An Investigation of Security Cost of Energy Carriers Used in Iranian Thermal Power Plants

Global concerns over the security of energy have steadily increased and are expected to form a major issue over the next few decades. Urgent policy response is therefore essential. However, little attempt has been made at defining both energy security methods and energy security metrics. In this study, we provide such metrics and apply them to three major energy sources used in the Iranian electricity market: natural gas, gas oil and fuel oil. 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). We find gas oil to have the highest cost of energy security in Iranian electricity market due to its higher supply distrubances, its high price volatility and its short life cycle. The same reasons hold as well for the other oil product, fuel oil. On the other hand, natural gas was found to have the lowest cost of energy security; since it enjoys abundance of resources relative to production, and it has a longer life cycle as well as lower supply distrubances in comparison to oil products. In addition, we find that economic security cost dominates supply security cost, and as such, it is the main factor in the total security cost. Within the confines of global concerns for energy security, this study both broadens our understanding of energy security and enables a strategic approach in the portfolio management of energy consumption