On the true value of resource consumption when using energy in industrial and other processes

On the true value of resource consumption when using energy in industrial and other processes

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Article ID: iaor201530053
Volume: 170
Start Page Number: 377
End Page Number: 384
Publication Date: Dec 2015
Journal: International Journal of Production Economics
Authors:
Keywords: production, economics, allocation: resources
Abstract:

In this paper we attempt to provide a partial answer to the question of why energy is a scarce resource. Scarcity is a fundamental concept in the science of economics. If resources, goods or services were not in scarce supply, we need not economise when utilising them. Indeed, free commodities we need not pay for, their prices are zero, we attach no economic value to them, and their supply is in abundance – at least beyond the point at which our needs and wants are satisfied. However, energy is regarded as a scarce resource, although energy – as such – is not scarce. To describe energy as a useful and therefore a valuable quantity, to which a price may be attached, energy will thus have to be characterised in further dimensions than energy content alone. Apart from quantity, there is a need for a uniform qualitative measure of energy. The obvious field to revert to for such considerations is thermodynamics, which offers a method for defining a uniform measure for the qualitative content of energy, namely exergy. Although exergy is defined from purely physical properties, it is shown to have an important rôle to play when comparing the economic value of energy in different forms. In particular, this paper will focus on the economic value of heat, especially heat delivered through a district heating system. The concept of exergy is defined from maximising a work output reversibly taking an infinite time. However, for processes to run within finite horizons, entropy must be generated. This leads us to add finite time considerations from examining consequences from the assumed availability of so‐called endo‐reversible processes. In a small case example we show that heat appears to be overpriced compared to electricity from an exergetic point of view and that this is even more pronounced adopting finite time considerations.

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