Is Clean Energy the Next Big Thing?

The clean energy industry is being invaded by refugees from the information processing industry. Having watched the explosion of technology and innovation in information and communication technology they admirably want to see that same pace of improvement applied to energy. Although there are important improvements in clean energy happening there are some very important fundamental differences that don’t seem to be adequately appreciated.

Information and communication technology has improved by leaps and bounds through the application of heavy research spending and mass production. This has led us to assume that this is a general principle that can be applied to other technologies, such as energy conversion devices. A basic understanding of the laws of thermodynamics exposes an enormous fallacy in that extrapolation.

It is unfortunate that the general public is not as familiar with the laws of thermodynamics as they are with the laws of gravity and Newton’s laws of motion. In lay terms they state that energy is a measurable concept. In this sense it is similar to mass (or weight in imprecise lay terms) but a little harder to measure. Also like mass, no process can actually destroy it by reducing its total quantity. For simplicity, we will ignore nuclear processes that convert mass to energy.

What makes energy different is that we can also measure its degradation. The quantity doesn’t change, but its ability to provide value to us does change in a measurable way. It is not the quantity of energy that has economic value but its ability to provide value to us. The second law of thermodynamics sets immutable limits on the efficiency with which we can extract value from energy.

Every process in the universe obeys these laws of thermodynamics. The difference between information technologies and energy technologies is that the efficiencies of information processing technologies are orders of magnitude away from the immutable limits to efficiency imposed by the second law of thermodynamics. Energy technologies have already been developed to the point where they are quite close to those limits. This doesn’t mean that energy technologies can’t improve, but that the improvement will come in 10% chunks, not repeated doublings like with information technologies. The closer you get to the second law limits the harder it is to take the next step.

This fundamental difference has important consequences for public policy and business development strategies. The frequent analogies from the computer industry that are applied to the clean energy field are more damaging than helpful. Those common analogies are actually implying that with just a little more research we can develop perpetual motion machines. The world would do itself a big favor to understand why perpetual motion machines are physically impossible. Then we could stop hoping for a couple of kids in a garage to discover a breakthrough so profound that they get as rich as Bill Gates and save the world at the same time. Once we stop waiting for that miracle we can get on with the hard work of applying the massive improvements in information and communication technology to create lots of incremental improvements in the energy industry.

A good illustration of this point is the analogy between distributed energy and distributed computing. I firmly believe that distributed energy is a disruptive innovation that will turn the energy industry on its head. In that way it is similar to distributing computing that destroyed the mainframe industry a couple of decades ago. The new concept of cloud computing shows that this revolution is still ongoing. Distributed energy is where distributed computing was in the late 1960’s. The fundamental building blocks exist, but we haven’t figured out how to apply them. Those are the similarities. Consider the differences.

1. The energy industry is a trillion dollar global incumbent industry. This gives them enormous political power to slow the transition. It also creates enormous momentum that makes rapid changes difficult, because industry assets are extremely long-lived.
2. It is highly regulated. Attempts to deregulate it have mostly failed because there are major elements of the industry that really are natural monopolies.
3. Finally, the efficiency limits imposed by the second law of thermodynamics mean that the benefits of any new energy technologies will not be so profound that it will simply blow away its competitors.

New energy technologies are going to slug away for market share by identifying their best niches. That is where HOMER® is helpful. The last “next big thing” was such a technological leap that it simply blew away its competitors. Being first was more important than being best. The first technology that is 10 times better than the incumbent takes off like a rocket. Another technology that is 12 times better than the incumbent is now only 20% better than that first technology. It will have a much harder time penetrating the market.

The second law of thermodynamics calls into question the whole concept of racing to market because the improvements will be measured in percentages, not multiples. Environmental pressures do require some urgency but that must come from public policies. Without those policies we will have lots of little incremental improvements, most of which will be applications of information and communication innovations to the energy industry. It is a vain hope, a bad public policy, and a bad business strategy to assume that the market and technology are going to magically create huge overnight improvements in clean energy technologies like they did with information and communication technologies.

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