Assessing the Costs and Benefits of Resilience Investments: Tennessee Valley Authority Case Study

Lead Investigator: 
Participating Staff: 
Benjamin L. Preston (RAND) James Bradbury (EPSA)
US Department of Energy (DOE), Office of Energy Policy and Systems Analysis (EPSA)
Start Date: 
End Date: 

This project used a general approach for assessing climate change vulnerabilities of an electricity system and evaluating the costs and benefits of certain investments that would increase system resilience. It uses Tennessee Valley Authority (TVA) as a case study, concentrating on the Cumberland River basin area on the northern side of the TVA region. In particular, this study focuses on evaluating the risks associated with extreme heat wave and drought conditions that are projected to affect the region by midcentury. Extreme climate event scenarios were developed using a combination of dynamically downscaled output from the Community Earth System Model and historical heat wave and drought data from 1993 and 2007, respectively.

Under such conditions, the efficiency of fossil fired generation units would be reduced. Higher air temperatures reduce gas turbine efficiency, and less availability of cooling water and higher intake water temperatures reduce cooling efficiency. Hydroelectric power generation would be reduced as a result of decreased water flow from drought conditions, and increased evaporation from extreme heat. Overall, the impact is expected to cause a reduction in generation capacity, and losses of generation efficiency at the same time that cooling degree days increase and therefore electricity demand for cooling is higher. Simultaneous shortfalls in generation and increases in demand for electricity is assumed to require purchases of power from the wholesale market with a total net cost of roughly half a million dollars per day.

Additionally, Bayesian modeling was conducted to estimate hydropower anomalies based on streamflow and temperature data. Streamflow anomalies associated with specific hydropower facilities are found to be a robust predictor of monthly and annual generation anomalies. The model was then used to estimate future costs associated with projected changes in climate, finding that losses are anticipated to occur on both an annual and seasonal basis relative to historical conditions. Over the course of an entire year, estimated impacts to hydroelectric power generation alone range from $80M to $153M in lost revenue.

The costs of climate change impacts can be reduced by adaptation strategies and actions that add resilience to the electricity system. In general, adaptation options include several categories, all of which are considered in TVA’s 2015 Integrated Resource Plan (IRP). In particular, TVA considered several adaptation options, including 1) enhancing the energy efficiency of electricity use and system operations, 2) changing approaches to thermal electric power plant cooling, 3) building natural gas capacity in place of coal, 4) increasing use of renewable energy resources that are not water-consumptive during operation, 5) increasing energy storage, and 6) expanding long-distance interconnections.

The study found that cost-benefit analysis, combined with risk assessment, is a useful tool to explore strategies for resilience enhancement of electricity systems facing known future threats and challenges. This method is generally most useful for estimating the value of resilience investments in the relatively near future, such as the 20-year time horizon used in TVA’s IRP. Cost-benefit analysis of longer-term resilience options is more challenging but remains a useful tool to enable decision-making strategies that minimize risk and favor investments with multiple co-benefits.