Moving forward blindly: Uncertainty, reliability, and the energy transition

Abstract

Despite profound uncertainties surrounding the energy transition, policymakers often rely on deterministic scenarios about future demand and supply conditions. This paper evaluates the consequences of such deterministic approaches for power sector decarbonization, highlighting hidden trade-offs between short-term capacity investment and future demand rationing. We develop a generation expansion model calibrated for Germany to examine various policy scenarios through 2040. Our findings indicate that deterministic planning can substantially underestimate the true costs of the decarbonization, exacerbate reliability risks, and jeopardize environmental targets. However, with the right environmental policies, even deterministic planning can provide a reliable path to a resilient, equitable, and sustainable energy future.