This post is here to explain three of the terms I use quite a lot when looking at project viability. Some will be familiar, others less so. Put together these three measures and the interactions between them go a long way towards assessing whether an energy generating or energy saving project is “worth it”.

Ratios

ROI: Return on Investment

Return on investment is the dominant way of choosing whether or not something is worth doing. It can be expanded to take account of non-market costs through various means.

There are two main ways that conventional economics fail to give the full picture. First, natural resources are for the most part non-renewable and become depleted. As they are used up, the cost rises so the ROI of a process today may be different from a process in a decade’s time. Second there are negative externalities. These can (and should) be costed if possible by valuing the life cycle impacts identified through life cycle analysis (LCA).

EROEI: Energy Return on Energy Investment

Energy return on energy investment is a measure that looks at whether an energy project is “worth it” on a more fundamental level than money. It is rare for a project to have an EROEI of less than one and still go ahead. The few examples are almost entirely to do with storing energy. Sometimes it does not matter that you have to put more energy in than you will get out if it means you can have the energy when and where you need it.

CROCI: Carbon Return on Carbon Investment

CROCI is a less commonly used measure than EROEI. One possible reason is that it is not as easy to compare across national borders where the energy mix and hence carbon emissions may be very different. On the other hand, when considering national climate policy it is a more useful measure.

Trade-offs Venn diagram

These factors – financial impact, energy impact and carbon impact can be compared to each other in various ways as shown in the diagram below. It is interesting to compare this diagram to the three-legged stool approach to sustainability. ROI represents financial sustainability (profitability), EROEI represents social sustainability (access to energy) and CROCI represents environmental sustainability (impact on climate change).

Interaction of costs of energy projects

For each of the three corners of the Venn diagram you want the highest  number possible for the return on investment ratios. However for the interactions you are looking for a small number – a low cost of energy (£/kWh), a low cost of carbon saved (£/kgCO2), a low carbon intensity of energy (kgCO2/kWh).

These three figures, more than the ratios that we academically-inclined consultants are often interested in, are the figures that clients are concerned with. The objective of guiding clients towards a project with high whole life value (and the goal of enlightened policy intervention) should be to improve the match between investments that improve EROEI and CROCI with those that improve ROI.