The project is unusual in that it integrates a standard economic method (stated and revealed preferences) with energy policy development and behavioural modelling. A sound understanding of the issue of security of supply can only be achieved through this integration; focussing on any one sub-part would result in partial, possibly misleading answers, which would be of limited use when elaborating a coherent energy policy.