Many different approaches are used to determine the break-even point for a project and many cost-benefit analysis methods are available for the energy industry. One indicator to use when making such life-cycle analysis for an energy resource or fuel is the Energy Return on Investment (EROI). The term refers to the ratio of the usable energy returned during a system’s lifetime, to all the invested energy needed to make this energy usable. It is first coined by Charless Hall who is a systems ecologist (Gupta, 2018).
Hall et al. state that energy surplus is a must to be achieved for any species’ survival and further growth. It is a key factor for biological evolution and also the development of civilization. However it is more of an optimization process rather than just going for the maximum since efficiency and productivity are also to be considered (Hall, Balogh, Murphy, 2009).
There are numerous factors to consider before investing in energy. As carried out by Arda Batmaz (2013) , some of the decision making criteria can be grouped as technical (efficiency, reliability, capacity, operational risks, local know-how and exploitability), economic (CAPEX, OPEX, realization time, financial indicators, service life, policies, risk, confidence, macro economic markets, availability of funds), environmental and social aspects (emission rates, land use, noise, social acceptability, job creation, safety for human life).
EROI might come in handy since an elaborative analysis is crucial for both the investors and the policy makers when determining the type of energy resource to opt for.
A preliminary protocol for determining the EROI was proposed by Murphy et al. in 2011. While developing a formal methodology and nomenclature for such an analysis; a price based method might have shortcomings of not emphasizing global warming potentials enough, whereas an exergy based method might also not be able to consider greenhouse gas emissions plus economics and financial matters (capital, labor, ease of transport, infrastructure etc.) too.
The problems with the price based method can be ameliorated to some extend with the adjustments by price caps and gas emissions trade programs. For the time being, Divisia Index which is set to coal as the reference fuel was proposed (Murphy, Hall, Dale, Cleveland, 2011).
EROI values are also dependent on time since they are closely related with the technological advancements and availability of the resource. For example EROI values for oil have been showing a decline (Hall, Lambert, Balogh, 2013) since more easily exploited reserves have been getting depleted.
Further developing on the idea, Jessica G. Lambert created the Lambert Energy Index (LEI) to consider factors like EROI, Gini Index, and Energy Use Per Capita all together. (Lambert, Hall, Balogh, Gupta, Arnold, 2013).
There is no one tool that is collectively accepted when it comes to decide on an energy investment or policy yet.There have been many suggestions and other studies considering and centering around the concept of EROI ever since (a simple google scholar search for the exact phrase returns ~900 results per year since 2013) and time will show if it becomes a standart tool for industry to us.