The Return on Investment in Renewables

Renewable energy has become one of the most popular and profitable investments in recent years. Equinor previously known as Statoil, one of Norway’s leading oil & gas companies rebranded itself recently as an energy company and started investing heavily into renewable’s. Kudos on them, it’s obviously a smart PR move, and it’s going to take time and effort to shift from oil and gas, but they are shifting. And other fossil fueled giants like ExxonMobil, Royal Dutch Shell, Chevron, BP, and Total SA are doing the same around the world. This peaked my curiosity as these companies, like most companies, are looking to make a profit. Which made me wonder which renewable technologies are worth investing in, and which ones would make a better profit? If I were to buy and install a solar panel on my roof, how long would it take me to earn back my investment, or in other words get a Return on Investment (ROI)? How about a wind turbine?

So, I set off to find the most profitable renewable technologies today. This was a bigger task than I initially had though as the methods of calculating a Return on Investment (ROI) on energy uses another form, Energy Return on Investment or EROI, which is simply Energy Output divided by Energy Input. An EROI of 2 means you get back two times the energy you put in. For simplicity, ROI and EROI can be thought of interchangeably in this post, if a technology has higher EROI it will tend to have a similar ROI or vice versa. Complicating matters however is that people disagree on how to calculate the Energy Input. Take a solar panel as an example; Some think it’s enough to consider the material, the work, and the transport for the energy cost. But others think you should include the energy cost of building the manufacturing facility where the material was produced, the meals the manufacturing workers are eating, the roads which the materials travel on, etc. There is no unified answer for how far back we should go when calculating Energy Input. Despite that, it’s still simple to compare different energy producing technologies if we use the same methods for calculating EROI. For this post I consulted several different sources and studies to give an average EROI.

But enough of the drawn-out technobabble, summarizing:

  • When looking for a profitable energy source you want to get as much energy as possible OUT for the energy you put IN, or in other word a high Energy Return on Investment.

  • This Energy Return on Investment will affect the Return on Investment. A high value in one will mean a high value in the other, not identical, but similar.

  • On top of that you need to consider the natural resources of the location. If you’re in the desert, chances are you will have a higher ROI on solar panels than on hydro turbines.

So, let’s get to it shall we, here are the most profitable renewable energy sources, rated by their averaged EROI values.

Hydro - Average EROI value of 80

The most profitable renewable energy source by far is hydro power with an EROI of 80, because water is 800 times the density of air, and therefore produces allot of energy. It’s also a highly reliable energy source as it often includes dams which has stored energy in its reservoir, ready to be used when needed compared to solar power which doesn’t work half of the day, and wind turbines which need wind. Hydro power totaled 70% of all renewable energy in 2015 and is a safe investment.  The most popular way to capture hydro energy is using dams, small hydro stations on rivers, or through pipes running along the side of a river. Notable new forms of hydro power are Wave Power, which uses surface oceans waves, and Tidal Power, which converts the shifting tides into energy.

Wind - Average EROI value of 26

With an EROI value of 26 wind energy ends in a strong second place as the most profitable renewable technology. Wind turbines are the main tool to transform kinetic wind energy into electricity and the technology is also quite old as windmills have existed for centuries. Placing them at locations which provide consistent wind such as offshore and on high altitudes is important to fully utilize its potential. When installed properly and at the correct location wind turbines demand much less maintenance than most people imagine, and that combined with its relatively simple and cost-effective design makes this renewable tech clock in as number two.

Geothermal - Average EROI value of 9,5

Geothermal energy is essentially using the earths internal heat to produce energy for our own use. Hot springs is one source of geothermal energy which comes from molten magma heating rock and water in the earth’s crust. It’s been developed ever since the ancient Romans used it for bathing and heating their houses. Today’s hot springs are however mostly used for producing electricity. Another way of using geothermal energy is using the outer crust of the earth to heat and cool buildings, either pumping heat into the ground for cooling, or up from the ground for heating, often depending on the season. Geothermal energy has a lot of potential to reduce energy spikes during summer and winter seasons which is one of the reasons it gets an average EROI value of 9,5.

Solar - Average EROI value of 8

Photovoltaic (PV) solar energy converts the suns light into electrical current, and has turned into a lucrative industry which has in recent years cut costs and improved effectivity of the technology drastically. The EROI values of solar technology vary heavily as well. Combine that and the enormous energy output of the sun, a practically infinite source of energy, and it’s not difficult to see why solar power is one of the most popular choices in renewable tech, despite its relatively low EROI score compared to the other technologies on this list. Solar energy is also the fastest growing renewable and is fairly predictable as any area will have an average number of sunny days per year.

In conclusion hydro power is the most efficient and therefore most profitable investment. It is however the least available resource and highly geographically varied. Wind energy is the second-most profitable, with simple but still area dependent technology. Geothermal is an ancient and reliable heat source and ends up on third place leaving solar tech in last.

If you would have compared and listed the initial upfront costs of the renewable technology however, you would simply need to flip this list with solar technology being cheapest, and hydro power being most expensive. This could be the reason solar technology, with its low scale application, is the most popular choice today, despite it having the lowest EROI. Regardless of which technology you decide to invest into, green is here to stay, and hopefully I have helped inform the choice a little.

Until next time,

Ademir

Writer, vlogger, startup coach and full time entrepreneur. Join my journey here on ademiralijagic.com to learn how to become an entrepreneur. Let’s chat on Twitter about entrepreneurship.