What is the Full Cost?


What is the Full Cost?

11 hours ago

Kip Hansen


Guest Essay by Kip Hansen – 20 May 2022

A friend recently decided to get a pet – more precisely, a dog.  This friend does seasonal work, employed six months and then at wits-end the rest of the year.  He does useful things with the off time like rebuilding an old home he purchased, stocking his freezer with wild fish and game, and helping friends and neighbors.   I asked him if he knew how much dogs cost in real dollars.    He replied that he would adopt a shelter dog – free.  I asked again if he knew how much a free shelter dog was going to cost him.   As you can guess, he had no idea of the real Full Cost.  Here’s pet industry estimates:

Up to $1,000 upfront and another $1,000 per year.  These expenses apply to a stay-at-home dog and not one that needs occasional boarding, dog-walking services or doggie day care. And that’s only if your dog doesn’t get sick.  In my experience as a pet professional, every new dog gets sick and goes to the vet at least once in the first six months – at an average cost of $250 per visit on top of the usual $250/yr vet visit bills. 

This essay is not about buying a dog, though I could tell you a few hair-raising tales on that topic.  It is about the Full Costs of Things (or FCOT)

What do we mean by the Full Cost of Things?

As the dog-buying example shows, even free things come with costs – immediate costs, additional predictable costs, expected recurring costs, unexpected recurring costs and a long list of things that eventually have to be paid.  For dogs, that means the eventuality of the dogs dying-days expenses (some people spend thousands and thousands of dollars to prolong the dying days of a beloved pet) and burial costs. 

For automobiles, we all suffer the maintenance costs, insurance costs, repair bills, body work from minor bumps, new tires, snow tires when we move to a four-season home.  Many a person has been convinced that they can afford an automobile because they could afford the monthly payments only to discover that they could not afford the total cost of ownership – the Full Cost of the Thing. The point here is that there are lots costs that come with simple ownership or use of a thing. 

This brings us to:

There ain’t no such thing as a free lunch

In advanced developed countries, we take electricity as a given – when we flip the light switch, the electricity will flow and the light bulb (or new LED bulb) will shed light into the room.  We know that the electricity is not actually free but most of us don’t fuss about the cost of using indoor lighting when needed. 

The average cost of electricity for a U.S. home is about $132 a month, with a lot of variation between states.  That’s the cost a consumer is most aware of.  However, the consumer is also paying for the cost of the electricity goes into the goods and products that he buys which is included in the purchase price.  The list of these ‘hidden electricity costs’ includes things like the smelting of metals like aluminum, the refrigeration of foods in the grocery store, additional taxes for street lighting – an endless list.

When we talk of the Global Transition to Green Energy, by any of its myriad names,  we have a much larger issue.  While energy freely flows all around us, neither being created nor destroyed, energy in forms that we can store and use at will to do the work we need done, such as lighting a light bulb, making steel, rotating the blades of our lawn mower or powering our electric car, comes at a cost. 

The idea of ‘free energy’ available from solar panels or the wind has had to be abandoned – there simply “ain’t no such thing as a free lunch” (h/t Robert Heinlein).

There is an important new paper out:

This peer-reviewed paper has been accepted by the Journal for Management and Sustainability and will appear in the June 2022 issue at the Canadian Center of Science and Education. The Journal of Management and Sustainability (JMS) is an international, double-blind peer-reviewed, open-access journal for academics and practitioners of sustainable management. The abstract starts with:

Both the abstract  and the full paper are freely available.

Its concepts are previewed in a 19 minute video in “Sage Talks” as The Future of Energy by Dr. Lars Schernikau.

(click image or here.)

The current thinking in the energy field, amongst policy makers and some utility managers, is that “The LCOE – Levelized Cost of Energy — of utility scale solar power and onshore wind power is less than coal and gas-fired power stations.” [ source ] 

Schernikau et al. contend that:

 “LCOE is inadequate to compare intermittent forms of energy generation with dispatchable ones and when making decisions at a country or society level.  We introduce and describe the methodology for determining the full cost of electricity (FCOE) or the full cost to society.  FCOE explains why wind and solar are not cheaper than conventional fuels and in fact become more expensive the higher their penetration in the energy system.  The IEA confirms ‘…the system value of variable renewables such as wind and solar decreases as their share in the power supply increases’. This is illustrated by the high cost of the ‘green’ energy transition.”

The full paper comprises ten pages of three column text and a further two of appendices and references.   It can not be summarized here in a thousand words.  The video (above)  is 19 minutes, however, I recommend taking the slightly longer time to read the full paper if energy production and costs is of interest to you.

I’ll try to give you an idea of it through a few of its charts:

Germany has reached a wind/solar share for gross electricity production of ~28%. The primary energy share of wind and solar (Note 2), however, was still only 5%. To achieve this “transition”, Germany’s installed power capacity had to double (Figure 2) [ above ]. Consequently, the renewable energy sector grossly underperformed, compared to its investment in real energy terms, and Germany’s electricity prices reached the highest among the G20.”

When Schernikau et al. consider the Full Cost of Electricity (FCOE), this is what they mean:

Policy makers today often use only LCOE – Levelized Cost of Energy – when they look at cost of electricity from various sources.  LCOE is seen in the chart above in the upper left corner and does not include the other costs in the left column.

eROI – Energy Return on Energy Invested

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.”

The eROI concept is illustrated with this image:

The red arrow at the top of the column representing Coal and Gas signifies the efficiency loss due to CCUS – Carbon capture utilization and storage.  Similar, the red arrow for Wind, Solar, Biomass is the loss due to the use of excess or unutilized renewable electricity to manufacture “green hydrogen”.

“…as illustrated in Figure 10, global primary energy consumption could rise by up to 50% by 2050 (~25% population increase and ~20% PE/capita increase translates to ~50% PE demand increase). Energy demand growth is fueled by developing nations in Asia, Africa, and South America. Developed nations are expected to consume less energy in the decades to come, driven by population decrease/stagnation and efficiency increases. However, historically, energy efficiency improvements have always increased energy demand (see Jevons Paradox,  Polimeni et al., 2015).”

Wrapping up, Schernikau et al. offer Fig 12, which illustrates their point that variable renewable energy sources do not fulfill the actual objectives of energy policy – providing a basis for healthy lives and societal growth – failing the tests of energy security, affordability, and even failing all but one important aspect of environmental protection.

Bottom Line:

Investment in – not divestment from – fossil fuel is the logical conclusion not only to eradicate (energy) poverty, improve environmental and economic efficiency of fossil-fuel-installed capacity (whether it be for transportation, heating, or generating electricity), but also to avoid a prolonged energy crisis that started in second half of 2021.”

Readers with a serious interest in the ongoing but often misguided effort to transition the world to renewable energy and away from fossil fuels and nuclear will find that the time and effort to read the full paper to be good investment. 

# # # # #

Author’s Comment:

Lars Schernikau, Bill Hayden Smith and Rosemary Falcon have done a fabulous job putting together the argument that rushing to shift to intermittent renewable energy sources is premature and will lead directly to higher electricity costs for consumers and potentially to a prolonged period of energy shortages. 

Note that the paper was written before the Russo-Ukraine conflict broke out which has caused additional stress on the energy systems of Europe, particularly in Germany. Even if the conflict is resolved before the end of 2022, there will still be huge problems in keeping the homes of western Europe heated this coming winter.  The billions spent on wind farms and solar farms will be seen to have been unwisely spent.

The real cause of this disaster is politicians allowing themselves to be panicked into buying into renewables without first considering the real full cost.

Failing to know the Full Cost of a Thing before purchasing has led many a family into budgetary disaster. And today, many a nation is falling into the same trap on the energy front.

Schernikau et al. will collectively try to answer your questions in the comments but be aware that they are working scientists spread across time zones.

Thanks for reading.

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