Policy Studies Energy and Environment

Why risk and reliability matter more than fuel diversity

Policymakers often presume that diversity in electricity supply is inherently beneficial, even a necessity. This presumption manifests in industry catchphrases, campaign slogans, government policy objectives and beyond. It frequently surfaces in the stated concerns of those wary of growing reliance on renewables and natural gas, as coal and nuclear decline.

This policy brief examines the conceptual basis for supply diversity as a policy objective; diagnoses ongoing economic and political trends relevant to the subject; and reaches conclusions through the lens of policy analysis. Over the past 15 years, the nationwide trend actually has been toward greater fuel diversity. There is little empirical evidence to support the claimed association between supply diversity and electricity-market performance. The record shows that policy interventions to promote greater diversity typically undermine market performance. If policymakers want to improve electricity market performance, they should instead support targeted reforms that provide proper incentives for risk management and reliability, which commonly are associated with supply diversity.

Image by Denizce

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