What is Energy Return On Investment ?
3960 reads · Last updated: December 5, 2024
Energy Return on Investment (EROI) is a ratio for describing a measure of energy produced in relation to the energy used to create it. For instance the ratio would illustrate how much energy is used to locate, extract, deliver, and refine crude oil relative to how much useable energy is created.The energy return on investment (EROI) is a key determinant of the price of energy because sources of energy that can be tapped relatively cheaply will allow the price to remain low.
Definition
Energy Return on Investment (EROI) is a ratio used to describe the relationship between the energy produced and the energy used to create that energy. It measures how much energy is needed to obtain a certain amount of usable energy. For example, this ratio can indicate how much energy is used to locate, extract, transport, and refine crude oil to obtain usable energy. EROI is a key determinant of energy prices, as relatively cheap energy sources will keep energy prices low.
Origin
The concept of EROI originated in the 1970s when scientists began to focus on the efficiency of energy production. With the onset of the oil crisis, it became clear that not only the quantity of energy was important, but also the energy input required to produce it. Since then, EROI has become an important tool for assessing the feasibility of energy projects.
Categories and Features
EROI can be categorized based on different types of energy, such as fossil fuels and renewable energy. Fossil fuels typically have a high EROI because their extraction and use technologies are relatively mature. However, as resources deplete and environmental issues intensify, their EROI may decline. Renewable energies like solar and wind usually have a lower EROI, but with technological advancements and economies of scale, their EROI is gradually increasing. Energy projects with high EROI generally imply higher economic benefits and lower environmental impacts.
Case Studies
A typical case is the shale oil revolution in the United States. Initially, shale oil had a low EROI due to the significant energy required for hydraulic fracturing and horizontal drilling. However, with technological advancements and improved efficiency, the EROI of shale oil has increased, making the U.S. one of the leading oil producers globally. Another example is Germany's development of renewable energy. Although the initial EROI of solar and wind energy was low, through policy support and technological innovation, Germany successfully increased the EROI of these energies, driving its energy transition.
Common Issues
Investors might encounter issues such as accurately calculating EROI and integrating it with economic benefits. A common misconception is that a high EROI always means high profits, but in reality, factors like market prices, policy support, and technological advancements also affect the economic viability of projects.
