What Is Energy Return on Investment (EROI)?

Energy Return on Investment (EROI) is the ratio of the amount of usable energy obtained from a resource to the amount of energy expended to produce that net amount of energy. For instance it takes energy to locate, extract, deliver, and refine crude oil before it can be used for energy.

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.

Key Takeaways

  • Energy Return on Investment (EROI) is the amount of energy expended to produce a certain amount of net energy.
  • EROI is an important determinant in energy commodity and electricity pricing.
  • EROI decreases when energy becomes scarcer and more difficult to extract or produce.

Understanding Energy Return on Investment

EROI is important because if the cost of an energy plant is more than the revenues gained from selling electricity, that plant is not economically viable. EROI can also help organizations and governments determine which systems are more profitable than others. Solar power or nuclear power, for example.

When the EROI is large, that means that producing energy from that source is relatively easy and cost-effective. However, when the number is small, obtaining energy from that source is difficult and expensive. For example, when the ratio is 1, there is no return on energy invested. According to Forbes, the break-even number is 7.

In its simplest form, EROI is calculated as:

EROI = Energy Output / Energy Input 

However, there are dramatic differences in how certain steps of the input process are measured. This measurement is complex because the inputs are diverse and there is uncertainty as to how far back they should be taken in the analysis. In addition to energy costs, there are other external costs that need to be considered with respect to energy production such as those associated with the environment and people's health.

Generally, we can expect that the highest available EROI energy sources will be used first because these offer the most energy for the least effort. A net energy gain is achieved by expending less energy when attempting to acquire and use a source of energy. EROI analysis is considered part of a life-cycle analysis.

Types of Energy Sources Where EROI Is Measured

There are a number of consumable energy sources where EROI is determined for efficiency and cost analysis. These energy sources include oil, biofuels, geothermal energy, nuclear fuels, coal, solar, wind, and hydroelectric.

According to the World Nuclear Association, the average EROI across all generating technologies is about 40 for the United States. The Association cites a study by Weissback et al. (2013), which states that “The results show that nuclear, hydro, coal, and natural gas power systems (in this order) are one order of magnitude more effective than photovoltaics and wind power." 

According to the U.S. Energy Information Administration, fossil fuels such as coal, petroleum, and natural gas, have been the major sources of energy since the late 1800s. Until the 1990s, hydropower and solid biomass were the most used renewable energy resources. Since then, the amount of energy coming from biofuels, solar, and wind energy has increased.

The EROI for oil has decreased dramatically over the past hundred years. The amount of energy required to produce one barrel of oil has decreased as more efficient methods, such as fracking, have been introduced.