© UHCBA Energy Institute 1 Some Basic Concepts UNIVERSITY of HOUSTON BAUER COLLEGE of BUSINESS...

© UHCBA Energy Institute UHCBA Energy Institute 11

Some Basic ConceptsSome Basic ConceptsUNIVERSITY ofHOUSTON

BAUERCOLLEGE of BUSINESS

ADMINISTRATION

ENERGYINSTITUTE

www.uh.edu/energyinstitute

Econ 3385 – Econ 3385 – Economics of EnergyEconomics of Energy

S. GS. Gürcan Gülen, Ph.D.ürcan Gülen, Ph.D.


Measuring EnergyMeasuring Energy

• We measure:We measure:– Crude oil in barrels (bbl) or tons (t)Crude oil in barrels (bbl) or tons (t)– Natural gas in cubic feet (cf) or cubic Natural gas in cubic feet (cf) or cubic

meters (cm)meters (cm)– Coal in tonsCoal in tons– Electricity generation capacity in watts and Electricity generation capacity in watts and

generation & consumption in watthoursgeneration & consumption in watthours– And, energy in barrels (or tons) of oil And, energy in barrels (or tons) of oil

equivalent, or British thermal units (Btus), equivalent, or British thermal units (Btus), or joules (J), or calories (cal)or joules (J), or calories (cal)



• Some conversion factorsSome conversion factors– 1 ton of oil = 7.33 barrels of oil1 ton of oil = 7.33 barrels of oil– 1 barrel = 42 gallons 1 barrel = 42 gallons – 1 gallon = 3.8 litres1 gallon = 3.8 litres– 1 cubic meter of gas = 35.3 cubic feet of 1 cubic meter of gas = 35.3 cubic feet of

gas = 0.00629 barrels of oil equivalent = gas = 0.00629 barrels of oil equivalent = 0.0009 tons of oil equivalent0.0009 tons of oil equivalent

– 1 terawatt = 1,000 gigawatts (= 1,000 1 terawatt = 1,000 gigawatts (= 1,000 megawatts (= 1,000 kilowatts))megawatts (= 1,000 kilowatts))



• Common unit that measures the “heat Common unit that measures the “heat content” is Btu:content” is Btu:– The quantity of energy needed to raise the The quantity of energy needed to raise the

temperature of one pound of water by one temperature of one pound of water by one degree Fahrenheit.degree Fahrenheit.

– 1 Btu = 1,055 Joules = 0.252 kilocalories 1 Btu = 1,055 Joules = 0.252 kilocalories – 1 Joule = 0.00024 kilocalories1 Joule = 0.00024 kilocalories– Therm = 1,000,000 BtusTherm = 1,000,000 Btus– Quad = 10Quad = 1015 15 BtusBtus



• Some examplesSome examples– 1 barrel of oil 1 barrel of oil 5.8 million Btus 5.8 million Btus– 1 cubic foot of gas 1 cubic foot of gas 1,030 Btus 1,030 Btus– 1 short ton of coal 1 short ton of coal 14.6 – 26.8 million Btus 14.6 – 26.8 million Btus– 1 kWh of fossil-fuel generation 1 kWh of fossil-fuel generation 10,300 Btus 10,300 Btus– 1 kWh of consumption 1 kWh of consumption 3,412 Btus 3,412 Btus

• Sources for further informationSources for further information– www.eia.doe.govwww.eia.doe.gov (Annual Energy Review) (Annual Energy Review) – www.bp.com/worldenergy/calculator/main.htmwww.bp.com/worldenergy/calculator/main.htm



• 1 cubic meter of gas = 35.3 cubic feet of 1 cubic meter of gas = 35.3 cubic feet of gas = 0.00629 barrels of oil equivalent = gas = 0.00629 barrels of oil equivalent = 0.0009 tons of oil equivalent0.0009 tons of oil equivalent– 1 cubic meter of gas = 35.3 x 1,030 Btus = 1 cubic meter of gas = 35.3 x 1,030 Btus =

36,359 Btus36,359 Btus– 36,359/5,800,000 = 0.00627 (boe)36,359/5,800,000 = 0.00627 (boe)– 0.00627/7.33 = 0.0009 (toe)0.00627/7.33 = 0.0009 (toe)


Energy EfficiencyEnergy Efficiency

THERMALOil 4Coal 13Gas 4

Nuclear 6

Hydro 8

Other

Combustion Heat and/or mechanical energy

Generator system

Photovoltaic

Fuel Cell

Electricity

Input: 35 mboe/d

Output: 11 mboe/d or 6,825 TWh/yr



• Output equivalency:Output equivalency:– 11 mboe x 5.8 mBtus x 365 = 23,287 x 1011 mboe x 5.8 mBtus x 365 = 23,287 x 101212

– 1 TWh = 101 TWh = 1099 kWh = 3,412 x 10 kWh = 3,412 x 1099 Btus Btus– 23,287 x 1023,287 x 1012 12 / 3,412 x 10/ 3,412 x 1099 = 6,825 TWh = 6,825 TWh

• EfficiencyEfficiency– Input: 35 mboe x 5.8 mBtus = 203 x 10Input: 35 mboe x 5.8 mBtus = 203 x 101212

– Output: 11 mboe x 5.8 mBtus = 63.8 x 10Output: 11 mboe x 5.8 mBtus = 63.8 x 101212

– Efficiency: 63.8 x 10Efficiency: 63.8 x 101212 / 203 x 10 / 203 x 1012 12 = 31.4%= 31.4%



• Heat rate: 3,412 Btus / efficiency rateHeat rate: 3,412 Btus / efficiency rate– 3,412 / .314 = 10,8663,412 / .314 = 10,866

• If you know cost of fuel and heat rate, If you know cost of fuel and heat rate, you can calculate fuel cost per kWhyou can calculate fuel cost per kWh– If coal is $30/t (or, $30 per 20 mBtus), a If coal is $30/t (or, $30 per 20 mBtus), a

plant with the above heat rate will generate plant with the above heat rate will generate 1 kWh at 0.016 $/kWh or 1.6 1 kWh at 0.016 $/kWh or 1.6 ¢/kWh:¢/kWh:• (Heat rate/Btu content of 1t of coal) x Price of (Heat rate/Btu content of 1t of coal) x Price of

coal = (10,866/20,000,000) x 30 = 0.016coal = (10,866/20,000,000) x 30 = 0.016



• 10,866 is very high and represent old 10,866 is very high and represent old technology; new combined-cycle gas plants technology; new combined-cycle gas plants have a heat rate of about 6,000.have a heat rate of about 6,000.– 3,412/6,000 = .57 or 57% efficiency3,412/6,000 = .57 or 57% efficiency– Last year, natural gas was $2.5 per 1,000 cf: Last year, natural gas was $2.5 per 1,000 cf:

(6,000/1,030,000) x 2.5 = 0.015 $/kWh(6,000/1,030,000) x 2.5 = 0.015 $/kWh– This winter, natural gas was $10 per 1,000 cf: 0.06 This winter, natural gas was $10 per 1,000 cf: 0.06

$/kWh$/kWh

• Note, however, that fuel cost is only part of Note, however, that fuel cost is only part of generating electricity! (generating electricity! (www.eia.doe.gov/oiaf/kyoto/tbl16.htmlwww.eia.doe.gov/oiaf/kyoto/tbl16.html) )

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