Of Energy Dreamers, Past and Present

Rich Karlgaard, the publisher of Forbes magazine, writes a column in every issue called “Digital Rules.” He is a very smart guy and, usually at least, very innovative and forward thinking.

I say “usually” because he just missed the boat in his latest blog entry on the future of renewables.

Mr. Karlgaard argues that we are stuck with coal, oil and nuclear as our major sources of electricity in the United States for the foreseeable future. He asserts that “[t]here is no way the U.S. economy can enjoy future prosperity without the big three electrical energy sources of clean coal, natural gas and nuclear.”

Why? Because only 10% of current electricity generation comes from renewable sources, and most of that comes from hydro. Solar and wind provide less than 3% of current electricity generation.

According to Mr. Karlgaard, solar, wind and other renewables cannot possibly meet a significant part of our electricity needs 10 years from now when they are starting from such a small base. His Forbes colleague Ken Fisher agrees, urging investors to “buy into fossil fuels” because they account for “89% of electricity” and “that fraction won’t change dramatically in the next decade.”

As for Thomas Friedman, John Doerr, and others who point to Moore’s Law and argue that renewables will experience the same rapid technological advances as semiconductors if given the right incentives, Karlgaard calls them “dreamers.”

Funny. That’s exactly what they said about Thomas Edison, Nicolas Telsa, and others who set out to build centralized electric power plants in the late 1800’s.

At that time, centralized electric power plants had an even smaller share of the market than renewables have today. In fact, there were only a couple of electric demonstration projects involving only a few hundred streetlights. Gas companies had a virtual monopoly on powering lights in homes and businesses, and the new electric power plants being built had to charge far higher prices than gas. The gas companies also had an existing and very efficient distribution system for their gas, while the electricity dreamers needed to build very expensive copper mains to carry the electricity to customers.

Edison, Telsa, Westinghouse, and the other dreamers who built our current centralized electric generation system also faced a number of very significant barriers beyond price. There was, for example, the fact that the electric motor had not yet been invented. So they were trying to sell electricity before it could be used in factories.

How did the dreamers prevail? Transportation and municipal contracts. The electricity dreamers got their break by building dedicated power plants for new electric streetcars and streetlights.

Once they built a base of electric generating capacity for streetcars and streetlights, the pace of innovation and growth quickened. Innovators began inventing other things to use electricity, including electric motors which revolutionized the economics of running a factory. By 1892 – less than 15 years after Edison’s first streetlight project – General Electric’s capitalization was $50 million. The incredible speed at which centralized electric power plants developed is described in The Power Makers, by Maury Klein:

“By 1900 electricity had become an integral part of American life, especially in cities. Between 1890 and 1905 the output of electric power in the United States increased a hundredfold. By revolutionizing production and manufacturing, electricity made possible the rise of the consumer economy that was to dominate the twentieth century and transform every corner of American life. Already factories consumed more than half of the electricity generated…. Arc lights illuminated the streets of even small towns and flooded with light the avenues of large cities. In 1902, some 51,000 electric streetcars whisked urban passengers along 22,000 miles of track."

Now Messrs. Karlgaard and Fisher may be correct that coal, oil and nuclear will still be significant contributors to our energy mix ten years from now. After all, centralized electric power plants did not force the gas industry into bankruptcy.

But the history of centralized electric power plants suggests that renewables can and will grow at a much faster pace than traditional fossil fuels as sources of electricity. Once started, that pace will accelerate as the competitive advantage of renewables starts having a significant impact on the bottom line.

Think about it. Five years from now, those who invested in solar and wind today will have ZERO fuel costs for that portion of their electricity needs, while those who did not invest in renewables today will still have to pay the cost of fuel for every kWh – and at higher prices than it is paying today. Add in the fact that renewable technologies five years from now will be even more efficient than today, and everyone will be clamoring for renewables. It is easy to see how the tipping point will be reached.

Or has it already been reached? China has just announced that it is constructing a 2 gigawatt solar power plant in Inner Mongolia, the largest solar plant in the world. That is on top of nearly 80 gigawatts of renewable energy that China has already built in recent years. When China has hundreds of gigawatts of fuel-free energy, what country will be able to compete when it must continually pay for fossil fuels to generate 90% of its electricity? More to the point, what country can afford to wait?

John Howley
Woodbridge, New Jersey

Make No Small Plans

My problem with President Obama's stimulus package is that it lacks ambition. Especially when it comes to investing in the new grid we will need to support renewable energy.

We know that our energy infrastructure is at the breaking point. Yet the stimulus package allocates only $80 billion over a number of years for a wide range of energy projects. A lot of that money will go to basic energy efficiency upgrades like replacing old boilers and insulation in public buildings. All things that should be done, but these investments will not be enough to create a 21st Century energy infrastructure.

The problem is: We are making small plans with short-term objectives. This is no way to reinvigorate the most important economy in the world.

To understand why, let's look back at the successes of the 20th century.

Imagine what the US economy would have been like in the first half of the 20th century if we never built the railroads. Without railroads, we would have remained a predominantly agrarian economy in which most people lived their entire lives without traveling more than 50 miles from their birthplace.

That changed with the railroads. In the 25-year period between 1875 and 1900, almost 200,000 miles of new railroad tracks were built in the US. Because of this massive investment in the late 19th century, we started the 20th century with about 260,000 miles of track in the US, compared to about 280,000 miles of track in the entire rest of the world combined.

Building the largest railroad network in the world gave us a competitive advantage that helped transform the US from a mostly agrarian society to a diversified economic powerhouse during the first half of the 20th century.

Now imagine what the US economy would have been like in the second half of the 20th century if we never built a national highway system.

Beginning with planning during WWII, the national highway system has grown into 160,000 miles of roads connecting virtually every part of the continental United States -- making it the largest highway system in the world.

Building the largest road system in the world gave us a competitive advantage that was essential to our success as the most dynamic economy in the world during the second half of the 20th century. Do you think computers are important to the US economy? Remember that they would never have reached the store (or your home) without a truck on a highway.

Now imagine what the 21st century will look like if we do not invest in new energy infrastructure.

The electric grid we rely on today is not much different than the one we began building at the turn of the last century (and not much more reliable either). We use higher voltages, and we have some basic demand response programs, but our electric grid is still essentially as dumb (lacking intelligence) as it was when Nikola Tesla delivered his famous lecture on polyphase alternating currents in 1888. This grid based on a 100-year-old design is not capable of supporting the economy of the future.

The questions we face are pretty straightforward:

Will we continue to rely on a 19th century electric grid design to power a 21st century economy?

Or will the US make the investments necessary over the next 20 years to build the largest and smartest electric grid in the world?

Daniel Burnham, the Chicago architect, inspired many at the start of the 20th century with his admonition that we should "make no little plans." We need to adopt his charge today when it comes to investing in the future of energy infrastructure in the US.

Now is not the time to make small plans. We must make massive investments in our energy infrastructure starting today and continuing for a few decades. The number will be in the trillions, not the billions. That is the only way we will create jobs today. And it is the only way we will secure a future of prosperity for our children and grandchildren.

P.S. -- Here's Burnham's full quote:

"Make no little plans. They have no magic to stir men's blood and probably themselves will not be realized. Make big plans; aim high in hope and work, remembering that a noble, logical diagram once recorded will never die, but long after we are gone will be a living thing, asserting itself with ever-growing insistency. Remember that our sons and grandsons [and daughters and granddaughters] are going to do things that would stagger us. Let your watchword be order and your beacon beauty. Think big."

John Howley
Woodbridge, New Jersey