Why Energy Is Technology’s Next Big Thing
J. Paul Getty, one of the wealthiest people of the 20th century, reportedly said that his formula for success was, “rise early, work hard, strike oil.” It was, after all, energy that made the industrial age hum.
Of course, these days ambitious young go-getters are much more likely to seek their fortune in technology. Everybody wants to be the next Bill Gates, Steve Jobs or Mark Zuckerberg. Nobody really dreams of being the next J.R. Ewing anymore.
The reality is that the next generation of mega-tycoons are likely to have their feet in both camps—at the intersection of technology and energy. A recent McKinsey report argues that we’re headed for a resource revolution. Citibank claims that we’ve entered a new age of renewables. Yet this time, the boom will not be driven by geography, but algorithms.
The Impact of Energy
It’s hard to overstate the impact of energy on the economy. It’s why the Japanese attacked Pearl Harbor in 1942 and why the Middle East attracts so much attention today. In the first half of the 20th century, the US was a net exporter of energy,we only began to import significant amounts in the 1970’s.
Although energy constitutes a small part of the US economy, energy independence would have a profound effect. We currently import about $300 billion of oil and gas per year, which is about 2% of GDP and much of that money goes to volatile regions of the world, threatening global stability.
The price of energy also works its way through the economy in a myriad number of ways. High energy prices make manufacturing less efficient. Dirty energy increases healthcare costs and results in environmental problems that are expensive to clean up. Much of our military spending is devoted to policing the fallout from corrupt petro-states.
Yet clearly, if there are enormous costs to scarce and dirty energy, then there are enormous benefits to energy that is abundant and clean. That’s where we might be headed and technology is making it happen much sooner than you’d think.
The Energy Boom
In 2006, George Bush lamented our addiction to foreign oil. Today, largely due to hydraulic fracking, the US is the world’s largest producer of hydrocarbons. The shale boom has made US manufacturing significantly more competitive and has raised household incomes by approximately $1200.
Yet as impressive as the change in our energy fortunes has been, Citibank sees natural gas as a mere “transition fuel” as renewables are getting ready to take over. Both solar and wind have already achieved grid parity in some regions and the bank estimates that solar will become cheaper than gas after 2020.
The coming age of solar will be truly revolutionary. Rather than worrying about peak oil and the political ramifications of hydrocarbons, energy will benefit from the law of accelerating returns—the more we use it the cheaper it will get. IBM recently announced a breakthrough that can convert 80% of the sun’s rays into energy, 4 times the current rate.
From Conservation To Optimization
During the last energy crisis in the 1970’s, much of the focus was on conservation. We began to drive smaller cars, turned the thermostat down, wore sweaters and tried to remember to turn off the lights when we left the room. Privation, not innovation, was the dominant approach.
This time it’s different. While the Citibank report highlights improvements in energy generation, Mckinsey’s report focuses on how we can use technology to get more out of what we have. In fact, the authors argue that in the future, reducing resources will be a competitive necessity.
There’s something to their argument. The thermostat company Nest expects to make more money in the long run selling data to help utilities companies improve efficiency than from the product itself. When Opower, a firm that focuses on energy optimization, debuted on the stock market this month, its shares rose 26% on the first day.
Optimization technologies can also improve generation. Lloyd Trelnish, Chief Scientist at IBM’s Deep Thunder project, believes that “Predictive analytics could increase utilization of renewables by 10% to 20% and in some cases by as much as 50%.”
Energy Is The New Tech
When J. Paul Getty offered up his famous quote, he was, of course, being ironic. Hoping to strike oil is no formula for success, it is the outcome of good fortune. For every Getty or Pew there were thousands of heartbroken wildcatters who died broke.
Yet the new energy boom is truly different because it runs on the power of human ingenuity rather than luck. Next generation solar and wind power is driven by nanotechnology and computer aided design, which in turn are driven by our ability to develop ever more powerful processors.
And the productivity gains are also becoming very tech-like. The cost of solar panels have dropped by 80% since 2008. McKinsey believes that through more efficient use of resources, firms will be able to increase productivity by 50% every few years. The number of electric cars is doubling every year.
For the past four decades, energy has cast a shadow over economic and political life. Thankfully, it looks like that’s about to change.
– Greg
It is high time that we paid more creative attention to energy. It is the common denominator of all activity, and its availability, transformations and usability are defined by immutable physical laws which have been termed “The Constitution of the Universe” – the Laws of Thermodynamics.
The extent to which economics in general and energy economics in particular take note of and align value with thermodynamic performance has been a significant though peripheral theme over the past 150 years
The extent to which energy prices reflect value or risk is becoming an important area of focus, and we believe that a consideration of thermodynamic performance (i.e. the lifetime energetic efficiency of different fuels) might represent a useful tool for those seeking to scale and value renewables production.
We recently published an approach to identifying this efficiency – Entropic Valuation.
This idea analyses the efficiency by which a variety of solar derived energy sources (solar PV and lithium-ion storage, biomass, coal, oil and natural gas) capture, store and render incoming solar kilojoules.
Using this analysis a new picture of value and efficiency emerges. For example, if we consider the conversion of solar kilojoules into usable kilojoules, then solar PV is circa 100,000 times more efficient than oil.
If we put this into price terms, e.g. pricing each incoming solar KJ at a nominal cost of $1 then the cost differences are striking, e.g. a KJ from solar PV would be $10, but a KJ from oil would be $1.1m!
The whole piece can be seen here (it’s a quick read): http://www.forumforthefuture.org/greenfutures/articles/energy-economics-if-thermodynamics-mattered
Of course, fossil fuels represent a powerful “bang for the buck” in terms of concentrated, transportable energy – however, the notion that they are more energetically efficient than solar PV can only be asserted if we ignore the process by which they were formed, and the impacts of their use.
We believe that entropic analysis should be the manner by which, in the future, we compare, judge and value energy sources.
Technologists and new economy entrepreneurs might have a powerful role in using such ideas. The ability to conceptualise and create new models of business, of production and of utility represent skills essential for moving our production and supply system away from burning stolen fossil time towards harvesting the “real time” solar bounty (84 Terawats) we receive freely from the Sun each day.
Best regards,
Joss
That’s an interesting approach Joss and I think it definitely has some merit. However, as a practical matter, I don’t think most people are concerned with total entropic efficiency as they are with the cost today. Fossil fuels are cheaper simply because we benefit from the millions of years that natural forces took to produce them.
That seems to be changing and most analysts tend to see 2020 as a year of inflection for solar. Hydrogen and other approaches seem a bit further off, but you never know…
On thing that is clear is that efficiencies are being uncovered across the energy value chain, from production to storage to installation to usage. Any way you slice it, that’s a good thing.
– Greg
Dear Greg,
Thank you for your reply and for your kind words.
I also think you are right that most people aren’t concerned with total entropic efficiency. Our contention is that perhaps they should be!
Certainly the geological time investment is a “sunk cost” representing a de-facto production subsidy from prehistory and it could certainly be argued that we shouldn’t concern ourselves overmuch about this, just consider it as a happy accident.
However, there is an element to which this hidden subsidy blinds us to the fact that our industrial systems can make far better use of such wonderful complex polymers than burning them in a one-time uses, giving us a wholly false sense of their value.
One of the reasons that we started to explore this is issue was to provide a new “and another thing” argument about fossil fuels – focussing upon an area of energy that is little touched upon, especially in energy economics – its origination.
Of course such entropic analysis reinforces what we already know, that using scarce and dirty energy is not a very good long term plan. Nevertheless, we think that entropic optimisation may provide an interesting design parameter that might help drive energy technology. In addition connecting industrial process and technology design to a fundamental physical law seems like a pretty sensible idea to me.
Of course what we really need technologists to develop are production processes that use energy as effectively and safely as biological processes already do… and beyond that to crack artificial photosynthesis, then solar power would be really something!
We have some dreams about such technologies here: http://www.terrafiniti.com/blog/more-life-now-a-manifesto-for-rejuvenative-technology/
In the meantime, roll-on the inflexion point for safe, clean, everlasting (almost) energy from the sun.
Thank you again,
Joss
Yes, the artificial photosynthesis thing is really exciting. There was a lot of talk about it a few years ago and I know Exxon and Craig Venter have a joint venture, but haven’t heard much lately.
Please let me know if you come across anything.
– Greg
Dear Greg,
Artificial photosynthesis is fantastically exciting, but it seems to be one of those things that us perpetually “just around the corner”, forever 7 to 10 years away.
The ecologist part of me feels that in order to achieve artificial photosynthesis (at the level of sophistication employed by plants) would require a quantum leap of understanding from where we are now.
That doesn’t mean that we couldn’t develop production systems that would align more towards natural production approaches – getting our heads around hyper aggregation would be a start.
I recently asked an entomologist friend of mine with an interest in these things how close we are to cracking and applying some of nature’s techniques and she said we are still a long, long way away. We can mimic, in a gross fashion, some of the performance characteristics (e.g. learn from gecko’s feet and to stick to ceilings) but a long way from stuff like safe room temperature chemical synthesis or matter production.
Still, I promise to keep a look out and to remain optimistic!
Best regards,
Joss
Apparently, Exxon invested $800 million in Craig Venter’s “artificial life” approach, so hopefully it may really be 7-10 years away. However, as I mentioned, I haven’t heard much about it since the initial breakthrough.
ARPA-e seems to be doing a lot of early stage stuff along these lines as well. I guess we’ll just have to wait and see…
– Greg
Thanks for sharing this interesting article. In my opinion, energy and technology go hand in hand because they both benefit from one another. I am expecting to see growth in both industry because for sure, they will bring huge benefits to people.
Another excellent post. How about a future exploration of solar and wind energy storage and transmission? I’ve read that these are the big challenges and areas that need investment and breakthroughs.
Good point. Those definitely are important areas.
– Greg
Oil is not going away — nor are it’s many derivatives: fertilizer, asphalt, plastics and pharmaceuticals…..remember the “synfuels” debacle of the 70’s? Also, ask the LPs in Kleiner-Perkins energy funds what they think of “green energy”…..