Catastrophe Risk Management for Electric Power Distribution Systems: An Insurance Approach

High-impact, low-probability catastrophes may cause equipment damage, customer outages and serious economic losses to an aging power distribution infrastructure with low redundancy and automation. To cope with catastrophe risks faced by distribution systems (DSs), insurance is proposed as a supplement to existing resilience enhancement measures, which can provide financial aid in recovery after disasters, as well as incentives to make DSs more resilient to potential hazards. This calls for a quantitative assessment for insurance pricing that can not only predict potential losses caused by future catastrophes but also evaluate the effect of risk management measures. In this paper, a four-module actuarial framework, including hazard, vulnerability, resilience, and insurance modules, is developed to assess the catastrophe risks of DSs. Based on Monte Carlo simulation (MCS) and mixed integer linear programming (MILP), the dynamic characteristics of disasters, random failures of equipment, control measures including fault isolation, load transfer, line patrolling, manual switching, and fault repair, are comprehensively incorporated in the premium determination of catastrophe insurance. Numerical simulations are performed on the modified IEEE 33-bus test systems to illustrate the validity of the proposed catastrophe insurance schemes.