🔋More Energy, More Passion
Energy return on energy invested is an underappreciated metric governing the energy cost and eventual economic cost of various energy sources.
If you found this article interesting, click the like button for me! I would greatly appreciate it :)
Climate change is one of the most important long term challenges we face as world as seen by much of the political decisions around the topic in recent years. While the severity is argued with vitriol by both sides of the debate, how we move forward depends on more than just fossil fuel consumption or direct greenhouse gas emissions. Securing enough energy to maintain and increase standards of living around the world as well as consideration for environmental impacts are two other factors that underpin and constrain this higher aim to reduce emissions.
Metrics like levelized cost of energy (LCOE) are popular metrics used to compare various energy sources. While this metric may make renewables like wind and solar look attractive from an economic perspective, it ignores many of the grid level impacts that represent the “real world” cost. While all metrics have advantages and disadvantages, one metric that stands out is energy return on energy invested (EROEI or EROI). Simply put it is the energy gained during operation divided by the energy lost in producing the energy.
Looking at things from a fundamental perspective, using some tool or technology should give you an advantage or else it is not worth it. Throughout evolution, the more energy humans could harness the greater the population growth and prosperity/economic activity followed. When humans discovered fire, they could spend less time (energy) hunting and eating which gave humans a superior advantage. During the agricultural revolution, the use of animals increased the energy expenditure and greatly enhanced humans ability to thrive and grow.
Reputable investment firm Goehring & Rozencwajg suggests the following EROEI in their Q2 2022 report which is where I first came across this metric. For a long time biomass (EROEI=5) was the primary use of energy until coal (EROEI=10) was popularized in the UK. The population and energy demand doubled over 1600 years prior to coal, compared a quadrupling of both in 250 years after its discovery. The harness of hydrocarbons (EROEI=30) was the next stepwise change, which brought about a 13 fold increase in energy demand and another quadrupling of population, this time in just 120 years. This increase in economic activity is brought about primarily by the increase in EROEI.
When more energy is harvested there is not a subsequent increase in the energy cost to sustain life, meaning there is more excess energy available for use with higher EROEI sources. Excess energy can be used for things like technology research, consumer/luxury goods, healthcare, transportation, etc. The “energy cliff” is a term used to describe the figure below where at lower EROEI values, an exponentially higher share of energy is required just to maintain the minimum requirement of society. It is estimated that a total EROEI of 5-7 across society is the minimum amount of energy just to maintain the current standard of living. As resources are used, EROEI decreases over time. Depending on the area, a natural gas site could have its EROEI go from 30 down to 15 as the fuel is extracted over time.
On an individual basis, the metric can be used to compare across energy sources. Over 5-7 and it can be deemed a productive and feasible energy source. Less than 5 and it is sill producing positive amounts of energy, but will not keep up with current societal demands at the large scale. A value of 1 indicates that the energy put in is equal to the energy returned, meaning it is unproductive. A value less than 1 indicates an energy sink where more energy is input than is returned as output. Corn/plant ethanol is an example of of an EROEI<1 or an energy sink. Green hydrogen is another popularly proposed fuel source which some argue is an energy sink.
Like anything, these numbers are estimates and are debated. While Goehring & Rozencwajg put out great research, some literature sources offer differing opinions. They claim nuclear has >100 EROEI whereas Hall and Klitgaard view nuclear as 15 and Weissbach views it as 75. Discrepancies continue when you look at wind and solar, with ranges from 3.5 to to 20. Coal depending on the source is 10, 30, or 80. Biomass is more consistent, either 2, 3, or 5. Fossil fuels depend on the year and location, with estimates ranging from 5 to 30. While these values have discrepancies, we can see the general trends and locate them with relation to the economic feasibility line of 5-7.
Why are wind/solar/biofuels promoted given these realities? The first and most obvious reason could be that the pessimistic estimates are wrong and wind and solar are indeed above the economic feasibility line of 5-7 and we have nothing to worry about. As these technologies mature, get more efficient, and batteries improve, these values may increase further as well. This can be true, however the primary reason based on my research is these alternative technologies have been subsidized by cheap energy and low interest rates (cheap capital) over the last decade thereby quelling any deleterious economic impacts of aggressively adopting low EROEI technologies exclusively (especially in unfavorable climates).
In the US, fossil fuels, nuclear, hydro in some areas, and some renewables keep the lights on. From 2010 to 2020 when much of the energy transition literature, policy, and ideology was constructed, energy prices were on an aggressive march lower. These major fuels fell in cost between 50-80% over this time period seen below. As I reference in Built To Scale, the cost of manufacturing of solar, wind, batteries, semiconductors, and more trend with scale such that they will dependent on energy and material costs. With energy costs low, wind and solar will appear economically favorable as they are cheap to make. As we know with the benefit of hindsight these trends did not last. Extending this chart to the right, all three have gone up in price a magnitude of 2-3x (or 100-200% increase - with spikes exceeding these values) from where they were around late 2019/early 2020. Considering this environment and EROEI realities, it is also unlikely that wind/solar alone will be able to spur future energy prices lower in the long term.
Further, the last decade has been characterized by very low interest rates letting businesses take out very cheap loans. If you’re familiar with my work, you know this leads to distortions in the economy and malinvestiment. An energy developer taking on 2-3% interest loans would find it relatively easy to make 3+% returns on their capital. With interest rates at 5-10%, making a 10+% return on capital becomes a lot more difficult for them. It may destroy their business model and bankrupt the company.
Goehring & Rozencwajg agree, and as long as energy markets remain structurally tighter moving forward, it will present challenges.
Our modeling suggests that declining (and cheap) energy prices have distorted and partially hidden the true costs of wind and solar over the last decade. Now that energy costs have surged, the true cost of installing and operating renewables are obvious. Q4 2021 Commentary
Shutting down high EROEI (primarily fossil fuels) with low (wind/solar) risks future workers spending increasing amounts of time gathering energy to allow society to function which dramatically decreases growth and standard of living. There would simply be less time and energy available for uses progressing civilization forward. The question becomes what is more dangerous, climate change or the energy cliff of low EROEI technologies?
This of course is entirely subjective, and not the aim of this piece to address. I do not have climate forecasting expertise to tell you how severe global warming can be. What I do know is that using energy and technology to solve problems is what humans are best at. As we’ve used more energy, humans have built structures to withstand most extreme weather events and reduced those related deaths pretty dramatically as nations get wealthier for example. We can use wind/solar where feasible, use nuclear and hydro, and the cleanest forms of fossil fuels where needed to move forward with reducing emissions without suffering extra economic and societal hardship.
In general the economic feasibility value of 5-7 assumes that we want to keep society functioning at its current level and perhaps have some inklings of growth into the future. This premise is shared by most, but the subset of Malthusian ideologs and politicians through willful blindness or of malintent which don’t foresee this issue is concerning. A number of experts share my conclusion though, the economic burden of low EROEI energy sources deteriorate global productivity and capital accumulation.
As a consequence, an energy transition characterized by a decreasing NER exerts a drag on economic growth by slowing down – at given saving rate – both global productivity gains and capital accumulation. The mitigation of these effects would require a sufficient increase in the saving rate of the economy Fagnart et al.
Unfortunately we are seeing the opposite of the savings required to mitigate changes to lower NER (related to EROEI). Savings rates are declining and being replaced with debt. Additionally, the federal fiscal/debt situation continues to get more extreme as well. It doesn’t have to be doom and gloom, but EROEI should be an important metric in guiding policy and its economic impacts. Until next week,
-Grayson
Leave a like and let me know what you think!
If you haven’t already, follow me at twitter @graysonhoteling and check out my latest post on notes.
Let someone know about Better Batteries and spread the word!
Socials
Twitter/X - @graysonhoteling
LinkedIn - Grayson Hoteling
Email - betterbatteries.substack@gmail.com
Archive - https://betterbatteries.substack.com/archive
Subscribe to Better Batteries
Please like and comment to let me know what you think. Join me by signing up below.
After going down a bit of a rabbit hole on this topic I’m of the view that now (and this was not true 1p years ago) PV has gotten to the point where is generally ok when used in a fuel saving role, but the overbuild + storage + transmission needed to use it in a dominant role is where it really struggles.
The other major factor that messes up the analysis is the primary energy conversion used, where electricity output ‘counts’ for ~3x as much as chemical inputs. This is only true when used as a fuel saver. But if PV output power isn’t to be used to make more PV, then this does not hold true anymore, and the EROI is borderline. Add the storage for continuous output and it’s below the line.
I think the nuclear low EROI results generally are using gaseous diffusion enrichment, which is obsolete and takes more than an order of magnitude more energy the centrifuge enrichment. The technical EROI on nuclear is high enough to be irrelevant, and it’s all about removing unnecessary costs.
Cost represents a form of indirect energy inputs (in the form of societies general level of energy usage). Get costs under control...