The cost of electricity interruptions in Portugal: Valuing lost load by applying the production-function approach Rui Castro a, * ,S  ergio Faias a, b, c , Jorge Esteves b a INESC-ID/IST, University of Lisbon, Lisbon, Portugal b ERSE, Portuguese Energy Regulatory Authority, Lisbon, Portugal c ISEL, Lisbon Engineering Superior Institute, Lisbon, Portugal article info Article history: Received 27 June 2014 Received in revised form 11 April 2016 Accepted 11 April 2016 Available online xxx Keywords: Security of supply Power interruptions Value of lost load Portugal abstract Despite the fact that the current level of energy supply security in Europe is quite satisfactory, new challenges present a potential risk of jeopardising the current state of affairs. Among others, key chal- lenges are related to the strengthening of the market framework (in the context of deregulation and unbundling as imposed by EU directives) and the increasing penetration of renewable energy sources in the generation mix (with inherently greater variability). Under these circumstances, assessing the value of lost load (VoLL) is useful to support energy decision-making, including benefit-cost analysis and the design of suitable regulatory frameworks. This paper develops VoLL estimation using a macroeconomic technique, namely the production-function approach. The VoLL determines the foregone value added due to electricity outage. The production-function method is applied to the Portuguese case and an average VoLL of 5.12 V/kWh is found. The paper also presents the VoLL results obtained for various economic sectors as well as households. Moreover, the temporal variation of the VoLL along typical weekdays and weekend, in winter and in summer, and for the most relevant sectors (manufacturing, retail services, and households) is demonstrated and discussed. © 2016 Published by Elsevier Ltd. 1. Introduction It is commonly accepted that electricity supply-quality regula- tion has three components: (i) continuity of supply, related to network and service reli- ability and availability; (ii) power quality, related to the characteristics of supply voltage; and (iii) commercial quality, related to timeliness in dealing with customer requests. One of the main goals of electricity supply regulation concept is to balance customers' willingness to pay network tariffs and their expectations for minimum levels of supply quality. Recently, this topic became more relevant in Portugal. Rate-of-return economic regulation, in which total utility costs were fully recovered by the tariff has evolved to a price-cap regime, in which the utilities' allowed revenues are capped in a level that does not necessarily reflect actual costs. This change was implemented with the objec- tive of improving the utilities' economic efficiency. However, it also presents a risk that firms will postpone investments and, conse- quently, decrease the quality of service provided to customers (Ajodhia and Hakvoort, 2005; Ajodhia et al., 2006; Fumagalli et al., 2007a). As such, more effective regulation of supply quality is needed. The continuity of supply features is measured in terms of in- cidents in the electrical grid that result in interruptions to cus- tomers. Accordingly to the regulatory code, continuity of supply deals only with interruptions that last for more than three minutes, the so-called long interruptions. Some commonly indexes are used to assess the continuity of supply both at the Transmission System Operator (TSO) and Distribution System Operator (DSO) levels. Two of these indexes are:  System Average Interruption Frequency Index (SAIFI). This index measures the average frequency of power-supply interruptions in the system, expressed as the number of interruptions per customer, per year. * Corresponding author. E-mail address: rcastro@tecnico.ulisboa.pt (R. Castro). Contents lists available at ScienceDirect Utilities Policy journal homepage: www.elsevier.com/locate/jup http://dx.doi.org/10.1016/j.jup.2016.04.003 0957-1787/© 2016 Published by Elsevier Ltd. Utilities Policy xxx (2016) 1e10 Please cite this article in press as: Castro, R., et al., The cost of electricity interruptions in Portugal: Valuing lost load by applying the production- function approach, Utilities Policy (2016), http://dx.doi.org/10.1016/j.jup.2016.04.003