Full Cost of Electricity “FCOE” and Energy Returns “eROI”

Understanding electricity generation’s true cost is paramount to choosing and prioritizing our future energy systems. This paper introduces the full cost of electricity (FCOE) and discusses energy returns (eROI). The authors conclude with suggestions for energy policy considering the new challenges that come with global efforts to “decarbonize”. affordability, and environmental protection. This translates into two pathways for the future of energy: (1) invest in education and base research to pave the path towards a New Energy Revolution where energy systems can sustainably wean off fossil fuels. (2) In parallel, energy policy must support investment in conventional energy systems to improve their efficiencies and reduce the environmental burden of generating the energy required for our lives. Additional research is required to better understand eROI, true cost of energy, material input, and effects of current energy transition pathways on global energy security.


Introduction (Today's Global Electricity Systems)
In 2019, fossil fuels -in order of importance -oil, coal, and gas made up ~80% of global primary energy ("PE") production totaling ~170.000 TWh or ~600 EJ. Despite Covid and significant wind and solar capacity additions, the percentage has not changed in 2021, quite the contrary, coal made a comeback (IEA, 2022a). Coal and gas made up ~60% of global gross electricity production totaling ~28.400 TWh in 2021. It is important to note that global electricity production makes up ~40% of primary energy with transportation, heating, and industry accounting for the remaining ~60% ( Figure 1).

Current energy policy focuses on the electrification of energy, thus significantly increasing electricity's share of primary energy
by using electricity more for transportation (see EVs), heating (see heat pumps), and industry (see DRI, producing steel using hydrogen). Therefore, this paper focuses on electricity. For a more comprehensive discussion on transportation, the authors recommend Kiefer 2013 Twenty-First Century Snake Oil, that includes details on hydrocarbons and biofuels for transportation which are not covered herein in greater detail.
Despite trillions of US dollar spent globally on the "energy transition", the proportion of fossil fuels as part of total energy supply has been largely constant at around 80% since the 1970s when energy consumption was less than half as high (WEF, 2020). Also in Europe, fossil fuels share is still above 70%. Kober et al. 2020 among others, confirm that total primary energy consumption more than doubled in the 40 years between 1978 to 2018. At the same time, energy intensity of GDP improved by a little less than 1% confirming Jevon's Paradox that energy efficiency improvements are always offset by higher energy demand (Polimeni et al., 2015).
Variable "renewables" in the form of wind and solar -while not the subject of this paper -accounted for ~3% of global primary energy and ~8% of global gross electricity production in 2019, and this was largely unchanged in 2020 and 2021 (refer to Schernikau & Smith, 2021 for more details on solar and Schernikau & Smith, 2022b on wind). Other forms of energy supply usually categorized as "renewables" -such as biomass, hydro, geothermal, or tidal power -are not detailed further as they are not considered variable and have a different quality. For comparison, coal and gas combined accounted for ~50% of global primary energy and ~60% of global gross electricity production. Thus, fossil fuels still exceeded wind and solar by a "Fossil to Wind-Solar Factor" of 27x for primary energy and 8x for electrical power production (IEA, 2021a).  Figure 1. Ov industry/transport/ oal, 42% for gas, and Analysis base t industrialized (Note 1) in th that nuclear is ctricity but fac els, the contine er the past two d in the "ener tion of ~28%.
this "transiti wable energy s lectricity price y factor, low e ( Figure 3), no on and has inv of nuclear and n 0 on eROI) ope has been l imports incre as reached a w olar (Note 2), city had to d d to its investm is underperform rtcomings of v Vol. 12,No.  anges. ntion was put on the economic impacts of the proposed transition to VRE. The literature researched is referenced at the specific elements detailed in the paper.
The cost of electricity is important for a country's global competitiveness and a key element for economic development as well as the discussion on energy policy at large. Electricity systems are complex, which is also driven by the fact that a functioning electricity system can only supply usable power if and only if electricity demand equals electricity supply at all times, every second. This unique characteristic of electricity systems drives costs. We need to differentiate between cost, value, and price, which are not the same. Further below we discuss only cost.
• Cost -the resources and work required for production.
• Value -the intrinsic value or utility to the consumer for a particular application as compared to its alternatives.
• Price -what consumers or the market are willing to pay. The price is influenced, or distorted, by government or company intervention, such as laws, mandates, subsidies, geopolitics, and more.
The true full cost of electricity, FCOE, is detailed in the following section. Cost of electricity has been studied in detail by several government organizations and universities. The Full cost of electricity donated as FCe was described in a number of white papers published at the University of Texas 2018. UT however focuses on transmission and distribution, paying less attention to backup, storage, and the intermittency of VRE. Also, the lower asset utilization of backup systems is not discussed in greater detail.
The OECD (OECD NEA, 2018) references the full cost of electricity separating between (a) plant-level costs, (b) grid-level system costs, and (c) external or social cost outside the electricity system. The argument is that that the full cost must include all three categories, which the authors agree with. The OECD study pays more attention to higher volatility and complexity with added VRE in the system, but energy required or cost for recycling is not considered. In the OECD's discussion on pollution and GHGs, the life-cycle emission and non-emission impact of energy systems is not considered, the focus is on combustion/operation and CO 2 (OECD NEA, 2018, p. 101).
The study also only marginally considers resource and space consideration. On costs the following OECD statements are important: • "When VREs increase the cost of the total system, …, they impose such technical externalities or social costs through increased balancing costs, more costly transport and distribution networks and the need for more costly residual systems to provide security of supply around the clock" (OECD NEA, 2018, p. 39).
• "From the point of view of economic theory, VREs should be taxed for these surplus costs [integration costs above] in order to achieve their economically optimal deployment" (OECD NEA, 2018, p. 39).
Various other electricity-cost-metrics exist (Note 3) such as LCOE, VALCOE, LACE, LCOS, Integrations Costs of VRE, etc. For a complete cost picture, the authors introduce the full cost of electricity to society, FCOE. The authors' FCOE falls into ten different categories that illustrate its complexity and many are not easily measurable (see Figure 5). The authors have not yet found these 10 categories considered in full by any energy economic institutions, government, university, private company, or any of the media. Usually only a few cost categories are discussed, and levelized cost of electricity (LCOE) is erroneously used most often. The socio-economic and environmental benefit of understanding the methods for electricity cost determination are substantial and require further study.

Full Cost of Electricity -FCOE
Since the question of electricity is one at society level, or at least at country level, the authors attempt to define the true full cost of electricity FCOE. Ten cost categories determine what we refer to as the Full Cost of Electricity "FCOE" to society: 1) Cost of Building electricity generation/processing equipment such as a solar panel, power plant, a mine, a gas well, or a refinery, etc. (often referred to as investment costs).
2) Cost of Fuel, such as oil, coal, gas, uranium, biomass, solar, or wind (which has a zero cost of fuel). This would include processing, upgrading, and transporting the fuel through pipelines, on vessels, rail, or trucks. It would also include costs for rehabilitating the source of the fuel, such as mines or wells. LCOE often assumes that the price for CO 2 is part of the Cost of Fuel, but to be correct we define a separate category 7: Cost of Emissions.

4)
Cost of (Electricity) Transportation/Balancing systems to the end user, such as transmission grids, charging stations, load balancing, smart meters, other IT technology, and its increasing threat from cyber-attacks. Refer to BCG Guide to Cyber Security (BCG, 2021a) and the March 2022 cyber-attack on satellite infrastructure targeting German windmills (Willuhn, 2022). Also refer to the 2017 attack on Ukrainian energy infrastructure described in the excellent book Sandworm -a new era of cyberwar (Greenberg, 2019).

5)
Cost of Storage, if required medium and long-term (different from load balancing), that should include cost of building and operating, for example, pumped hydro, batteries, hydrogen, etc. Keep in mind that oil, coal, gas, uranium, and biomass are storage of energy in themselves.
a. Full Cost of Storage must include just for storage alone (1) Cost of Building, (3) Cost of Operation, (7) Cost of Emissions, (8) Cost of Recycling, and (10) other metrics MIPS, lifetime, eROI.
6) Cost of Backup technology; electricity systems include redundancy in case something happens to a power plant or equipment. All reliable electricity systems are overdesigned, usually by ~20% of the highest (peak) power demand. In addition: a. Every single VRE installation equipment such as wind and solar require 100% backup, storage, or combination of both as by nature they are not dispatchable or predictable.
b. Conventional power plants are often used as a backup for VRE. The higher the share of VRE in the electricity system, the less such backup capacity will be used causing lower asset utilization. Thus, the cost of backup increases logarithmically as the VRE share in the energy system increases beyond a certain point (see also IEEJ, 2020, p. 124).
c. Thus, backup capacity may and currently does substitute long-term storage and is included herein as a separate category since it has a different quality and cost. It is important to avoid double counting. 9) Room Cost (sometimes called land footprint or energy sprawl) is a new cost category relevant for low energy density "renewable" energy such as wind, solar, or biomass. Due to the low energy density per m 2 of wind, solar, or biomass, they take up significantly more space than conventional energy generation installations where room costs tend to be negligible, at least relatively to VRE. These larger space requirements negatively impact our environment and need to be considered.

7) Cost of Emissions
a. Room cost includes direct costs and opportunity costs related to the larger space required and the impact on, i.e., sea transportation routes, crop land, forests, urban areas, affected bird and animal life, changing wind and local climate, increasing temperatures, increasing water scarcity in aridic areas, noise pollution, etc.
b. Climatic and warming effects of large-scale wind and solar installations are well documented but remain mostly ignored by the industry, policy makers, and investors (see Barron-Gafford et al., 2016;Miller & Keith, 2018;Lu et al., 2020;Schernikau & Smith, 2022b). c. A new coal power plant in India would require about 2,8 km 2 per 1 GW installed capacity plus the space for the coal mining (Zalk & Behrens, 2018;CEA, 2020). A new solar park would take about 17 km 2 per 1 GW installed capacity, plus the space for mining the resources to build solar. 1 GW installed solar capacity would generate much less electricity due to solar's low-capacity factor. Adjusting for a 16,5% average Spanish solar capacity factor, this would translate to a comparable 93 km 2 for solar, or a multiple of 33x compared to coal. Additional space is required for backup and/or storage due to solar's intermittent nature (Schernikau & Smith, 2021   LCOE is inadequate to compare intermittent forms of energy generation with dispatchable ones, and therefore when making energy policy decisions at a country or society level. LCOE may, however, be used selectively to compare dispatchable generation methods with similar material and energy inputs, such as coal and gas. Using FCOE, or the full cost to society, wind and solar are not cheaper than conventional power generation and in fact become more expensive the higher their penetration in the energy system. This is also illustrated by the high cost of the so-called "green" energy transition especially to poorer nations (McKinsey, 2022;Wood Mackenzie, 2022). If wind and solar were truly cheaper -in a free market economy -they would not require trillions of dollars of government funding or subsidies, or laws to force their installation.

Energy Return on Energy Invested -eROI
The authors suggest that environmental efficiency of energy is more complex than GHG emissions alone. Especially energy return on energy invested, or energy return -eROI, material input, lifetime, and recycling efficiency need to be considered as they determine additional very important environmental and economic elements for evaluating electricity generation.
eROI measures the energy efficiency of an energy gathering system. Higher eROI translates to lower environmental and economic costs, thus lower prices and higher utility. Lower eROI translates to higher environmental and economic costs, thus higher prices and lower utility. When we use less input energy to produce the same output energy, our systems become environmentally and economically more viable. When we use relatively more input energy for each unit of output energy, we risk what is referred to as "energy starvation" (see Appendix on energy shortages). At an eROI of 1 or below, we are running our systems at an energy deficit.
Note: Vaclav Smil's Energy and Civilization -a History (Smil, 2017) is an excellent, highly-acclaimed book on the subject of energy. In addition, the authors recommend Kiefer (2013) and Delannoy et al. (2021) for more detailed discussions on eROI. Kis et al. (2018) approach eROI by using GER (Gross Energy Ratio) and GEER (Gross External Energy Ratio). Kis et al. define GEER as life-cycle eROI and find a global average for GEER of approx. 11:1. Due to the complexity of eROI, more research is required in harmonizing the approach for its determination.
The eROI is generally higher for wind than for solar, also driven by the higher average capacity factor. According to Carbajales-Dale et al. (2014), the average solar PV from a net energy efficiency point of view can only "afford" 1,3 days of battery storage "before the industry operates at an energy deficit". Wind, from a net energy efficiency point of view, can "afford" over 80 days of geological storage (12 days of battery storage). However, for the mentioned net energy efficiency calculations, the researchers made the simplifying yet unrealistically generous assumption that a generation technology is supplied with enough energy flow (either wind or sunlight) to deliver 24h of average electrical power output every single day. This means days or weeks with no sun or wind would multiply the storage requirement and therefore further diminish the net energy efficiency or eROI. Carbajales-Dale et al. included the proportion of electricity output consumed in manufacturing and deploying new capacity.
It can be concluded that wind and solar have a very low eROI and are therefore a step backward in history in terms of system energy efficiency. Their grid-scale employment risks energy starvation and is therefore not desirable economically nor environmentally. The authors would like to point out that for certain applications, i.e., heating a pool that is not connected to the grid or heating water for personal use in remote areas, solar and wind may be a desirable complement to our energy systems. The installation of wind and solar does reduce the amount of fossil fuels combusted assuming no increase in power demand, which is the only positive of their employment. This positive aspect comes at high costs summarized illustratively in Figure 3: Summary of shortcomings of variable renewable energy for electricity generation. In developing regions, such as sub-Saharan Africa, shortages in energy supplies impede business and economic growth. In advanced economies, failure in the power grid and generating capacity has also led to measurable economic losses, such as those seen in Italy in recent years". Another direct impact of electricity outages will be loss to human lives and health. It must be noted, that none of the "Net-Zero" models or scenarios account for any cost resulting from energy shortage or energy starvation.
We have shown that the "energy transition" to variable renewable forms of energies such as wind and solar will result in higher electricity costs. Energy-transition-supporting strategy consultant McKinsey 2022 summarizes "A Net-Zero transition would have a significant and often front-loaded effect on demand, capital allocation, costs, and jobs". Research shows that a rise in electricity prices impacts economic output. Baruya 2019 summarized the impact of rising electricity costs to industries in China, the US, Russia, Mexico, Turkey, and Europe based on scientific research. The coefficients of elasticity between economic output and electricity prices were irrefutably negative. Output declined faster in the non-metallic minerals (cement) sector, metal smelting and processing, chemical industry, and mining and metal products. For example, in Vietnam, impacts of an increase in the electricity tariff on the long-run marginal cost of products manufactured using electricity-intensive processes were examined in 2008. An increase in tariffs drove price inflation of all affected goods and services (Baruya, 2019).
Baruya (2019) continues and confirms the authors' analysis how the retirement of fossil fuel-fired power plants without adequate, reliable, and affordable alternatives will "reduce the amount of backup power to less than the amount required to meet capacity shortages during peak electricity demand". Developing and industrializing nations, such as India, Indonesia, Bangladesh, and Pakistan will be negatively affected by the cessation of funding from Western financial institutions. Alternative funding may lead to the adoption of less efficient generating technologies resulting in increased environmental burden. Consequently, industrializing countries that do not invest in high-efficiency, low-emissions (HELE) conventional fuel technologies could face higher costs of generation, higher emissions reducing their competitiveness, and as a result slowing economic growth.
If investments in fossil fuels will not increase substantially and very soon, a prolonged global energy crisis will be difficult to avoid this decade. This remains true, even if all sustainability goals are achieved and wind and solar capacity continues to increase as planned or hoped. Global energy markets during the 2021 Covid recovery in Europe and Asia and the Russian/Ukrainian war in 2022 are testimonies to the impact of energy shortages.