INVESTIGATING THE IMPACT OF INNOVATION LEVEL ON COST AND RISK AT THE ENERGY TRANSITION BY MEAN-VARIANCE APPROACH

Abstract

This study focuses on the transition to sustainable energy systems, emphasizing the essential role of technological innovation in facilitating successful energy transitions. It specifically examines how optimal energy production portfolios influence cost and risk profiles across various innovation scenarios within the context of this energy transition. The research utilizes the Mean-Variance Approach from Modern Portfolio Theory, with publicly available data sourced from the National Renewable Energy Laboratory (NREL), which operates under the oversight of the U.S. Department of Energy (DOE).The findings indicate that between 2035 and 2045, it is possible to achieve diversified optimal energy portfolios that incorporate a greater share of renewable energy. Additionally, it is projected that coal and natural gas power plant technologies will largely be supplanted by biomass technologies within these optimal portfolios. Throughout all scenarios analyzed for the 2035-2045 period, there is a notable decrease in the ratio of expected risk to portfolio cost, suggesting that greater risk reduction can be attained for each unit of cost incurred.This study provides valuable guidance for governments on implementing energy production policies that encourage a greater reliance on renewable sources. It takes into account both environmental imperatives aimed at mitigating climate change and global geopolitical concerns related to energy security.