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Cost benefit analysis of energy sources

Greg Studen  |  07/12/10 @ 3:00pm  |  Posted in Clean energy

One of the critical issues in evaluating new energy technologies is how to determine whether a new energy installation--a windmill, a solar panel, a power plant--will generate more energy over its useful life than the energy it takes to build and maintain it, and how much more. This analysis falls under the general category of cost/benefit analysis. Comparing the total costs and monetary returns over the life of an energy production project is referred to as a life cycle cost study, although the term "cost" here is misleading: what is important is the balance of the actual amount of energy that goes into and comes out of the project, not the dollar cost. A popular current form of "life cycle" analysis for energy sources is "energy return over energy invested," or EROEI. The concept is quite simple, although it can be complicated to apply in practice. To do an EROEI analysis, one tallies up all the energy that it takes to build, install, operate, maintain, and "decommission" (recycle or scrap) the energy facility over its entire life. One then calculates the total amount of energy that will be generated over that same time. The EROEI is the ratio of the energy generated divided by the energy invested. Obviously, the higher the ratio, the better. Sources of highly dense energy that are relatively easy to tap, like crude oil from the Middle East, have a high EROEI. The best EROEI's are in the range of 100:1. Using the crude oil example, this implies that an energy expenditure of one barrel of crude oil, used in exploration, drilling, and production, will yield 100 barrels of oil for ultimate use. In the early days of crude oil exploitation, EROEI's of 100:1 were the rule rather than the exception. Now, as oil gets harder to find and pump out of the ground, the EROEI's are going down. Analysts now think that much of the current hard-to-find and/or hard-to-pump oil now has EROEI's in the range of 20:1 to 30:1. The tar sands of Canada yield as low as 5:1 due to high processing costs-and note that EROEI does not typically include the long-term environmental costs, such as air and water pollution, or global warming. Many people who study sustainability are beginning to think that EROEI is a critical concept in planning our energy future. For long-term sustainability, we may need to sustain a minimum EROEI average of five for all energy sources. As easy-to-develop fossil fuels, with their high EROEI's, become more scarce, and eventually run out entirely, it is vital to develop alternative energy sources that can produce adequate net yields. To see how EROEI works, and get some concrete numbers to compare to oil, let's look at the example of windmills. To calculate the total energy needed to build, install, operate, and decommision a windmill, you first have to determine the energy that goes into all the parts-all the steel, electric components, plastics, and so on. Then you must include the energy to transport the completed windmill to the site. Next, all the costs of digging a foundation, pouring concrete, erection of the tower, and electrical hook-up must be calculated.

Remember that, here, we are concerned with energy cost, not dollar cost. The difference is important: an expensive part may use a sophisticated component with a high dollar cost, but little energy, while concrete may be relatively cheap but use a lot of energy to produce and install. During operation you must account for all the energy expended to deliver the electricity to where it is used (transmission lines, transformers, etc.), as well as all maintenance costs. Finally, you have to count the energy needed to dismantle and scrap or recycle the parts after the windmill is no longer operable. It's easy to see that this is a complex process!

Below are some current EROEI estimates for various energy sources from work done by Charles Hall at Syracuse University. Hall is one of the leaders of the "biophysical economics" movement, which attempts to link the abstract neoclassical model of economics as the flow of money and goods to energy flows in the real world. There are strong ties here to "ecological economics," which explains the economic system as a subset of the Earth's ecosystem. Reliable and adequate energy flows are the critical factor needed to power any system, whether it be a natural ecosystem or our complex human civilization. Note that all EROEI's are given in ranges because of differences in fossil fuel sources and technologies used to produce the energy: Coal: 40:1 to 80:1 OIl: as low a 5:1 but up to 40:1 Hydroelectric: 20:1 to 40:1 Solar photovoltaic: 5:1 to 10:1 Wind: about 18:1 It's worth noting that fossil fuels are still on average quite a bit better than renewables, but this fact can be misleading. Fossil fuel EROEI's are going down as supplies dwindle and are harder to develop (drilling for oil in the deep ocean is a good example). At the same time, renewable EROEI's are going up as technologies improve, and we are not running out of sun and wind. The message here is that renewables look like a good bet, but we have a lot of work to do to shift our energy economy before fossil fuel EROEI's become too low. A number of students of sustainability are pessimistic about the ability of renewables to power a world of over nine billion people all striving to lead American middle class lifestyles. They stress that three policy objectives are vital to avoid a literal crash of our energy-dependent civilization: 1) A limit to human populations at much less than current levels: maybe two to three billion people; 2) Radical increases in energy efficiency; 3) Adoption of lifestyles that are much less energy dependent than the current American level-smaller houses, less travel. Less "stuff."

For those who want to pursue these topics, here are some references and further discussion: Here is Charles Hall's seminal paper on EROEI: http://www.mdpi.com/1996-1073/2/1/25/pdf George Mobus is a systems analyst who has a good discussion of EROEI on his blog: http://questioneverything.typepad.com/question_everything/2010/03/energy-return-on-energy-invested-eroei.html Richard Heinberg has a very informative paper discussing EROEI and applying it to various energy sources: http://www.postcarbon.org/report/44377-searching-for-a-miracle He gives a very useful summary analysis of the prospects and EROEI for nine energy sources starting on page 32. A good article on EROEI for wind is here: http://www.theoildrum.com/story/2006/10/17/18478/085 The oil drum blog has a complete series on EROEI for many energy sources that starts here: www.theoildrum.com/node/3786

The following articles on the Oil Drum site continue the six part series on EROEI: www.theoildrum.com/node/3810 www.theoildrum.com/node/3839 www.theoildrum.com/node/3877 www.theoildrum.com/node/3910 www.theoildrum.com/node/3949

The node at 3810 discusses wind energy in particular and gives a best estimate EROEI of 18:1. This agrees with Heinberg and compares very favorably with other renewables. The historic high EROEI for oil has been as much as 100:1, but this is for "early oil" that literally flowed out of the ground by itself. Current estimates for oil vary widely, but hover at an average of around 30:1. The problems of recovering oil-and cleaning up-from the recent "Deepwater Horizon" oil spill disaster provide an example of how costly oil production can be. Note that "unconventional" oil from tar sands and oil shale comes in at an EROEI of less than 5:1, and that doesn't include the large costs of environmental destruction that result from tar sands production.. Solar is discussed at the node at 3910 on the oil drum. Figures vary widely, but it clearly is not competitive with other sources at this time. The table at the www.eroei.com website rates solar thermal rather low: http://www.eroei.com/eroei/evaluations/net-energy-list/ Heinberg in Searching for a Miracle (see link above) rates solar photovoltaic at 3.75:1 to 10:1. (page 43) He rates solar thermal as "likely to be relatively high," but gives no figures. (page 43) David MacKay's book Sustainable Energy--Without the Hot Air is a very useful analysis of the potential for renewable energy. Of particular interest is his discussion of the intermittency of wind and solar. Studies show that wind farms in Ireland, for example, varied in output from 700 MW to almost zero over a period of two months, and that lulls of almost no wind lasted for as long as five days. MacKay has a good discussion of options for supplying more continuous power, including pumped storage and the use of electric car batteries in a "smart grid." While conceptually possible, a wind/solar base load power system with enough storage to cope with lulls and day/night/cloud intermittency is no simple matter, and raises the cost of the power system substantially. See here for MacKay's analysis of fluctuations and storage: http://www.inference.phy.cam.ac.uk/withouthotair/c26/page_186.shtml MacKay claims an EROEI of four for solar photovoltaic in northern Europe, and up to seven in sunnier climates.(Without Hot Air page 41.) However, the energy density of solar is low enough that a very large area would need to be covered to supply a reasonable amount of power. Estimates for long-term average solar photo voltaic output in northern climates vary from five to ten watts/square meter. (Without Hot Air page 39-41). Overall, it is useful to emphasize that current monetary costs of various energy sources are highly misleading, in two ways. First, the comprehensive costs of the systems, in terms of environmental destruction, pollution, subsidies transportation, tax, military, etc.), and adverse health effects are not included (Lester Brown in Plan B 3.0 calculates the true cost of gasoline at about $15 per gallon). Second, the true cost of our declining fossil fuels is best represented by the energy that will have to be expended to replace them with permanent energy sources, ultimately depending upon the sun. Once again, what matters is the net energy that we can extract from the sun (and maybe nuclear?) on a continuous and permanent (a million years?) basis, including all costs of planning, design, construction, operation, maintenance, distribution, environmental harm, decommissioning, and replacement.

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