Energy Economics – I

hello good morning and welcome back to the next lecture of energy conservation and waste heat recovery ah um today we are going to talk about a topic which is a little different from you know the topics that we were discussing so far this topic is called energy economics ok so this is not so much about hardware but its more about ah how do we decide if an energy installation if a plant ah um if if that is viable if if it is worth going for that energy production if you are planning to set up an energy plant or how much energy do we need for the economy to sustain so a lot of these questions are going to be answered in this section on energy economics ok so let us write down the name of the topic then the topic is energy economics all right now when we talk about energy economics ah there are roughly i would say or at least what i am going to present ah there are two different ways of looking at this ok its i mean they are not like alternate ways ah energy economics can mean two different things the first one as i was saying is the economics related to an energy installation ok so you do the accounting you see how much is the cost of setting up a plant and if you set up a plant what is the benefit that you are going to get in terms of energy product additional energy production in terms of cost savings over a period or over its lifetime and so on and so forth ok so thats definitely one part of energy economics the other part with which i am going to start is to look at energy and economy ok how is energy and economy related to each other what is the relation are they are they even related when we talk about the economy of a nation lets say economy of india ok does it depend on energy ok so thats the question that lets try to answer that ok so to do this what i would say is let us imagine a hypothetical situation where i leave you on an island its a deserted island and over there i give you a lot of things i give you money i give you gold ah um i gives you silver ah a lot of other things ok but i dont give you any any energy and when i say energy i am talking about coal i am talking about wood ah um i am talking about natural gas oil and so on ok and even sunlight let us say is the north pole during winter ok you dont have sunlight so what will happen so if i am stranded in an island like that i will survive for the amount of time that my body energy stored in my body is going to let me survive but beyond that i wont be able to survive ok and nothing in the on that island is going to survive so if nothing survives on an island what happens to the economy the economy also dies ok so there is no economy left on the island but think about it i had given you a lot of other things so there is no economy left on the island even though you are surrounded with enormous wealth right but that wealth that money that gold the silver the bullion is of no use all right so that is what i am trying to say there is a famous economist his name was julian simon ok julian simon so what he said is energy is the master resource mark by words energy is a master resource so all things depend on available energy ok the plants grow because they get energy from sunlight from the soil through the nutrients and so on the population grows because of energy ok and the growth a limit of population growth will be dictated by how much of energy resources a nation has ok

if we there are there are situations where when the economies have stumbled have fallen because the population growth ah was more than what the economy could sustain and which in turn was related to unavailability of energy resources ok so every unit of production of anything you think about it ok anything that you want to produce requires energy ok we cannot deny that fact everything whatever you want to produce every unit will depend on energy ok and that energy has to be available to us and available in an affordable manner ok so therefore i would like to further state that the growth of a nation which is growth of the economy of the nation depends on adequate supply or availability of affordable energy ok i repeat the growth depends on adequate supply of affordable energy ok and why do i say that if you think about it let us try to plot the global population ok so i would say the global population in billion billion people and this is time so let us say till i will put a break here i would put this as nineteen hundred i would put this as two thousand i put this as two thousand seventeen which is where we are today and somewhere in the middle i will put this as nineteen fifty ok today we know the population is around seven billion and let us say this was one ok so around nineteen hundred if i plot this it was going growing up like this all right and then today we are at around seven point three billion or something i think here also there was an increase sorry and then there was an increase like this ok so remember if i say this is eighteen hundred and i have put a break here so what happened was that what we see is after nineteen hundred there is a steep growth and after nine nineteen fifty even even another steep growth ok so let us put these two points ok now these two points actually denote something these two points in time approximately denote something this one coincided with coal becoming an available source of energy ok economically viable so therefore affordable source of energy and this one coincided with oil ok before this was more like the biomass biomass was the energy source here and the population was around at nineteen hundred was around one point three billion ok so as you can see that with the availability of coal and oil litre a oil what has happened was the population really searched so this further denotes or what further sort of underlines what i just said that the growth of a nation and this is being denoted in terms of population the growth depends on the availability of adequate amounts of affordable energy right so if i look at some numbers so from where we were in nineteen hundred to where we are today this one what what it means it means that since the why would say since use of fossil fuel what have we seen we have seen five x increase in population sorry what is not shown here is an eighteen x increase in

energy and around if i look at the global economy an eighty x increase in economy ok look at these numbers i am talking about nineteen hundred which is a little more than hundred years ok so in this short period of time if you if you look at it this time period is a short timeframe if you look at the history of mankind but what we see is in a little more than hundred years the population has increased by five x ok not just five yeah of course five x ah but more than that from one point three billion to around seven billion today the energy resources in the world has increased by eighteen times and the economy has therefore jumped by eighty times ok so this further ah again i am trying to underline the fact that energy is the master driver ok that is a master driver for economy clear all right so what we are going to do next is we are going to look at something called ah net energy total energy and net energy ok so total energy versus net energy so what is total energy thats the amount of energy that is available to me ok now is that the energy i can use right away lets say for lighting my home ok no all right so if i look at the total energy if this is my total energy lets say i would say part of it i have to invest for tomorrows energy ok i have to think of the fact that my energy requirements are going to go up in time with time and therefore i have to make way for you know for installing new plants new energy sources and so on in new energy production units and so on the second one is you have to use it to build upon or maintain existing infrastructure all right and after this so after this is gone what is left over here is what can be used by us ok and even what can be used by us ah can also be further broken down lets say into essential use like for example water electricity etcetera which are life needs so that is essential use and also discretionary use for example i want to you know drive an suv ok do i have the energy to do that again we are not talking about affordability in terms of money here which is also important but what we are trying to talking about here is the availability of energy resources to us as a nation ok so if you look at this this is like you know if you if you think about your paycheck right so part of it is like taken away for tax and then the rest of it is used is available to us for use right so this is something that we have to keep in mind so therefore this is this one this net energy so this total is the total energy i would say this is total energy but net energy is this one ok and it is net energy is what that matters all right so what do we mean by that what do we mean by that ok what i am trying to say is if you have to generate energy if you think of it

if you need to generate energy we also have to use some energy ok lets take the simple example of a power plant right power plant yes i need to generate energy i i i generate electrical energy right but for that i also need energy to be used right so thats the thing and when i said i mean i need energy i need energy for ah the available energy that is to that is available to us or part of the energy that is produced is me is is required to run the plant right i am running that power plant but i need electricity to run the plant right if it is a gas turbine plant i need part of the turbine work to run my compressor exactly and the rest of it is available to us ok so lets take a a step back and this was we are talking about already an existing energy installation when we are talking about power plants but let us think about just to get a source of energy what is the amount of energy that we need to spend all right so let us say i tell you today that i have found an oil well ah that can give you like lets say twenty billion barrels of oil right i can get twenty billion barrels of oil from a new oil well that has been this is a hypothetical situation by the way i found a new oil well somewhere where i have seen there a enough oil reserves to give me twenty billion barrels of oil ok so thats a lot of oil its a its great news right for mankind because we know that the fossil fuel or or we are we are running shortage there is a shortage of growing shortage of fossil fuel we are running out of resources and so on but then i tell you that you know what the problem is that this oil well that we have found is really deep its almost close to the center of the earth and to dig this oil or to explore and and get this oil out of out of there will cost me an energy which is equivalent to forty billion barrels of oil right so what is it i am i am spending energy worth forty billion barrels of oil equivalent to forty billion barrels of oil to get energy which is twenty billion barrels of oil ok so again lets write down this hypothetical situation i would say found twenty billion barrels of oil but need to spend forty billion barrels of oil or equivalent of so what is my net energy total energy yeah is twenty billion barrels of oil but what is my net energy it is minus twenty billion barrels of oil ok minus twenty billion barrels of oil so what is the use this is a losing proposition the net energy is actually negative all right so this one this energy proposition is rejected ok this is a losing proposition because the net energy or the surplus energy is negative here and that is what matters a society runs on the surplus or net energy clear so always keep that in mind the society runs on surplus or net energy if you look at highways if you look at roads if you look at the aircrafts on the sky everything to build everything we needed energy ok so energy actually ah um is very important it it it is kind of influencing us in every moment in such a manner that we dont even realize ok so with that what i will do is i will come to the first metric of energy which we which sometimes is called net energy it is also called energy returned on energy invested ok so i will call it e or o ei stands for energy returned on energy invested and this is again defined as energy out over energy in right this is

equivalent to like your take home salary over the tax that you paid on your salary right ok so this is what it is so this term is energy return on energy investment or energy invested so let us say i would say as an example if ero ei is equal to ten what does it mean it means that the percentage of total energy available for use will be how much it means that if i lets take the example if i produce if or if i use energy equivalent to one barrel of oil i can get ten barrels of oil ok so ten percent of the energy that i am getting is lost in producing that energy ok so therefore percentage of total energy that is available to us is ninety percent why because it is one minus one over ten times hundred percent clear all right so what i have with me now is a plot which i made using this formula again ah um let us see if if if it is i will i will try to explain what it is on the y axis on the x axis sorry is eroei ok this is at zero fifty forty five ah that ten is something that we were talking about and as you can see ah this is a surplus energy percentage or the available energy to us and as we were seeing at ten it is at ninety percent ok so let us think about the this entire plot area which is this is equivalent to like your total energy whatever is above the line if ah if i sort of mark it in or in red this is the energy that is lost right this is something that i dont get this is the energy in ok but and what is then under this plot this is the energy available or surplus energy right so this for example this again is like energy in in and this is energy available or energy out all right so as you can see at fifty at fifty of eroi of fifty what happens is only two percent of the energy that i get is actually used up for producing that energy and the rest ninety eight percent is available right at fifteen it is still quite high right at fifteen it is like ninety three percent or so on at ten ninety it still ok but this is where the hockey stick starts ok and if you look beyond five we are really on this on this part of the curve which is called the energy cliff right what it means is beyond lets say beyond five if we go a little towards the left towards the lower numbers what happens is most of the energy that is produced is lost and till we reach this till we reach this value which is equal to one what does one mean that whatever we get get is used up for producing that energy so there the surplus energy available hits zero at the value of eroei equal to one so their energy out is equal to energy in right

so thats the point ok so let us now look at this curve and try to see where we stand if we look at the different sources of ah energy that we know of ok ah um let us first talk about oil which is important which is something that has been ah um you know one of the prime drivers of our economy today in nineteen fifty ok when the oil extraction was first done you could do that at almost an eroei of hundred which is way toward the right of the curve right so for one energy spent which is equal to one barrel of oil i was getting hundred barrels of oil so because at that time it was largely unexplored the wells were you you could get oil at low depths and ah so therefore oil was abundantly available but what we as greedy humans did was since it was available to us we extracted it as much as possible and used it up ok unfortunately and so with time what happened was the oil production started going down this curve ok at around nineteen fifty that is let me write down some of these if i talk about oil in nineteen fifty it was around as i said is it was hundred right by nineteen seventy it had come down to around twenty five why because whatever was readily available easily available has been extracted so now in order to extract oil we were having to go deep we were leading larger larger oil wells and so on right then what happened by nineteen nineties we were somewhere between eighteen to ten all right and today we are between ten and three point five lets say ok depending on where the oil field is why because as i said the easier sources have been extracted and what is remaining are deep into a are are really deep wells which we have to really dig deep to get them the oil fields to extract a certain sizable amount volume of oil the fields have become large and the machinery is also the third thing we should not forget the machineries used for drilling for excavation has also become much much bigger much more complicated and it requires much more energy to build those rigs today than what it used to take in nineteen fifty right so therefore from one is to hundred which is way to the right of this curve today we have come to around this point we are somewhere here and here very sad but thats the reality ok because the low hanging fruits the easily available oil is no longer available to us we have used it up ok so thats the scenario of oil today what we will do next is in the next class we will wrap up this discussion and look at other sources of energy where they lie on this curve thank you very much