Risk Exposure, Externalization and Allocation in Unbundled Power Systems

Each stakeholder in a power system not only carries some risk, but also creates risks for others and has the ability to mitigate these risks. For some, these risks are purely financial. For others the major concern is the socio-economic risk of an outage, which is not easily translated in monetary terms. This paper analyzes how the interactions of these participants across a complex physical system affect their risk exposure as well as the benefits they derive from this system. It also argues that charging the cost of mitigation measures back to the parties that create outage risks might ultimately reduce this risk and its associated cost. Rules and techniques to implement this approach should be developed and tested. Finally, it proposes directions for research on how making power system operation more risk-aware would help enhance reliability, control cost and facilitate the integration of variable energy resources.