Estimating residential outage costs under inclining block electricity rates in China

An estimate of residential outage cost (ROC) per kWh unserved measures the average economic loss incurred by households due to a decline in electricity availability. Hence, it informs an electricity grid’s least cost planning and efficient pricing. However, conducting a contingent valuation survey to collect household data to estimate a region’s ROC is both costly and time-consuming. In response, we propose a remarkably simple but theoretically sound formula that can be easily implemented using readily available market data and the price elasticity of a double-log residential electricity demand function. Applying the formula to the 2024 annual data for residential electricity consumption, we find that the ROC estimates across China’s 31 administrative divisions under inclining block electricity rates are CNY 0.52 to CNY 3.24 per kWh unserved, comparable to those found for the lower 48 states of the US. Hence, these newly developed ROC estimates deserve consideration for electricity pricing and resource planning in China.