Design of Reliability Insurance Scheme Based on Utility Function for Improvement of Distribution Grid Reliability

The regulatory schemes currently used for reliability improvement have weaknesses in the provision of quality services based on the customers’ perspective. These schemes consider the average of the service as a criterion to incentivize or penalize the distribution system operators (DSOs). On the other hand, most DSOs do not differentiate electricity services at the customer level, due to the status of the electricity grid and lack of adequate information about customers’ preferences. This paper proposes a novel reliability insurance scheme (RIS), which enables the electricity consumers to determine their desired reliability levels according to their preferences and pay corresponding premiums to the DSO. The DSO can use the premiums to improve reliability or reimburse consumers. To design efficient insurance contracts, this paper uses utility function to estimate customers’ viewpoints of electricity energy consumption. This function measures the customers’ satisfaction of electricity energy consumption. The proposed utility based reliability insurance scheme (URIS) may create a free-riding opportunity for the DSO, in which low quality service is provided and the collected premiums are used to pay the reimbursements. To prevent free-riding opportunity, this paper incorporates the proposed URIS and reward/penalty schemes (RPSs). The results show that the success of the proposed reliability scheme increases as the grid flexibility increases.