Estimating the Value of Lost Load (VoLL)

Practice area: Competition & Antitrust | Consumer behaviour and protection | Energy | Energy economics | Public Policy | Regulatory economics
Client: Ofgem
Published: November, 2011
Keywords: modelling quantitative analysis stakeholder surveys and consultations

This report for Ofgem estimates the Value of Lost Load (VoLL) for domestic and SME, industrial and commercial (I&C), and electricity producing gas consumers. VoLL represents the value that gas users attribute to security of gas supply and the estimates could be used to provide a price signal about the adequate level of security of supply. The study uses stated preference surveys to elicit VoLL estimates for SME and domestic consumers.

Using choice experiments, we estimate VoLL using both willingness-to-pay (WTP) and willingness-to-accept (WTA) framing of the experiment, and we derive VoLL estimates for different frequencies, seasons and durations of interruptions. We use a real options approach to estimate VoLL for electricity producers for baseload and peaking units and a value-at-risk method for other industrial users.