Operational Efficiency Measurements: Efficiency of Fossil Fuels vs Renewable Energy

For leaders navigating the clean energy transition, understanding renewable energy efficiency vs. fossil fuels, as well as how it’s measured, is critical. 

This article outlines the facets that go into operational efficiency in both fossil fuels and renewables. It also discusses how and where efficiency gains can be made, as well as the role of technology in improving efficiency and analysing performance. 

It also shows how visibility over efficiency metrics matters more broadly for investment decision-making, compliance, and shaping long-term energy strategies.

Operational efficiency in energy, maximising the output versus the input of energy, is an important metric in discovering operational lags. It also helps indicate when and where to make improvements for overall energy efficiency. 

Having robust metrics helps shape decision-making when it comes to renewable energy vs. fossil fuels, influencing investments in tools that optimise energy output. This helps with prioritising infrastructure upgrades, meeting decarbonisation targets, and achieving greater levels of risk mitigation.

The need to employ robust efficiency measures is not just driven by cost. It’s also influenced by: 

• Stricter regulation and global compliance
• Consumer expectations for energy efficiency
• Shareholder demand to operate in the most sustainable way possible

Operational efficiency in energy production has many factors and variables that determine how efficient energy production is. Having a good understanding of these, as well as knowledge of how to make improvements, makes the journey easier to navigate.

To assist with this understanding, Professor Jacopo Torriti, Professor of Energy Economics and Policy at the University of Reading, provides insights into how energy and demand factor into operational efficiency.

Operational efficiency challenges exist no matter what type of energy is being produced. Poor maintenance, repair, and operations, and their monitoring could lead to unplanned downtime or reduced output due to equipment not working properly. 

Data inaccuracy, seepage, and poor storage make for inaccuracy. It also means reduced visibility, which further contributes to inefficiency as decisions are made based on half a story.

For example, the Levelised Cost of Energy (LCOE) is a metric used to show the average net cost of producing energy for a specific system over its lifetime. It provides test and measurement data. 

If the data is inaccurate, the cost is inaccurate too. As such, machinery could cost far more over its lifetime.

Additionally, human error and extreme weather can also affect the ability to produce energy efficiently. Securing the energy network and its production from cyberattacks is also an increasing issue. Dealing with cyber threats costs time and money.

There are also efficiency issues that are either specific to each energy type or that weigh more heavily on one type of energy over another.

Renewable energy production can be split into four types: wind, solar, hydro, and geothermal. All types are affected by intermittency, which means that when the source of the power, such as wind, is stronger one day and weaker the next.

This can create an unbalanced output. Sometimes more energy is used in creating the same amount of output than at other times because the source takes longer to collect, needs storing, or is simply not available.

Equipment degradation is another issue. This is seen commonly in solar power with the solar photovoltaic (PV) system. It creates energy, but the equipment and systems used become less efficient over time, making operational efficiency ratios drop.

According to the US National Renewable Energy Laboratory, PV modules typically degrade 2% per year. Wind equipment also has wear and tear issues, with components, gearboxes, and blades subject to degradation over time.

The way the national energy grid works can also affect operational efficiency. This may be due to the amount of renewable energy generated being more than the grid can absorb. This excess energy must then be stored, thus using more energy and reducing the overall production efficiency. 

As well as this, if the amount of energy generated exceeds available storage, the danger is that energy is wasted entirely, further reducing efficiency.

Fossil fuels also have their own challenges. Combustion issues can result in large amounts of energy leakage as well as losses during the fuel-to-energy conversion process. Technology has improved this, but traditional coal plants still only operate at around 40% efficiency.

The ageing infrastructure of fossil fuel energy plants also means that efficiency is limited. Outdated boilers and turbines do not run as well as newer ones, and also need more input to get the same amount of energy.

Regulation is also a consideration, as emissions compliance means the risk of financial penalties caused by using ineffective and old equipment raises costs, resulting in cost inefficiencies.

Within the energy sector, operational efficiency is broadly measured by looking at how much is being produced compared to how much could be produced. The potential capacity, how much it costs to produce a given amount, and how much fuel or other energy input is required to produce are taken into account.

Each energy type also has specific measurables; it’s not just a case of comparing like-for-like and looking at a simple renewable energy efficiency vs fossil fuels equation.

Renewable energy efficiency is all about potential capacity. For example, if we look at wind energy efficiency compared to fossil fuels, wind ranges between 30–50%, while fossil fuels are around 40%. In addition to this, hydro can exceed 50%.

The levelised cost of energy (LCOE) is another factor. This looks at the combination of operations, capital, maintenance, as well as fuel used to give a cost of production per megawatt-hour (MWh).

Within fossil fuel energy production, operational efficiency is measured by heat rate, which is how much heat or energy is needed to make one unit of electricity. 

The heat rate is shown in BTU/kWh, which is a British thermal unit (Btu). This is defined as the amount of heat required to raise the temperature of one pound of water by one degree, divided by kWh (kilo-watts per hour). The lower the heat rate, the better the efficiency, as less fuel is needed to produce the output unit of electricity.

Meanwhile, thermal efficiency shows the percentage of heat input that is converted into electricity. Modern natural gas combined-cycle plants can reach efficiencies above 60%.

Finally, capacity utilisation shows actual output relative to potential output, and is a measure of capacity, similar to potential capacity. Fossil fuel plants sometimes operate at subcapacity, with production being scaled up or down according to demand.

When we look at operational efficiency, it’s important to take into account how it feeds into other factors such as cost efficiency, complying with regulations, and the overall trend to lower emissions and be as sustainable as possible.

There are also infrastructure considerations in terms of optimising systems and output, as well as introducing systematic resilience to reduce waste and downtime.

Technology is increasingly key to achieving all objectives and creating a smart infrastructure. The end goal is to produce as much energy as possible as leanly as possible for the least input, as well as tailoring output to demand.

Fuel cost is negligible in renewables, as the cost lies in harnessing that fuel and making sense of a variable supply of wind, solar, or another energy source.

Data acquisition and logging control, management, and analysis are key. The use of digital technologies such as Supervisory Control and Data Acquisition (SCADA) systems is essential for measuring, monitoring, and directing energy. They help determine what is going on, detect outages or anomalies, forecast maintenance, and direct resources to where they are most needed.

AI capabilities further enhance such systems by providing accurate analytics, such as predictive maintenance, pattern detection for future improvement, and efficiency.

Load balancing technology is also important in making efficiency improvements. This helps with grid integration and better manages supply and demand. Related to this are storage capabilities, though they could be optimised further.

All of this helps boost the capability of renewables by providing a consistent level of power to the grid. It also stores energy when it's not needed and pumps in extra when it is, such as with lithium-ion batteries or pumped hydro.

Better energy capture, such as using solar panels that store daylight on both sides, further optimises efficiency and also offers better potential capacity gains.

Fossil fuel efficiency relies more on making better use of the fuel that is converted into heat and then electricity. Using cogeneration techniques, such as Combined Heat and Power (CHP), makes for better use and thus better overall energy production efficiency.

Additionally, replacing old legacy machinery with new technology is most often incredibly beneficial. It often reduces the effort needed to produce fuel conversion, reduces energy loss, and stores electricity with minimal waste.

Much like with renewable energy, better technology and data management can help many processes, such as:

• Pinpointing the need for maintenance
• Refining combustion processes
• Managing system variables
• Identifying outages
• More efficiently managing downtime and plant availability

Knowing how operational efficiency is managed and how it relates to other efficiency measures is important for understanding how and where to introduce improvements and to what benefit.

As renewables take on greater importance and the transition to net zero gains momentum, being able to assess whether operational efficiency gains are more beneficial is crucial when it comes to renewable energy efficiency vs fossil fuels. 

Ongoing debates and discussions, such as whether efforts should go into retrofitting a coal-fired plant and introducing carbon capture and storage (CCS) to reduce emissions, continue to prove vital across the board.