Rethinking value of lost load in high-reliability electricity systems: methodological challenges and policy implications

The Value of Lost Load (VoLL) is a key metric in electricity system planning and market design, informing reliability assessments, scarcity pricing, and capacity remuneration mechanisms. This study conducts a comprehensive review of VoLL estimation methods and identifies the most appropriate approaches for each sector based on theory and empirical precedents. Specifically, the stated-preference and production-side methods are applied to industrial and commercial sectors, while the leisure cost approach is used for the residential sector, with South Korea as a case study. The estimated VoLL values range from approximately 0.3 USD/kWh in the manufacturing sector to 5.7 USD/kWh in the residential sector, depending on the methodology employed. Despite South Korea's exceptionally high electricity reliability, these sectoral VoLL estimates are substantially lower than the system-wide VoLL implied by existing reliability standards (approximately 3.3 USD/kWh). This discrepancy highlights methodological and policy challenges in applying VoLL within highly reliable systems, where empirically estimated values may underestimate the social cost of outages. Rather than advocating a single estimation technique, this study contributes by applying multiple sector-specific methods in an empirically grounded manner, offering policy-relevant insights for electricity market design and reliability planning in decarbonizing power systems. • We estimated value of lost load for South Korea's electricity market design. • VoLL can be biased by the gap between perceived and real reliability. • New VoLL estimation method should be developed for future electricity market. • Public acceptance of VoLL-based reliability investment is critical.