:max_bytes(150000):strip_icc()/oil-drilling-rig-operation-on-the-oil-platform-in-oil-and-gas-industry--industrial-concept--858239364-6adc0d3653ee4cff861067734da48d7e.jpg "Energy Return on Investment (EROI): Definition and Importance")
Key Takeaways
- Energy Return on Investment (EROI) measures the net energy produced relative to the energy expended.
- EROI significantly influences the pricing of energy commodities and electricity.
- A declining EROI indicates increasing scarcity and extraction difficulty of energy resources.
- High EROI values imply cheaper and more efficient energy production.
Defining Energy Return on Investment (EROI)
Energy Return on Investment (EROI) measures how much usable energy is produced compared with the energy needed to obtain it. It shows how efficient an energy source is. If an energy project produces more energy than it uses to extract, process, and deliver that energy, it has a high EROI. It helps explain how efficiently resources are used and can influence energy costs and pricing.
Understanding the Fundamentals of EROI
EROI is important because if the cost of an energy plant is more than the revenues gained from selling electricity, that plant is not economically viable. EROI can also help organizations and governments compare different energy sources for profitability, such as nuclear vs. solar power.
When the EROI is large, that means that producing energy from that source is relatively easy and cost-effective. However, when the number is small, obtaining energy from that source is difficult and expensive. For example, when the ratio is 1, there is no return on energy invested. According to the World Nuclear Association, the break-even number is 7.
In its simplest form, EROI is calculated as:
EROI = Energy Output / Energy Input
However, there are dramatic differences in how certain steps of the input process are measured. This measurement is complex because the inputs are diverse and there is uncertainty as to how far back they should be taken in the analysis. In addition to energy costs, there are other external costs that need to be considered with respect to energy production such as those associated with the environment and people’s health.
Generally, we can expect that the highest available EROI energy sources will be used first because these offer the most energy for the least effort. A net energy gain is achieved by expending less energy when attempting to acquire and use a source of energy. EROI analysis is considered part of a life-cycle analysis.
Energy Sources with Measurable EROI
There are a number of consumable energy sources where EROI is determined for efficiency and cost analysis. These energy sources include oil, biofuels, geothermal energy, nuclear fuels, coal, solar, wind, and hydroelectric.
The average EROI across all generating technologies is about 40 for the United States, according to the World Nuclear Association pages cited above. The Association cites a study by Weissback et al. (2013), which states that “The results show that nuclear, hydro, coal, and natural gas power systems (in this order) are one order of magnitude more effective than photovoltaics and wind power.”
According to the U.S. Energy Information Administration, fossil fuels such as coal, petroleum, and natural gas, have been the major sources of energy since the late 1800s. Until the 1990s, hydropower and solid biomass were the most used renewable energy resources. Since then, the amount of energy coming from biofuels, solar, and wind energy has increased.
The EROI for oil has decreased dramatically over the past hundred years. The amount of energy required to produce one barrel of oil has decreased as more efficient methods, such as fracking, have been introduced.
