The analysis of security cost for different energy sources

Abstract

Global concerns for the security of energy have steadily been on the increase and are expected to become a major issue over the next few decades. Urgent policy response is thus essential. However, little attempt has been made at defining both energy security and energy metrics. In this study. we provide such metrics and apply them to four major energy sources in the Korean electricity market: coal, oil, liquefied natural gas, and nuclear. In our approach, we measure the cost of energy security in terms of supply disruption and price volatility, and we consider the degree of concentration in energy supply and demand using the Hirschman-Herfindahl index (HHI). Due to its balanced fuel supply and demand, relatively stable price, and high abundance, we find nuclear energy to be the most competitive energy source in terms of energy security in the Korean electricity market. LNG, on the other hand, was found to have the highest cost in term of energy security due to its high concentration in supply and demand, and its high price volatility. In addition, in terms of cost, we find that economic security dominates supply security, and as such, it is the main factor in the total security cost. Within the confines of concern for global energy security, our study both broadens our understanding of energy security and enables a strategic approach in the portfolio management of energy consumption. (C) 2008 Elsevier Ltd. All rights reserved.