107 comments on EROEI Short #3: Price-Estimated EROEI
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I think this is a valid approach. Money is a medium of exchange and the "value" measured in money, while subject to some imperfection, is the best way going to compare apples and oranges.
One question I have about the present analysis is the future cost of maintaining the system which further reduces the return. If you think you are going to have a system last for 40 years without maintenance, you are ignoring an obvious reality. Even with maintenance, I think 40 years is overly generous, so the paltry EROEI of .53 maybe is closer to .25. Anything less than and EROEI of 1 is an obvious loss; remember that oil is estimated to currently have an EROEI of 6, which translates into a 500% gain.
Since resources are limited, it is critical to direct those remaining resources into the best return. It should be a clue that if a subsidy is needed to justify an action, like building an ethanol plant, or installing solar panels, the action is not justified and the resources are being misdirected.
I agree that I think my .53 figure is conservative. But, as suggested above, there is a fundamental problem of using the price of fossil-fuel generated electricity as a metric, as that will likely dramatically increase in price (or at least scarcity) in the future. This measure also cannot incorporate the likelihood or lack thereof of technological improvements that will make a technology "cheaper" (a big argument from Solar PV advocates). Just my opinion, but the best use of this "price-estimated" methodology is to get a current snapshot comparison between two non-fossil fuel, "renewable" resources. I don't have the numbers because pricing seems so erratic at this point, but I'd be interested in the price-estimated EROEI (using this methodology) between thin-film solar and concentrating solar power.
Also worth noting that variable pricing (value) of electricity at different times of day and year further complicate this... just because, at the moment, most public utilities don't charge a 24/7/365 variable rate for electricity doesn't mean there is no variation...
This is why the big wind farm project in New York has just been scrapped (or about to be scrapped). Because people did an economic analysis as opposed to an energy analysis. The committee concluded that it was just uneconomical to put that many tens of millions into the wind projects, when coal, nat gas and nuclear electric were so cheap. I seriously doubt they did much sensitivity on what happens when electricity prices triple.
Buying wind power as a utility is like buying long maturity bonds as a pension investor in anticipation of interest rates going down. Wind has a HUGE 'duration', and will make the MOST economic sense if energy prices go up dramatically. Yes, if energy prices stay where they are, wind will underperform. But we all know government forecasting records on energy.
(I'll try to find the link on the scrapping of this wind project - if anyone has it - please post)
The question that always bothers me is whether wind will really prove to be sustainable. I think wind turbines need a moderate amount of maintenance. In order to do this maintenance, one needs roads, fairly big equipment, replacement parts, and workers who can drive (or otherwise be transported) to the location. If the replacement parts are currently made overseas, one needs to either be able to continue importing them, or one needs to be able to make replacements here. I don't know about the finer points. Does one also need diagnostic equipment? If so, that has to be manufactured someplace and transported to the place where it is used.
There seem to be so many tie-ins of wind turbines with the current oil industry (and the financial system) that assuming that there is huge duration for wind seems like a moderately big assumption. It really seems to assume that we will be able to maintain technology at our current level. I would feel better if our replacement energy system were smaller and had fewer moving parts - more like solar thermal.
You are correct about wind turbines, and the same can be said for solar etc.
of course the whole discussion here is on will full ignorance of these facts cause they can't make things work otherwise.
"The question that always bothers me is whether wind will really prove to be sustainable. I think wind turbines need a moderate amount of maintenance."
Wind turbines need constant maintenance in fact and the Godzilla turbines , 125m high, will never be able to be replaced in an energy starved economy. Wind farms at best produce at 35 % of their rated output over time and their constant variabilty of output means that thermal backup is essential, thus virtually cancelling out the "benefits" of carbon emmissions savings. Der speigel has some interesting images here :
http://www.spiegel.de/fotostrecke/0,5538,24219,00.html
Article here :
http://www.spiegel.de/international/germany/0,1518,500902,00.html
More here:
http://www.energytribune.com/articles.cfm?aid=509&idli=1
http://www.energytribune.com/articles.cfm?aid=588
Gail,
There may or may not be problems 30 years in the future getting replacement parts. The wind farms tend to be large, at least in Texas with a hundred turbines or more, so I don't anticipate that there will be much of a shortage of labor available locally for maintinence on either wind or solar in commercial size applications.
Engineering should always be prudent, and design needs to incorporate consideration for our descendents. But, if we do nothing we assure the future won't be nice-its a suicide through neglect. It will be their problem to solve along with a bunch of other 21st century problems. But, its their problem, not ours just as we have inherited erosion and deforestation from the past. Does it provide any part of the solution to know which clan leader ordered the last trees cut down on Easter Island?
Bob Ebersole
The price mechanism is the best we have for estimating EROEI. In a perfact world, there would be no subsidies of anything (save perhaps basics for people, such as food, shelter, education).
A few caveats. The price signal does not capture externalities. If we have to maintain a $600 billion a year military to gain access to oilfields, that reality is not captured in the price signal. Nor is environmental damage. Nor vulnerability to future cutoffs of oil.
Lastly, there is the oddity of world oil markets, and that is the short-term inelasticity. A minor surfeit of demand to supply (at least perceived) can shoot prices to the moon. So, investment in liquid feul sources whch replace some portion of demand might actually be worth it, if we can bring demand fossil oil down a notch or two.
And maybe lastly (unless I think of something else), when we engage in production (such as ethanol), we learn things. New and better ways of doing it. The E3 plant is talking about 5-1 EROEI. This is sometimes known as the infant industry argument.
So to wrap it up, free markets and price signals are best, unless the situation calls for taxes (on pollution) and subsidies (for alternative fuels).
Free markets, taxes and subsidies: The American Way!
Maybe not.
Value is in the eye of the beholder. Maybe to the music mad mobs, one crooner on American Idol is far more "valuable" than the other, but as far as Mother Nature is concerned, they are all crazed apes who intake carbohydrates at one end and output noise at the other.
Rejecting measurement in terms of money just because of some failures of economists, seems to me to be a case of throwing the baby out with the dirty bathwater.
Decisions about resource use are complex. Some people would have us all living with a subsistence level use of resources, while others want to party on, living to the hilt. In either case, I think it is prudent to consider alternatives for achieving the same objective and to make choices bases of efficient, rather than wasteful use of resources, if both produce the same end result. Generally, higher EROEI is a better use of resources than lower EROEI since fewer resources are consumed to produce the same result.
Money measurement certainly has a place in evaluating alternatives. I think you will find that results between traditional financial analysis and EROEI accounting give similar indications when considering alternative choices, and certainly both approaches can highlight the weakness of the other, hopefully with the end result of a logic based decision.
All I'm saying is that "price" is set by the mob (a.k.a. the market).
Sometimes the mob is mad rather than being a wisdom driven crowd.
We need to be wary.
Can I interest you in some sell-you-lossic ethanol (a.k.a. corn-shine)?
Henry,
It depends on the subjective value that any person puts on the resources and the product whether the resouces are misdirected or not. Say the corn for ethanol results in a prairie pot hole being plowed up and therefore fewer pintails in a marsh in Texas next winter. Are the ducks more important than the jobs of the people making the ethanol? Seems pretty clear to a guy making ethanol and the field hand farming, and also pretty clear to the ducks and the duck hunters, and the guys making shotguns and shells.
So what's the deciding vote? Whose job is more important? Whose values are more important, the values of a Ducks unlimited hunter, an ecologist vegan, a documentationally challenged farmworker driving a tractor in Iowa? Or even just the poor old duck? And while we're at it, we might as well throw in God's will.
Bob Ebersole
Arthur Robey
I like it. Everything is free. Gold is free. Expences start when you pay someone to extract it. This is the true value of money. It is an equivalent of labour. Period.
The way to magnify labour is to use another scource of energy. Eg. a Dozer to magnify the power of your muscles. This is the conection between energy and the dollar.
No energy and our ability to produce collapses.