A Resilience‐Based Reward‐Penalty Scheme for Hardening Electricity Distribution Assets Against High‐Impact, Low‐Probability Disasters

ABSTRACT Natural disasters are one of the primary causes of annual electricity blackouts, leading to customer dissatisfaction. When a natural disaster or a high impact and low probability (HILP) event, such as a storm, flood, or earthquake, occurs, electricity network assets may be damaged. To maintain the electricity supply chain and service quality, regulators must adjust the resilience level of electricity networks. Since the reward‐penalty scheme (RPS) is a useful regulatory tool for electricity distribution companies (EDCs), this paper introduces a new resilience‐based RPS that accounts for the number of EDC‐damaged assets during natural disasters. In this model, the annual asset growth rate, annual asset failure rate, and annual disaster occurrence rate are incorporated. Additionally, the costs of asset hardening against natural disasters are modeled. Finally, hardening costs and RPS costs are compared. To optimize investment and facilitate decision‐making, a total cost function is introduced. The proposed model is implemented on 39 Iranian EDCs against storm scenarios, demonstrating the long‐term economic viability of proactive hardening investments over reactive penalty payments under HILP event scenarios.