Diversity and resilience of the electricity sector in the U.S. and Texas

Often current energy and environmental policies follow the neoclassical economic paradigm of focusing on getting the prices right within a market system. The general argument is that such a focus would lead to socially optimal outcomes in the long run. An important weakness of this paradigm is that it is not robust to major or rapid shifts in our knowledge about the benefits and costs of the production system. At the societal level, preparing for such shifts inherently requires a different approach than a focus only on prices. It requires an adaptive, systemic approach that is open to the possibility that assumptions underlying today’s markets and technologies may turn out to be quite different as more experience and knowledge is gained over time (or sometimes quite rapidly). The evolutionary economics approach, with its focus on diversity to enhance long-term resilience, is one such alternative approach to classical economic approaches.

Based on these approaches, I quantified diversity of the electricity sector in the U.S. using primary energy source data from the EIA. I used the Shannon-Weiner Index, Simpson Index, and Stirling Index to compare the diversity of each state and regional entity’s electricity system and found that the major drivers of diversity change have been the result of wind and natural gas adoption.

Using expert elicitation, I also specifically analyzed diversity in the Texas electricity market, with a focus on the transition to a deregulated market in Texas at the turn of the century. In general, I found that Texas regulators do think diversity is important, but do not think that it should be centrally planned.