An empirical analysis of electricity outage cost for the residential sector in South Korea using stated-preference methods

Abstract

The growing emphasis on electrification has heightened the importance of reliable electricity supply. In South Korea, the government is advancing market reforms, including the introduction of capacity and ancillary service markets, to enhance electricity system reliability. Within this context, this study aims to estimate the willingness to pay (WTP) of residential electricity consumers to avoid power outages using the contingent valuation method (CVM). The resulting WTP values are used to derive the value of lost load, which serves as a key indicator for reliability investment. Based on a dataset of 1000 South Korean households, we employed both CVM and choice experiments as empirical approaches. The results indicate a WTP of 8.16% and a willingness to accept of 18.08% of the monthly electricity bill, which correspond to outage costs of USD 2.76 and USD 6.11 per kWh, respectively. Choice experiment results show that WTP varies from 0% to 26.6% depending on outage scenarios, highlighting the significant seasonal sensitivity of residential outage costs. These findings provide critical insights for policymakers seeking to design a more reliable electricity market aligned with net-zero objectives. By incorporating residential Value of Lost Load into electricity market planning, governments can better incentivize investments in flexibility and resilience, thereby mitigating outage risks in future low-carbon power systems.