The economic view of systemic efficiency: energy return on energy investment

The last post looked at what I’ve called the engineering view of systemic efficiency, specifically the concept of available energy, or exergy. I refer to this as systemic because it considers energy conversion processes in relation to their specific operating contexts, in order to understand the useful work that a system can provide. While energy conversion processes serve an infinite array of human purposes, in the proximate or most immediate sense, we carry out energy conversions in order to do work—to effect transformations in our material worlds—and to provide heating (and while technically it’s not necessary to further differentiate it here, to provide illumination also). The systemic view provided by exergy analysis deals directly with the question of how much utility we can derive from an energy conversion process, and so it allows us to think about energy resources and infrastructure in a more concrete way than when we conduct analysis in terms of the nominal heating value of primary sources or fuels, in isolation from the particular situations in which they are used. Differences in energy use situations—different conversion technologies, implemented in different ways, operating in different physical environments—lead to differences in the utility that can be derived from an energy source. In establishing the efficiency of an energy conversion process—the useful energy output from the process divided by the nominal energy input—a focus on conversion systems and their parts (including the particular energy sources involved) only gets us so far. For a comprehensive view of efficiency we need to consider energy conversion processes in terms of all three levels of the basic systems hierarchy of system, sub-systems and supra-system. Exergy analysis provides the means for achieving this.

My reason for identifying this approach to thinking about efficiency as the engineering view relates in part to the scale at which exergy analysis’s systemic approach is most fruitfully applied—namely the plant or equipment scale. In other words, this is most immediately useful at the micro-economic or enterprise level, where we deal with technology components that make up economic units. In macro-economic terms, exergy analysis does have particular value for understanding performance of an economy’s energy sector, and also provides especially valuable insights in relation to transport and manufacturing activities.  Coming to terms, though, with industrial societies—or, as we’ll see, any forms of social organisation for that matter—in physical- or energy-economic terms requires that we look beyond the enterprise and even sectorial levels. That is, we need a basis for thinking holistically about societies and their economic forms that relates energy supply and use at the overall macro-scale. It’s for this purpose that the concept of energy return on investment (EROI) (or energy return on energy investment—EROEI), has started, only relatively recently, to be better appreciated as so important. EROI tells us about the energy available for economic activity other than the supply of energy itself, and it is in this sense that I referred to it in the introductory post on efficiency as, roughly speaking, the economic equivalent of thermodynamic availability. Continue reading