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.