Electricity customers’ financial and reliability risk protection utilizing insurance mechanism

• Published in: Sustainable Energy, Grids and Networks Grids and Networks, 2020-12, Vol.24, p.100399, Article 100399
• Main Authors: Niromandfam, Amir, Choboghloo, Saeid Pashaei, Yazdankhah, Ahmad Sadeghi, Kazemzadeh, Rasool
• Format: Article
• Language: English
• Subjects: Customer behavior; Electricity price risk; Insurance contract; Reliability risk; Utility function
• ISSN: 2352-4677; 2352-4677
• DOI: 10.1016/j.segan.2020.100399

Due to the electricity market risks and lack of various purchasing options, electricity customers are reluctant to participate in the electricity market. On the other hand, due to the electricity grid conditions and the absence of enough information about customers’ preferences, most utilities do not differentiate electricity services at the customer level. To provide various service options, this paper proposes the utility company provides financial and outage insurance mechanisms (FIM and OIM). In the FIM, electrical energy is sold via the real-time pricing (RTP) method. Each of the electricity customers selects a strike price, as an insurance deductible, based on his/her preferences. When the electricity market price exceeds the deductible, the utility company pays the difference between the deductible and the market price. In the OIM, a customer receives outage reimbursement based on his/her outage value. In this paper, the concept of the utility function is utilized to identify the customer’s and insurer’s behavior against different insurance contracts. Results illustrate the proposed FIM reduces the electricity market fluctuations and the average of the customers’ costs. According to the OIM, the outage is divided differently between the customers based on their outage value.