Some people claim that biofuels are the future. Others claim that it’s hydrogen. But they are wrong, and there are seven overlapping reasons why.
- Loose coupling
- Electronics outperform the physical
- Human nature
- The future is already here
They come from different intellectual domains, including economics, software, and speculative fiction, but all have strong explanatory value when considering transformation. These are “all else being equal” elements. If a solution is stronger in one of these elements but equal in all the rest, that solution will likely dominate.
Together, they strongly indicate that the future of clean technology is electric.
Fungibility is the property of a good or a commodity whose individual units are essentially interchangeable. Cash is highly fungible. You can trade $20 for $20 with anyone. You can buy $20 worth of goods or services. It’s trivial to convert $20 to a ten and two fives.
Any solution which is more fungible than an alternative solution has a competitive advantage.
Fungibility has high utility. You don’t need to worry that a vendor won’t accept $20 for their goods or services. When you leave the house in the morning, you don’t have to put multiple units of bargaining power in your backpack so you can barter with people. Just have cash in your wallet or the equivalent in your cards or electronic devices.
Electricity is highly fungible. A generator in Nevada can put a MWh of electricity into the grid and receive payment for that MWh from a utility in California. However, the utility in California doesn’t get that specific MWh, it just gets a MWh from the grid. A MWh is a MWh is a MWh, and no one really cares who gets which MWh. There are no blockchain identifiers on the electrons that make one up.
Further, electricity is highly fungible in use. It’s trivial to convert it to different currencies and frequencies. We do it all the time. Those blocks between the wall plug and our electronic devices are converting 120 or 220 volts at 50 or 60 Hz to whatever our particular devices require. We don’t think about it. The converters are cheap and included with our devices. It happens outside of our homes too. I’m looking at converters out of my window that step down neighborhood current to building current.
Electricity is useful as direct current and alternating current for different applications, and it’s easy to convert it.
This is not nearly as true for fossil fuels. Let’s just take gasoline as one example. The cars most people drive have specific types of gasoline that they will take. If you put diesel in your gasoline car, your engine is no longer useful and similarly if you put gasoline in your diesel car. If your car is tuned for high-octane fuel, it won’t work well with low octane fuel. If your car doesn’t have a flex-fuel engine, don’t expect to get far on ethanol.
And you can’t take a gallon of gasoline home and put it in your furnace. Or your oven. Or your lamps.
Part of the fungibility of electricity is the inherent ease of generating it. Anyone can do it. Three different inventors working independently around 1890 in three different countries who didn’t know one another figured out how to make electricity from wind. The same can’t be said for fossil fuels unless you want the full load of negative externalities.
Due to its fungibility, ease of distribution and ease of conversion, electricity is everywhere large numbers of humans are. Like fresh drinkable water, it’s a basic utility. For over a century, it was a natural monopoly. Virtually every building in every even somewhat developed country in the world has electrical outlets. A lot more buildings have electricity than have water or heat.
Any solution which assumes available electricity is more competitive than solutions which don’t take advantage of it.
Electricity is running up every light pole on practically every road and highway. In North America, it’s hard to find a view without a power line somewhere in it.
Most of those cables are running electricity that’s been stepped up, stepped down, and converted potentially dozens of times without losing its inherent value.
Ubiquity is important for two reasons.
- If something must become ubiquitous in order to achieve transformative value, that’s a very big hurdle it has to overcome.
- If something is already ubiquitous and inexpensive, more people will attempt to create solutions with it.
Take transportation. Right now electricity is much more readily available in every nook and cranny than gasoline and diesel are, and they are broadly available resources. A huge distribution network is in place for gasoline which would have to be replaced entirely to have hydrogen become a common transportation fuel, a known constraint.
But electricity is already everywhere, it’s just a matter of getting a plug in the right voltage and current in places where electric cars will already be, something that can cost from a couple of hundred in a garage to $5,000 on a street parking spot to a couple of hundred thousand for a Tesla Supercharger with high-voltage direct current charging at the side of a highway. It’s a much simpler transformation to electricity for transportation simply because electricity is already everywhere.
Certainly there will have to be some local changes. Electric cars draw about the same as an oven, but do so for potentially 8 hours instead of one hour, so the overall demand is higher. That will require last 30 meter improvements.
But the ease of working with batteries and electricity means that there are innumerable startups in the space globally, and it’s amenable to garage-scale tinkering. One motorcycle GP racer decided to build his own electric motorcycle and did such a good job he was beating gas bikes and was kicked out of the races. He has gone on to build his own electric airplane.
Induced demand is a concept from behavioral economics this is usefully explanatory. All it says is that if you make a supply of something cheap and readily available, more people will consume it. As a classic example, traffic congestion isn’t eased by building more roads, at least not more than temporarily. As soon as new traffic space is available, it gets filled and congestion remains the same. This has been shown empirically for decades.
The ubiquity and cheapness of electricity has induced demand for innovation and startups based on it. It’s going to continue to win because it won already, it’s everywhere and as a result, a lot more people are trying to create products and services with it than with anything else.
This is a concept from software engineering and is paired with encapsulation. When you build a system from components, you can make the components highly dependent on the other components or you can make them as independent as possible. You do this by abstracting the relationships between the components as far as possible to avoid depending on anything specific about another component that couldn’t be replaced by another component that delivers the same outputs, regardless of how it does it inside.
A loosely coupled system means that no component requires a specific other component in order to work, and in many cases requires no other components at all.
Let’s explain this with wine.
Wine bottles traditionally come with corks. To remove the cork, you need a corkscrew. The wine bottle is a component for storing wine. The corkscrew is a component which is required by the existence of the cork. To open the wine bottle requires a corkscrew. That’s fairly tightly coupled, although there are a couple of other much less common solutions to removing corks.
Wine bottles often come with screw tops now. The wine bottle is complete without a corkscrew because the screw top can be removed without any other components.
Screw tops are cheaper and more effective than corks at preserving wine. Screw tops are more convenient for wine drinkers and corky wine is a thing of the past with them. That combination of reasons are why corks are becoming a thing of the past.
But corks aren’t disappearing as rapidly as other examples suggest. That’s because there are specific inhibitors to change in the form of tradition related to luxury goods. A cork is a signifier even now of a quality wine, so a wine bottle with a less-effective, harder to remove cork can still command a slight premium.
Any solution which increases the looseness of coupling has a competitive advantage.
When it comes to transportation, trucks and roads are loosely coupled while trains and rails are tightly coupled. Trains can only follow certain routes and in fact train track gauge varies substantially even on the same continents with Europe having several widths in use. And a train can’t run except on rails that are exactly the right width apart. Trucks, on the other hand, can go anywhere the ground is hard enough and paved roads of multiple widths easily accommodate trucks of multiple sizes.
Rail has an advantage right now of being cheaper than trucks for delivery of goods where high volumes of goods are exchanged between known destinations regularly. They can move a ton of goods at lower expense because the lower rolling resistance reduces fuel costs and the number of people required to operate the train is lower than the number of people required to operate an equivalent number of trucks.
But this is changing rapidly. Electric freight trucks will be much lower cost to operate than current diesel freight trucks, not only due to lower fuel costs but due to lower maintenance costs. And autonomous trucks — a solution inherently requiring electricity and electrical components — allow platooning which reduces fuel costs further and the potential for reducing or eliminating the people required to drive them from point A to point B.
Over the next decade, the combination of electrification and autonomy will see the beginning of a significant shift of freight from trains to trucks based on these factors. In the absence of a significant business case, loose coupling wins.
Electronics Outperform the Physical
Everywhere you look, electronic components have made things better than their purely physical counterparts in every way.
Any solution which is based on electronics and electricity will outperform purely physical solutions at a lower price eventually.
Like your new car? It has more power, it’s a lot safer, it increasingly keeps you out of trouble with ABS, AEB, and lane tracking, and you get better gas mileage with lower pollution than 30 years ago. That’s not because of wizards with gears. That’s because of electronic fuel injection, electronic braking management and traction control, electronic sensors feeding computers, and engine computer management. A lot of cars have streaming satellite or internet radio, built-in GPS screens, backup video cameras, and the like. The average car today is amazingly better than the average car of 30 years ago, mostly due to electronics. And as pointed out, the average car uses a lot less gas to get from point A to point B than older cars, a benefit drivers get for free.
Of course, now the coffin corner for internal combustion engines has been reached and electronics won’t be able to help it much more. But now Tesla and increasingly other manufacturers are showing that the future of cars is more electronics and less physical stuff. A European researcher has found a way to make electric motors about 10% more effective both in torque and horsepower. The fastest growing motorcycle companies are purely electric, and every year their lineup gets cheaper, more powerful, longer range, or all three. Once again, electronics is winning.
What about lighting? Now many stores don’t even carry incandescent bulbs. They were supplanted by electronically controlled fluorescents. But they went the way of the dodo bird too, and have been replaced by LEDs. That is to say, light emitting diodes, which is to say, electronics. LEDs give steadier light, last a lot longer than any of their predecessors, emit a lot less waste heat, are less fragile, and come in as warm or cold hues as you could want. And they are showing up in everything to give us useful information in smaller and larger formats. Oh, and they use a lot less electricity.
Right now, the electricity we get is frequency regulated to 50 or 60 Hz. Most of this frequency regulation is done automatically by big, mechanical synchronous generators at hydro, nuclear, and coal plants. They have inertia. When the grid frequency drops, the big moving physical parts resist the drop. When frequency rises, the big moving physical parts resist the rise. They’ve been doing this for free, but they also have a variety of negative externalities and economics which make them problematic.
Wind and solar generation don’t provide that frequency control for free but don’t have the negative externalities or other economic problems either. Once again, electronics to the rescue. Utility-scale wind and solar farms have electronic frequency management components just to make them good players on the grid. They are starting to be used for the ancillary service of grid frequency management. Initial tests were expensive, but the cost of using electronics to control grid frequency has been plummeting. This is going to be a dominant model globally in a couple of decades. There are already starting to be ancillary service markets where frequency control is costed by market value instead of being a by product of a specific physical technology. And electronics will win that market war as well.
There are examples everywhere. No one ships reels of processed plastic film to movie theaters anymore, they download digital media. Vinyl records are a fading memory except for nostalgic enthusiasts. Robotic lawn mowers and vacuum cleaners are keeping more and more homes neat and tidy. Robots are doing an increasing number of factory jobs annually everywhere in the world, including in lower labour cost markets such as China.
Like betting on bandwidth in 2000, the bet in 2019 should be on electricity and electronics. The examples are too broad spread and the speed of disruption is too startling to ignore, even if you are face down texting someone on your smart phone while getting Twitter alerts and switching back to playing online poker on it. Everyone having an always connected, vastly powerful computer in our pockets to streamline our lives is one of the clearest examples of the transformation.
Some gross generalizations are true about a large majority of people. They want comfort. They want convenience. They want safety for themselves, their friends, and their families. They want to have fun. They are incredibly bad at making rational decisions for themselves, never mind for strangers on the other side of the world impacted by their decisions. They care about status and will seek it out in innumerable ways. When given sufficient money and security, most of them will become self-absorbed, not absorbed in helping others. They want more than they have, and more specifically they want more than the people around them have. They value something that they have right now more than something that will occur in 20 or 100 years.
Any proposed transformation which requires human nature to change will fail.
So when we talk about necessary changes to combat global climate change, it has to be in context of those gross generalizations. Fighting human nature is like King Canute ordering the tide to not come in. Whether it’s a story of an arrogant king or a king teaching humility to his courtiers, the tide still came in. Human nature will win.
This sounds like bad news, but it isn’t. As pointed out, everything is going to be running on electricity and electronics. This means people are getting more and more but it is more and more efficient. Flat panel TVs today draw a fraction of the electricity of older TVs but have much better resolution and colour. As pointed out, cars are massively better and about to get supplanted with even better electric cars.
People continue to win better and better gains at lower and lower energy costs with fewer and fewer negative externalities. Mostly that’s due to electricity coming through the grid.
And the way to get people to shift to better alternatives faster is through understanding human nature too. Efficiency programs that depended on educating people barely moved the dial. Giving people better TVs, refrigerators, stereos, smartphones, and lights moved the dial a lot. And a bunch of people made a lot of money on the transformation and continue to.
500,000 people didn’t put a $1,000 USD down to reserve a Tesla Model 3 because it was virtuous, but because it was understood to be so fundamentally better and more attractive in so many ways than the alternatives. Tesla isn’t bothering to make Model 3s available to journalists for extended test drives as virtually every other car manufacturer is forced to, but automotive journalists are borrowing cars from owners and raving about them.
Electric-assist bicycles are quietly dominating Europe, China, and increasingly North America. They are flattening hills, making stopping for lights much less of a chore and allowing people to arrive at work and events glowing instead of sweating. And those people aren’t doing it in individual cars. Smartphones have apps for Uber and Lyft that bring a much less expensive taxi-equivalent to your door much more conveniently, ensure that the driver knows where to go regardless of what language they speak and takes care of paying and tipping. Every major automotive vendor and some non-automotive players such as Alphabet’s Waymo are building self-driving features into cars and projecting a future when the car comes only when needed. It’s conceivable to see the end of the growth of private automobile and to see these large, physical boxes with wheels used a lot more efficiently and a lot more conveniently for the average person.
These are all wins for people that work with human nature. And they are all bound to electricity.
To quell one argument, the vast majority of people won’t put in solar panels unless there’s a real economic case for it. There are always enthusiasts, but they are a tiny minority compared to the people that may grumble about their monthly electricity bills, but otherwise expect a working electrical outlet on every wall. In a couple of decades, new homes might automatically come with Tesla solar tiles or the equivalent from other vendors, but that will be because they are cheaper, more durable and happen to generate electricity.
People like convenience and simplicity in the majority of things in their lives. Electricity and electronics are making things much simpler.
Cost is important. Profits have to be made. People have to get paid. Most people don’t have enough money to do whatever they want and buy whatever they want. They have to make economic choices that trade off between things that they want.
But the examples above show that electricity and electronics are so rapidly increasing the quality and availability of inexpensive options that more people have a lot more. And the rate of change is so quick in so many areas that the question of whether to defer for a new model in a year or two is broadly relevant.
Every year, the value delivered by a kWh of electricity increases by more than any increase in the cost of electricity.
As one example, the Apple iPhone X was a recent lineup-worthy phone. The usual suspects were aghast at the $1,000 USD price tag. But let’s look at it through the lens we’ve been building. First off, it has an OLED screen which is much more energy efficient than the absurdly efficient LED screens of other smartphones. In a thinner package with more functionality, the battery lasts hours longer. The phone has absurdly more processing power than luggable computers circa 30 years ago. It has such good camera capabilities that you have to be a professional or a serious hobbyist to need more. It’s a book reader capable of holding every book in your local library without noticing. It’s a video camera. It’s a digital recorder. It’s a concierge and assistant, with Siri able to perform increasingly complex things for you based on you saying a few words. It’s a GPS, navigating you to your destination anywhere in the world. You can get an app that will allow it to take your blood pressure. It’s a pedometer. It’s a handheld games device. It can control your TV, your lights, and your air conditioning. And it’s about as good as a couple of competitive products from other vendors.
Consumers have choice. And that choice is available to most people in developed countries. 80% of people in the USA had smartphones in 2016. Most of them are capable of doing most of what the iPhone X does.
Every year, things which are run on electricity and controlled by electronics get better and often they get cheaper as they do so. All TVs are now large, high-resolution, have excellent color and can be picked up in a single hand. They are a fraction of the cost of an inferior TV of equivalent size from a decade ago.
Right now the transformation of the electrical supply from high-negative externality generation sources to low-negative externality sources is costing money. In many jurisdictions, that’s increasing electricity bills. But in every jurisdiction where it is occurring it is also reducing innumerable other economic problems, especially those caused by air pollution. Ontario has a political challenge right now with increasing electricity costs. There are numerous causes, not least of which was numerous different administrations artificially constraining the price of electricity and ignoring the nuclear debt. But they shut down all coal generation slightly ahead of schedule. And now Toronto, Canada’s largest city, has zero unhealthy air days annually instead of 55. People not sickening and dying of bad air has a strong economic value, not least of which is that with an increasingly mobile work force, people will choose to work in places with clear air if given a chance.
And the price of electricity in Ontario is still only average for North America and much lower than most European electricity costs. And the average household is receiving a lot more value from their electronic appliances at lower electricity usage. It’s human nature to ignore the amazing advances in utility per kWh and complain about the price per kWh, but people are getting a lot more out of each kWh than they used to. That’s true for heating and air conditioning too, with modern heat pumps with greater electronic controls providing much more heating or cooling per kWh.
The Future Is Already Here
William Gibson is a Canadian speculative literary fiction author best known for coining the term cyberspace in his Neuromancer trilogy. But something else he said is more relevant to this discussion:
The future is already here. It’s just not evenly distributed.
This is important in any discussion of major technological transformations. There are very few net new original ideas. What there are are adaptations and evolutions of existing solutions to a new technological context. It’s not like email didn’t exist before web browsers and smartphones. And it’s not as if electric cars are vastly dissimilar to ordinary cars.
This one is a two-edged sword. On the one hand, it’s very possible to look at a city like Vancouver, which is introducing regulations which effectively eliminate any net new fossil fuel burning heating within the city limits, and extrapolate that to other cities globally. This is an obviously good idea which will divert heating loads away from gas to grid-based electricity.
But it’s also easy to look at technologies like thorium and fusion generation and hydrogen fuel cell cars. They’ve been in development for decades with nothing much to show for it. When shown a technology that exists but has consistently failed in the marketplace, the question one has to ask is: “Has anything changed that would allow this technology to succeed?”
In the case of battery electric vehicles, the answer is a clear yes. Battery prices have plummeted and energy density has increased sufficiently that long-range battery electric vehicles are viable. In the case of fusion, thorium, and hydrogen fuel cell cars, the answer is clearly no. That might change in some distant future, but it’s not true now.
Similarly, long-distance electrical transmission challenges of the past, both in terms of excess loss due to resistance and the lack of effective markets, are solved problems in the developed world, and the solutions are being implemented in the developing world. Basic transmission grids have reduced losses to the 5% to 7% range. High-voltage direct current transmission lines have cut those losses even further, especially under water, which is a critical application for the many archipelagos in the world. While the British Isles only have 194 permanently inhabited islands including the obvious large ones, Indonesia has 6,000 inhabited islands of the 17,000 that make it up.
And now is when the future is needed. The solutions to global warming, climate change, and related problems such as ocean acidification exist. They just aren’t evenly distributed.
These seven concepts — fungibility, ubiquity, loose coupling, electronics outperforming the physical, human nature, economics, and the future already being here — make it clear that the future is electric. They allow us to look across the existing solution sets and see clear winners and losers. They allow us when looking at any particular domain such as electrical generation, transmission, and distribution and identify the innovations most likely to spread widely and be most effective.