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Cost-constrained versus EROI-constrained electricity generation

Apr 12, 2017EROI2 comments

One of the challenges for EROI researchers is explaining in simple terms why EROI matters. I’m planning on doing a series of short posts exploring the relevance of EROI.
This first post simply makes the observation that embodied energy (the reciprocal of EROI), and cost, are not necessarily correlated. In electricity generation, the general rule is that ‘mega-projects’ requiring regulatory and environmental approval, oversight, long lead times with higher technical and other risks are more likely to be cost constrained. This is due to a large cost share going to low-energy intensity service, administrative, and debt servicing costs. Paying a consultant $200 an hour while working in an office is not very energy intensive. On the other hand, modular technologies, such as solar and wind projects, are much easier to gain approval, less risky, and get built quickly. Much of the of the cost is due to manufacturing and materials, which have a much higher energy intensity. This doesn’t include the cost of firming of variable renewable energy. In countries such as Spain, Portugal and Austria, a significant part of the cost reduction is due to streamlining of approvals and ‘soft’ costs. These have the effect of lowering the consumer cost without substantially reducing the embodied energy footprint.
Figure 1 illustrates this by dividing a graph of cost versus EROI into 4 quadrants. Nuclear and coal with carbon capture are net-energy positive but have a high CAPEX, and can be classified as ‘cost constrained’. On the other hand, some forms of solar and biofuels may appear quite cheap, but may be ‘EROI-constrained’. Central receiver concentrated solar is expensive, both cost-wise and energetically. The graph is meant to be illustrative of Australian costs at the present. If the EROI of the energy source is greater than 20:1, then we probably don’t have to worry about the EROI unless it is declining. A problem that we face is that the available options that are neither EROI nor cost constrained is small. In Australia, even unsequestered coal-fired generation has become expensive.

Figure 1 – Australian electricity generation costs and EROI

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  1. Richard Mills

    How does energy efficiency fit in your equation

    • georgejetson762

      The role of energy efficiency is interesting. If a country, say Germany, is ‘energy efficient’ in the sense that they produce a high GDP per unit of energy, then in principle, a lower EROI energy source is viable, where it might not be in, say, the US.