- J.R. Brownson, Solar Energy Conversion Systems (SECS), Chapter 9: Solar Energy Economics (Focus on the Introduction and Flows and Stocks.)
- EBF 200: What is Economics? (Goods, scarcity, and tradeoffs)
- EBF 200: Utility and Individual Rationality (Consumers as Utility Maximizers)
- EBF 200: Supply and Demand (Review of basic economics)
- Energy Information Administration Energy Explained (See "What is Energy?" link.)
When we deal with goods and services tied to energy systems, things get pretty interesting!
When you think about energy and natural resources, the tendency in energy economics is to think mainly of "non-renewable resources" or exhaustible resources like coal/oil/natural gas, etc. I want you to think about how much of our social economic perspective on energy is based on exhaustible resources.
We want to better understand why our clients and stakeholders (or even we) make decisions to adopt technologies that deliver goods and services from the Sun. The form of energy is radiant, from a Solar resource system, and we transform radiant energy into other useful forms to do work.
Energy Supply and Demand
The readily accessible energy that can be used to "do work" in society is still considered a limited natural resource, or good. In economic terms, we would say that many of our useful energy goods are scarce.
As we read in EBF 200, "What is Economics?" Prof. Gregory Mankiw lists seven microeconomic principles. Recall that microeconomics refers to individual economic actors considered as people and firms and their corresponding interactions in markets.
- People face tradeoffs.
- The cost of something is what you give up to get it.
- Rational people think at the margin.
(Watch the following YouTube video of Thinking at the Margin by Prof. Mario Villarreal-Diaz.)Credit: Learn Liberty
- People respond to incentives.
- Trade can make everyone better off.
- Markets are usually a good way to organize economic activity.
- Governments can sometimes improve market outcomes.
In solar systems design, we work to Maximize Solar Utility for the client or stakeholders in a given locale. We will describe the methodologies to do so in the next lesson. But our clients are individuals who are in demand of a solar good. The firms developing or deploying SECSs are supplying access to the solar goods.
- Consumers (clients) can be thought of as "Utility Maximizers;" they want to achieve the highest preference for given goods or service.
- Suppliers (designers/engineers/builders) can be thought of as "Profit Maximizers."
Forms of Energy in Demand
Across the planet, there are non-uniform, ever-increasing demands for energy as thermal heat and electrical power. Light, as electromagnetic radiation, is another form of energy, used as well for visual comfort and indoor activities. The photon can be harvested via a solar energy conversion device. To be clear, photons are ephemeral (flows); they are not collected like fuel in a tank (not stocks).
Energy can be described in terms of sources (as in energy re-sources) and in terms of forms (as in energy trans-form-ations). Think of it this way, an energy source is a resource system, from which we appropriate useful resource units in a given form. Energy is neither created nor destroyed, so if the energy is in a less useful form, we must use an Energy Conversion Device (ECD, not a very technical term, but useful here) to transform one form into a more useful form.
- Thermal (heat)
- Radiant (electromagnetic, light)
- Motion (kinetic)
- Electrical (also called power in the industry)
Energy scarcity is partially related to the loss of energy quality with successive transformations. Light happens to be an incredibly high quality of energy, which is then transformed into chemical energy by plants (photosynthesis), or into thermal energy by opaque materials, or kinetic energy via wind, or electrical energy via photovoltaics. (Nuclear and gravitational energy are not linked so directly to radiant energy here.)
Our society is used to beginning with "concentrated sunshine" (geofuels from stored photosynthesis in coal, oil, and gas), and then transforming the chemical form to the thermal form (hot steam), which is then transformed into the motion form (to spin a turbine-generator) and finally transformed into electrical energy.
Sidenote on Heat and Power
The terms Heat and Power have been adopted by several industries to have a specialized trade meaning.
- Power is electrical energy (as opposed to a rate of energy use), and
- Heat is thermal energy (as opposed to the transfer of energy).
Thus, in the energy industry, we hear about Combined Heat and Power (CHP) for energy conversion systems that provide two useful forms in one system.
1. What is the form of solar energy?
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2. What is the energy transformation that is accomplished by a photovoltaic Energy Conversion Device?
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3. On the demand side of economics, a consumer can be called a...
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4. What does it mean to "think at the margin"?
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Optional Reading on Energy Economics
Optional: G. Mankiw Principles of Economics. This might be a nice resource for your future study but is not required for this course.