Fighting against energy consumption risk by diversifying energy sources

Currently economic turbulence and geopolitical fluctuations are causing high prices and supply disruptions in energy markets. As a result, energy consumption risks are becoming more severe. Diversifying energy sources is one way to address these challenges. This study examines how energy source diversification influences energy consumption risk in 36 developed countries from 2000 to 2018, using Method of Moments Quantile Regression (MMQR) and Panel Threshold Regression (PTR) Models. The MMQR captures heterogeneous effects across various levels of energy consumption risk, offering insights into how diversification strategies differ in effectiveness across the risk distribution. The PTR Model identifies potential nonlinear relationships and regime-dependent effects based on economic development levels, enabling an analysis of how the diversification-risk relationship changes across different stages of economic advancement. These methods are well-suited for the non-normal distribution of variables and the potential structural breaks in the relationship between energy diversification and consumption risk. The findings align with theory, revealing that the effects of energy source diversification on energy consumption risk are negative across all quantiles, from 10 % to 90 %. Furthermore, PTR results reveal that energy source diversification reduces energy consumption risk in both the lower and upper regimes of economic development. The study's results provide valuable guidelines for policymakers.

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