Introduction
The total impact of summative power interruptions to businesses is considerable and require attention, because it can not only damage equipment, but also can interfere with production process, can cause low quality of commodities and sometimes accidents. Therefore, there is the need for managers to consider the capability of the generating company to supply power with minimal interruptions or contain the fluctuations. Some of the fluctuations to the supply of power are unintentional while others are intentional, but both of them posses the ability to negatively impact on businesses. Lawrence Berkeley National Laboratory estimated that the cost of power interruptions to the United States amounted to an estimated $80 billion annually.
These interruptions were caused in form of black outs and power outages. Interest to modernize the electric power grid arose after there was a big black out in the northeast in the summer of 20031. Yet there has been worry that the data provided in the analysis on power interruption contains uncertainties thus the analysis do not indicate the true cost of power interruptions.
The economy is becoming more reliant on digital circuitry2. In addition, the e-commerce sector has been growing rapidly and heavily relies on constant power supply. The impact of power interruption is felt in a number of ways, including exposure to data loss risks and actual data loss from equipments like computers. The impacts of power interruptions on businesses in the current technological world is pathetic owing to the interconnectedness of business operations, i.e. many operations are interrelated and interconnected to the extent that interruption of one operation will interfere with others. Therefore, it is possible to realize losses in businesses due to power interruptions, even for businesses that do not consume power directly, because they may depend on such operations as computer processing of information and instruction.
The information sector which has considerably grown in the current global economy to the point of interconnecting businesses across the globe is widely affected by power outages. Time has become an important factor in the current informational economy as such sectors like air transport, data processing firms, money transfer agents utilize the power of information technology to save on transaction time and cost of labor among other benefits. Therefore, temporal interruption of power may have adverse effects on the global scene because interruption on one local point may affect the whole process cycle.
The world is also moving towards integration of business operations where interruption of operations of one firm will interfere with operations of other firms. This reports discus the implications of power interruptions, the risks involved and the possible mitigations to the problem. These risks include loss of productivity, machine damage, among others. The report encourages the managers to take the recommended options to avoid damages of power interruptions.
Causes of Power Outages and Interruptions
Power disruptions can be grouped into two major categories, namely, power quality (PQ) phenomena, and power outages. The former refers to how well the energy-supply needs will be met by the electric supply. Power quality may be regarded as sufficient if machines are not experiencing operational problems. Power quality fluctuations can cause damage to the machine and equipment if the voltages exceed the limit, or the fluctuation is such that the machine cannot bear. Power interruptions are caused by a number of reasons including man-made and natural contributors. Natural contributors are natural factors that may go beyond the control of human beings and these are very difficult to control. In addition to power interruptions, power quality fluctuations also cause industries a major blow.
Sources of power outages include the faults at the generation terminals, distribution and transmission system, failure of equipment and supply shortages. However, the causes of power quality fluctuations may be numerous. They include starting at large loads, capacitor switching, due to lightning, remote faults, among other things; both caused by natural or man made factors3. These power fluctuations may damage electric motors and power supplies for electric equipments, leading to more costs of maintenance and repairs. Therefore, while power outages cause more down time, power quality fluctuations might cause damage of equipments, data loss, and efficiency of machines thus raising maintenance and repair costs.
Impacts of Power Interruptions on Businesses
The estimation of the impact of power interruptions on businesses in the United States may be partly hampered by lack of reliable data and information on the matter4. There are main industries that rely so much on power interruptions in the U.S economy. These are the digital economy (DE) which includes the research entities, telecommunications, data storage and retrieval among others. The Continuous process manufacturing is also an industry that relies heavily on power and refers to industries relying on continuous feed of raw materials at high temperatures, and interruption by power interruptions and fluctuations may cause difficulties in productivity such as poor quality. The fabrication and essential services industry highly depends on power too. About 2 million businesses in the United States comprise the three aforementioned sectors, which is substantial to influence economy once there is power disturbance. About 40% of the U.S. GDP depends on these three industries5.
Study revealed that the three sectors suffered a loss of $23,000 per year with the Fabrication and essential services industry having the largest share of the loss ($27.4 billion). Idled labor and loss of production and other power-related problems impacted on the digital economy firms by causing a total of $ 12.8 billion losses.
Power outages vary from region to region. A study reports that one time, the California State recorded the highest estimated annual outage costs for all sectors by realizing a total cost of $17,808, with North Carolina suffering a total of 5,067. During the 2001 summer period, California State suffered a forced outage of 260 hours with an average of 2160 MW unserved according to a survey6.
Power interruptions affect the manufacturers by the reduction of the time productivity would have been carried on. Manufacturers realize additional machine stoppage time and thus lower productivity. The more the frequencies of the interruptions, the more the stoppage production time for machines and thus the lower the productivity. It must be put into consideration that businesses are trying to sum up several factors of productivity in order to result to profit. This profit is associated with a particular time framework because certain equipments also depreciate in value.
The factors of production include labor and capital. Capital includes the machines, the premises and equipment being utilized in the business. All these carry unit costs which must be factored out in the calculation of profit of the business. For example, the employee must be paid even when the power is interrupted if at all his wage is not associated with the hours that operations are stopped. The machines, premises and the equipment being utilized in the production process carry some costs with them including continuous depreciation and rental costs.
The industrial sector, according to the analysis by Berkeley, suffered the highest cost per outage per customer as compared to other sectors, but the commercial sector received the highest losses on a total perspective (73% of the total cost) because of the large number of customers in the sector as compared to costs for the industrial sector (25%). The commercial sector had 14.9 million customers as compared to the industrial sector with only 1.6 million customers. Because the power generating companies is itself a business entity, it causes losses to itself through such interruptions because of the reduction of the amount of power consumed and supply time thus the income is low. In this consideration, the consumer who is not engaged in any business operation also may be included in the calculation of the total losses to business because he or she is important as far as the generating company is concerned. The study by Berkeley revealed that residential losses to power interruptions were 2% of the total. As it may not be expected, the momentarily frequent interruptions contributed more ($52 billion) to the total costs of interruptions than did sustained interruptions which are less frequent ($26 billion).
In commercial and industrial sectors, the length of down-time as a result of power interruption is what determines losses rather than the length of interruptions. A survey reported by Primen indicated that a one hour interruption costs $576 in terms of equipment damage7. Other types of costs manifested as restart costs, back up generator costs, material loss and spoilage, labor costs, and other types of costs related to the power shortage. Power interruptions have also been reported to cause fires8 among other accidents in experiments and failures in equipment control.
Mitigations to Power Interruptions
There are a number of options that managers can implement to avoid the aforementioned risks and damages to businesses. Managers of the generating companies must be able to understand the dangers of power interruptions and the resulting effects, both to the businesses and their stockholders, and thus explore the likely options towards avoiding the problems. Three major components must be tested when determining or analyzing the ability of the power generating firm to handle supply.
These are; security-the electric system must be able to withstand problems of short and long term nature as a result of short circuits and loss of elements in the system; adequacy, which refers to the ability to provided the demanded quantities while taking into account expected and unexpected power interruptions; and thirdly, reliability, which refers to the provision of electricity within acceptable performance in standards and amount demanded in terms of duration, frequency and sum of negative impacts of the supply9. It has already been seen that power generation is a field characterized by many uncertainty on the topic of power outage and power interruptions. The generating company may be well aware of the causes of interruption but may not be in a position to control their occurrences, for example the natural disasters.
The competence of the generating firm to deal with the outages and interruptions in order to save businesses must therefore be determined by the ability to handle the interruptions once they occur, if they are non-controllable and unavoidable, in addition to making sure that those causes which are within their control can be checked out. There appears to be the need to formulate some guidelines on how power interruptions must be dealt with by the generating firm. Such a formulation would focus on the ability of the firm to deal with power outage as well as its preparedness and the necessary precautions it should take to avoid such.
Solutions for power outages may be understood in two perspectives: one, the generating company may put in place a number of measures, either by policy or technical measures to counter power fluctuations and interruptions. Secondly, consumers or power consumers may take precaution to shield themselves and their businesses against power failures and fluctuations. The precautions that a generating firm may take may vary depending on the cause of power outage to be expected and the nature of interruption, among other things. In addition, the ability and the competence of the firm and issues regarding the availability of the resources and equipment for control measures may affect the type and quality of remedy.
Consumers on their part may wish to take a wide range of precautions. These include measures that will be taken once their equipments or businesses are affected by the power problems, such as arranging for insurance covers or legal actions, or arranging for another source of power such as diesel generator or solar or nuclear energy source. The incurrence of damages resulting from power outages and interruptions has caused an interest in the insuring against these power problems. However, the claims associated with power outages or interruptions may not be that simple since interruptions may not only be events leading to business losses and damages, but may also be the resultant to a series of events or be catalysts to the chain of events leading damage of business, or they may factor to a series of events causing damage10.
Manufacturing and other business units can save themselves a great deal by focusing on alternative sources of energy such as a back up fuel generator, although the cost might be higher. In addition, there are equipments available that can prevent problems of machine and equipment damage in case of power quality fluctuations. Computers can be loaded with uninterrupted power supplies that allow one to save data loss once the power loss is unexpected. The losses that occurs to firm indirectly as a result of data loss owing to power interruptions can be checked out by installation of data back ups.
Because some power interruptions such as one occurring as a result of need for repair, maintenance, replacement and upgrading can be predicted, it is possible for the manufacturers and other business units to ensure that they utilize the opportunities presented by efficient process scheduling and rescheduling. These opportunities allow for cheaper productivity by waiting for electric power resumption instead of using a costly option if they can wait. Firms therefore need to analyze, plan and forecast their production processes and business activities in consideration of the possibilities of power interruptions.
On the side of the generating firm, the best way to come up with good solutions is to analyze first the major causes of power interruptions by management. The fact is that there are interruptions which can be difficult to control or eliminate, because they are caused by factors beyond the generator’s control, but there are those arising from intentional breakdowns such as upgrade for the systems, equipment replacement, and connecting new customers as well as repairs for the systems.
There are those which can be fixed with installation of alternative generation equipments, for example, to take care of the problem when the generation of power is interrupted by natural disasters such as storms and lightning. In addition, the back up generator such as diesel engines, nuclear generators, and solar power generators can be used to supply power whenever there is prolonged power outage that cannot be fixed.
Solutions to power outages cannot be assumed to be easy. This is because some of them involve large costs on the side of the distributor and generator, as well as require careful and strategic approach. There are factors that will influence the supply of electricity on the side of the generating firm.
There are times when major replacements are supposed to be carried out and other times when time is needed to determine the best cause of action for repairs. Today, power generating companies need to focus on the power interruptions by carefully monitoring their equipment, identifying possible causes of failure before they occur, and venturing into alternatives for power generation such as nuclear power, back up fuel generators and solar generation. Managers must be willing to invest in quality technology and current techniques of generating power such as nuclear power plants. The quality of the equipment being used for generation must be well maintained to make sure that its efficiency is as expected and that it supplies the amount of load required, satisfactorily.
Conclusion
Power interruptions may arise as a result of natural and man-made factors. There are dangers accruing to businesses due to power interruptions. Power interruptions can be grouped in two categories; power outages, and power quality problems. Both of them may be expected or not. The cost of power interruption has been felt largely by the United States economy with an estimated loss of about $80 billion annually, and this means there is need for stringent measures that must be put in place to curtail the problem.
The analysis of such an impact to businesses has been impacted by unavailability of reliable data on the impact of businesses by power interruption. These include prolonged down time that results in loss of production, and high costs of labor not utilized in production. Other dangers associated with power interruptions include damage of equipment and possible accidents. Solutions to power interruption range from equipment to precaution issues. Companies must explore alternative sources of power generation, as well as put in place measures that will make them reduce the amount of interruptions.
Amongst the worst hit sectors are those that are highly dependant on continuous power supply; the fabrication and essential services industry; the digital economy (DE) industry which includes the research entities, telecommunications, data storage and retrieval among others; and the continuous processing manufacturing. Exploration of the possible impacts of power interruption can be motivating factor to helping the business managers to think of solutions of power interruptions.
Managers must be willing to identify the likely causes of power outages and interruptions in general, and be able to have the businesses informed as early to look for alternatives. Minimization of the power interruptions will be beneficial to minimizing losses incurred by business and company stockholders because it will save on production costs and time. They must adopt very efficient channels to identify the likely occurrence of power interruptions, and put in place mechanism to replace (such as alternative power source or grid) the existing mechanism incase it fails.
Footnotes
- Chen, A, Berkely lab study estimates $80 billion annual cost of power interruptions. 2005. Web.
- Primen, The cost of power disturbances to industrial & digital economy companies, Electric Power Research Institute, 2001. Web.
- Primen, The cost of power disturbances to industrial & digital economy companies, Electric Power Research Institute, 2001. Web.
- Carrie, W, & E Joe, Electricity outage cost literature review, Lawrence Berkeley National Laboratories, Berkeley, CA, 2000.
- Primen, The cost of power disturbances to industrial & digital economy companies, Electric Power Research Institute, 2001. Web.
- North American Electricity Reliability Council, Summer special assessment: Reliability of the bulk electricity supply in North America, Princeton, New Jersey, 2001.
- Primen, The cost of power disturbances to industrial & digital economy companies, Electric Power Research Institute, 2001. Web.
- Aratani, L, Farmers fight to keep crops, profits safe during power crisis, San Jose Mercury News, 2001.
- The U.S. Canada Power System Outage Task Force, Final report on the August 14 Blackout in the United States. Web.
- Torrey, R & R William, Insurance coverage for power interruption-related business losses, costs and damages. Dispute Resolution Management, 2001. Web.