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Valuing diversity in energy supply

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  • Skea, Jim

Abstract

There is renewed interest in the role of supply diversity in promoting energy security. This paper explores ways of valuing diversity. A possible incentive mechanism for promoting diversity which takes account of underlying "disparities" between different technology options is developed. The mechanism provides a way of trading off cost and diversity and results in an "efficient" cost-diversity frontier by analogy with financial portfolio theory. If all technologies are believed to be equally disparate, the appropriate mechanism is a "levy" imposed on market share. If the technologies are not equally disparate, the levy needs to be adjusted by technology-specific multipliers that take account of levels of disparity and patterns of market share. The analysis is applied to two stylised situations. In the long-run equilibrium case, the implications of both different patterns of disparity and different values attached to diversity are investigated. The paper also explores the implications of applying such a mechanism to the current Great Britain electricity system. The implications in terms of financial flows, for both the market as a whole and for individual operators, are investigated. Finally, the appropriateness of such a mechanism in the light of other policy goals, and possible future research directions, is discussed.

Suggested Citation

  • Skea, Jim, 2010. "Valuing diversity in energy supply," Energy Policy, Elsevier, vol. 38(7), pages 3608-3621, July.
  • Handle: RePEc:eee:enepol:v:38:y:2010:i:7:p:3608-3621
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kharrazi, Ali & Sato, Masahiro & Yarime, Masaru & Nakayama, Hirofumi & Yu, Yadong & Kraines, Steven, 2015. "Examining the resilience of national energy systems: Measurements of diversity in production-based and consumption-based electricity in the globalization of trade networks," Energy Policy, Elsevier, vol. 87(C), pages 455-464.
    2. Chuang, Ming Chih & Ma, Hwong Wen, 2013. "Energy security and improvements in the function of diversity indices—Taiwan energy supply structure case study," Renewable and Sustainable Energy Reviews, Elsevier, vol. 24(C), pages 9-20.
    3. repec:eee:rensus:v:82:y:2018:i:p3:p:2693-2704 is not listed on IDEAS
    4. Lopes Ferreira, H. & Costescu, A. & L'Abbate, A. & Minnebo, P. & Fulli, G., 2011. "Distributed generation and distribution market diversity in Europe," Energy Policy, Elsevier, vol. 39(9), pages 5561-5571, September.
    5. Subtil Lacerda, Juliana & van den Bergh, Jeroen C.J.M., 2016. "Diversity in solar photovoltaic energy: Implications for innovation and policy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 331-340.
    6. Ranjan, Ashish & Hughes, Larry, 2014. "Energy security and the diversity of energy flows in an energy system," Energy, Elsevier, vol. 73(C), pages 137-144.
    7. Nahmmacher, Paul & Schmid, Eva & Pahle, Michael & Knopf, Brigitte, 2016. "Strategies against shocks in power systems – An analysis for the case of Europe," Energy Economics, Elsevier, vol. 59(C), pages 455-465.
    8. Cooke, Henrietta & Keppo, Ilkka & Wolf, Steven, 2013. "Diversity in theory and practice: A review with application to the evolution of renewable energy generation in the UK," Energy Policy, Elsevier, vol. 61(C), pages 88-95.

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