Energy Return On Investment - EROI

Categories: Metrics, Investing

In finance, most of the measurements are done in terms of the green stuff. Smackaroos. Money.

Like...how many dollars does something cost? How many dollars can you earn in profit? etc.

That principle usually applies to the idea of a return on investment. In typical financial thinking, the ROI looks at the amount of money you invested in a project versus the amount of money you got out of it.

If you put in $1,000 and ended up with $1,100, then your ROI for that project was 10%. You returned an additional 10% on your investment of $1,000.

Energy return on investment changes the terms of measurement. Instead of talking dollars, you're talking units of energy.

Anything we use to power our society (oil, solar, wind, coal, etc.) requires some amount of energy to extract and prepare. You want some gas for your car? Well, first you have to drill it out of the ground and refine it and transport it and pump it into your car. Yeah...all of it takes energy.

If you burn more energy getting the gasoline than you get out of the gasoline...meh, it isn't worth the effort.

EROI gives a measure of how much energy we get out of a particular fuel compared to the energy it takes to extract that power...how much energy is invested in the process versus how much energy gets returned. A different kind of ROI.

Find other enlightening terms in Shmoop Finance Genius Bar(f)