Disruptive Technologies, Part IX - Energy

This is my final entry commenting directly on the contents of the Disruptive Technologies MGI paper. I'll have one more entry on where I see some important elements that were either omitted or glossed over.

Returning to the generation, transmission, storage framework mentioned earlier, we'll break down the developments in energy mentioned throughout the paper by the authors.

A few points before diving in. There is an important point highlighted by the authors concerning peak demand. Energy is generally most efficiently produced when there is an even load. However, energy demand is not even for 24 hours per day. There is a big peak in the afternoon to early evening. From page 101, "To meet peak demand (when generation prices are highest), utilities can either build excess generation capacity or purchase electricity from other utilities or from specialized peaker plant suppliers." Accordingly, reductions in peak demand—even if that peak is merely shifted to other parts of the day—can produce huge savings. The paper's authors focus quite a bit on improvements in smaller scale batteries outside of the larger grid. However, from their writing and from my reading elsewhere, it is incredibly difficult to predict both developments and impact in this space.With this in mind, especially for the transmission and storage elements, below I've focused more in developments at the level of the general electric grid, household consumption, and business consumption.

Generation a) Oil and gas improvements - There have been incredible developments in natural gas over the last eight years. Hydraulic fracturing and horizontal drilling are global game changers in the energy industry. However, the cutting-edge advancements have primarily been implemented only in the United States and Canada. As other nations implement similar technology, and the technology progresses further (e.g., well renewal and other methods), the global energy industry will be very different from what we see today. As the authors put it (page 135), "No one can predict the geopolitical implications of such developments; there are simply too many variables in play."

Generation b) Renewables - Solar and wind continue to progress, but still have a ways to go. Solar will always have the upper limit cap on how much energy the sun produces, but there have been fairly constant efficiency gains in both the technology and production techniques. Solar does okay in certain high intensity deserts (no clouds and more hours of sunlight), but outside of them the economics need to change significantly before coming close to par with fossil fuels. Wind power simply does not appear to be viable until an improved energy storage solution comes into play. Wind is actually close to par with existing fossil fuels, but wind power exacerbates the peak load issues, as wind tends to blow more at night than the day and sometimes the wind does not blow at all. This is also true for solar because of intermittent cloud cover. The key to this is in the storage section below. If interested, one of my favorite TED talks is from a physicist on a realistic description of what green energy needs to look like going forward. going forward.

Transmission - This area was highlighted in the chapter on the internet of things. The estimate from MGI was a potential 2-4% reduction in peak demand, lower loads on the grid, and improved energy management techniques from customers. Nothing earth-shattering, but some decent improvements. One area that was not mentioned in detail was improving the regulatory structure to vary prices for customers depending on demand and supply. Consumers, however, would need to stay informed (perhaps through the internet of things) on the going rate of energy. This aspect alone could capture a significant portion of this benefit.

Storage - I've heard that there are many in the venture capital world working with prototypes of improved storage capacities, but very little is publicly available and there is not much information in the MGI report. The MGI authors do admit this is a slightly longer shot than many other points discussed, but the impact would be enormous. Just in energy production on general energy grids, we could see a 5%+ utilization impact of free energy that is currently lost because of frequency stabilization or inefficient storing of power. Wind power would instantly become far more economical. Plants could even out loads, driving efficiencies across the sector. This would also signify large impacts in the developing world, as intermittent energy is a large blow to productivity and quality of life.

There is a lot of potential in the energy industry. Drilling improvements have already been discovered and are very likely to continue and expand to the rest of the world. Storage improvements at the grid level is potentially disruptive with large worldwide benefits, but it is also the longer shot. I'm eagerly looking forward to the information on developments trickling out of the venture capital arena. Many companies should be aware of storage improvements, as the implementation would likely come quickly, and the effects would ripple through industries in both the developed and developing economies.

Side Comment: Driving in the developing world

From my previous post:

"One final note. Unlike some of the other improvements listed in the report, autonomous vehicles will likely have only a marginal impact on the developing world for both safety and infrastructure reasons. Those who have driven in these environments know how complex driving can be (more construction areas, worse road conditions, lower compliance with traffic laws, safety concerns, etc.), and that autonomous vehicles still have a ways to go before being able to navigate even just the urban areas of cities in the developing world."

One of my favorite stories about this is when I was working for a time in an office relatively close to a sketchy neighborhood. I was checking out the streets in street-view mode on Google maps. I clicked forward into the neighborhood. As I and the Google van advanced with each click, a group of shirtless young men in their late teens or early 20's appeared in the distance in the middle of the street. The Google van approached closer each time I clicked. The next picture showed the young men standing across the road in an intimidating fashion, all looking up at the Google van. I clicked forward one more time, but there were no more options to click further for street view into the neighborhood. The Google van had fled.

Disruptive Technologies, Part VIII - Autonomous Vehicles

The Disruptive Technologies MGI paper emphasized one area of which I have quite a bit of direct knowledge, autonomous vehicles.

The "self-driving car" has been progressing over the last six years or so. Google has been pushing the hardest, but other high-end manufacturers have also explored and participated within this area. First, let's start with a framework for analyzing autonomous vehicle development. Progress in this area can be broken into three distinct steps:
- Driver assistance technology. Cruise control, automatic braking, and accident avoidance falls into this category. These are not new, but certain areas show promise of progressing significantly. The primary benefits of this technology are to make driving a little less tedious and improve driving safety. These incremental benefits are good, but not revolutionary.
- Autopilot technology. Specific basic driving tasks are taken over by the vehicle's computer system. This includes parallel parking, stop-and-go heavy traffic, and highway driving. This is similar to autopilot technology in an airplane. The basic steps are taken by the computer, but if any desirable changes wish to be made or out of the ordinary events occur, the human needs to take over. The key impact here is safety. The toll in human lives and property damages from vehicle accidents is enormous. MGI estimates (page 81) that we could see 150,000 accidental deaths prevented per year by 2025. This is a great improvement, but it's still not revolutionary or particularly disruptive.
- Autonomous vehicles. The key difference between autopilot and autonomous is that the human can sit in the back seat or not be in the vehicle at all. This is a disruptive technology with revolutionary impact.

Here are a few of the effects of autonomous vehicles:
1) Real estate - Commutes become less important as average speeds to destination increases, and the commute becomes much more pleasurable. This causes the competitive advantage of near-urban suburbs to fall, and boosts that of exurbs. Also, since vehicles can roam to a parking space, urban centers can become far more efficient in their land use.
2) Vehicle ownership - Forget even having to own a car. The incentive to own a vehicle for personal use would fall, creating an opportunity for those who can efficiently move into a new age of fleet management. Also, for those who do own a vehicle, any time it is idle it can be sent roving for passengers and become a revenue producing asset.
3) Taxis/Rental Car - Forget Uber and traditional rental cars. One calls a car, it picks them up at home, and takes them to the destination. No driver costs and minimal transaction costs.
4) As mobility is enhanced, there will be many other difficult-to-foresee benefits and effects cascading through the economy.
The progress up to just before the point of autonomous vehicles is good, but not particularly disruptive or revolutionary. There will likely be many hiccups along the way to improve safety, and these improvements will likely be incremental on a fairly limited but consistent basis. However, the steps up to the point of autonomous seem far more achievable in the medium-term. Contrary to the MGI statement, "Technology is not likely to be the biggest hurdle in realizing these benefits," technology is still a very large obstacle for moving to the autonomous phase. The primary disruptive and revolutionary segment is technology challenging. To my knowledge, you can take the best near-autonomous vehicle to date, drop it in midtown Manhattan, and it will... do nothing. Contrary to what is said in some circles, I believe Google took the smart approach by abandoning the traditional self-driving Lexus design and instead replacing it with a glorified self-driving golf cart. Beginning from the glorified golf cart, Google can initially implement on a larger scale, and then more easily scale up the technology from there. Also, the self-driving cart within retirement communities can already begin producing benefits for a segment of the population that can benefit most from the technology, and the private roads in these communities can allow Google to experiment with little government interference. However, Google's transition does put a damper on those believing that autonomous vehicles will be a near-term phenomenon.

One final note. Unlike some of the other improvements listed in the report, autonomous vehicles will likely have only a marginal impact on the developing world for both safety and infrastructure reasons. Those who have driven in these environments know how complex driving can be (more construction areas, worse road conditions, lower compliance with traffic laws, safety concerns, etc.), and that autonomous vehicles still have a ways to go before being able to navigate even just the urban areas of cities in the developing world. 

Disruptive Technologies, Part VII - Cloud Technology

I was torn on the fourth section of the Disruptive Technologies MGI paper. This is an area in which I have fewer contacts and am less familiar with the majority of the areas highlighted. Based on the material presented, I am not yet convinced that cloud technology will be disruptive and transformative over the next 10 years. It is certainly possible, but I would put it as unlikely for a number of reasons.

1) Cloud technology has had incredible advancements already over the last 10 years, and the case that "the low-hanging fruit is gone" should be weighed against the case that there is potential for acceleration (pg 62).
2) While there is potential for dramatic improvements, the scope seems fairly limited, and further improvements will be necessary for cloud technology to have the impact predicted. For example, many small and medium-sized enterprises can use cloud technology to reduce costs and put themselves on a more competitive footing with larger players. Part of this benefit would stem from easily scaling operations up or down over a much shorter period of time. However, is the difference in IT capability a significant enough barrier that this change would be clearly evident? I am not so sure. It certainly bridges some of the gap, but there are many other reasons that smaller and larger firms have their competitive advantages.
3) Cloud technology is heavily dependent on bandwidth. If the bandwidth magic bullet strikes (see previous post), cloud technology can be extremely disruptive and transformative for many industries. However, to my knowledge that is a big "if." MGI admits as such in the section on potential barriers.

Disruptive Technologies, Part VI - Internet of Things

The Disruptive Technologies MGI paper is quite optimistic on the "Internet of Things." In essence, more sensors, more communication, and more data to connect the world. However, for most areas it is difficult to be convinced that the rapidly growing areas will produce increasing and disruptive returns to the market. Most of the examples given appeared to be areas with diminishing returns. The authors do place a number of caveats, "[T]he cost of sensors and actuators must fall to levels that will spark widespread use." "Progress is also needed in creating software that can aggregate and analyze data and convey complex findings in ways that make them useful for human decision makers or for use by automated systems." "Few organizations are ready to deal with this sheer amount of data and have personnel who are able to do so." In most areas, I believe the internet of things requires a longer time frame as chip costs fall, the heavy lifting on data-based actions is performed, and incremental and new applications are discovered.

However, one area appears ripe for the internet of things: public infrastructure and services. Traffic, water, electricity, and waste management are all areas for significant potential improvements by the internet of things because of a) significant existing physical investment and b) large potential savings. These areas are also likely low-hanging fruit because of a lack of competitive pressures to implement improvements over the last decade. Many governments at all levels have waited out implementation for a variety of reasons, from waiting for risks to decrease as technology improves further to corruption. This is one of the prime areas—if not the prime area—for improvements from the internet of things to be achieved in the near term.

Disruptive Technologies, Part V - Automation of Knowledge Work

The Disruptive Technologies MGI paper is very bullish on the automation of knowledge work. Some of the areas mentioned appear quite optimistic. However, the emphasis on the introduction of technology in education seems spot on. From page 45, "The economic impact of such tools in education would come from improving instructional quality and enabling teachers to provide more one-on-one attention and coaching. New self-teaching tools could also enable fundamental changes in scheduling: courses could be tied to subject mastery, rather than semesters or quarters, allowing students to progress at their own pace."

The primary elements of a basic education consist of
- Information: The knowledge must be first obtained held by the person or machine that is considered the source.
- Presentation: The information is effectively communicated to the recipient. In previous posts it has been mentioned that this is a large weakness in many developing countries.
- Motivation: The structure, instructor, or self motivates the pupil to learn the information.
- Retention: The pupil retains the information for later use.
- Accreditation: The pupil has signalling power to demonstrate the initiative taken and knowledge received.

Tyler Cowen argues in his book Average is Over that Information, Presentation, and Retention have developed significantly with technology. Accreditation is likely not far off. However, Motivation will be the primary distinguishing characteristic of future workers. There will be workers that have unfaltering motivation and will tirelessly work through seemingly dull or repetitive tasks to perfection. There will also be workers with varying motivation that tend to advance in short spurts of time. Finally, some workers will not be motivated, and will focus on obtaining just sufficient information to achieve near-term goals. In effect, those that are motivated, especially those in the developing world, will have access to become the new knowledge employees of the future. This is only possible because of the incredible recent advancements and advancements to come in the automation of education. The potential worldwide disruptive effects will be significant, as the world becomes more flat because of more equalized educational opportunities, with the caveat that this would be most true for basic and technical education, while leaving the most advanced and theoretical fields mostly intact.

Disruptive Technologies, Part IV - Impact of Mobile Technology

Further comments on the Disruptive Technologies MGI paper. Today's focus is the impact of mobile technology/smart phones in the developing and developed worlds.

Some time ago, I listened to a podcast that had a panel of Silicon Valley venture capital investors. One of them made a passing comment that has stuck with me on smart phones. The comment was to the effect, "The impact of smart phones on the developing world is an order of magnitude difference than the impact on the developed world in people's day-to-day lives."

The MGI paper forecasts the breakdown of benefits for the developed and developing world (Exhibit E4, pg 17). The forecast for mobile internet going forward is 50% developed and 50% developing. Over time, I've come to appreciate more the venture capital investor solution and appreciate less those around me hyping the latest iPhone. Take a few examples,
- Price - In the developed world, the smart phone is like a computer in your pocket. However, computers are still relatively expensive, while smart phones (in the developing world) are not. Accordingly, the ever cheaper smart phone (see pg 33) is at a price point that can connect billions of the world's poorest to the internet for the very first time.
- Education: The developed world has apps to help memorize subjects to supplement current education opportunities. For many in the developing world, the smart phone is or can become the primary source of education because schools are too far from home or that instructors are absent, drunk, lack knowledge, or otherwise ineffective.
- Finance: In the developed world, we don't need to go to the bank to deposit a check. For many in the developing world, they now have access to modern banking for the first time.
- Purchasing: In the developed world, we can purchase more during previously idle time. In the developed world, large groups of vendors and customers are meeting together for the first time.

The proper comparison for the developing world is to benchmark the smart phone to limited or no access, while in the developed world we can generally benchmark to the computer or telephone. Uber makes car services more convenient, adds some suppliers, and upsets taxi regulation distortions. Airbnb does the same for its industry. However, on a marginal basis, are these companies that revolutionary? The solutions that these companies provide are solutions to what many would consider "first world problems." Unquestionably there is value created by these companies as they shake up the mobility and hotel industries, but the developed world shakeup is not comparable to cars taking the place of horse-drawn buggies. However, for the developing world, there is the potential to make this comparison.

MGI's own "the future could be" example (page 31) demonstrates this phenomenon of the difference between the developed and developing world. Compare the impacts in the two scenarios presented.
Developed world impact:
- Alarm to remember train's departure time
- Targeted advertising
- Product information accessed more quickly
- Account balances accessed more quickly

Developing world impact:
- Online instruction in irrigation techniques lead to increased farm productivity
- Purchasing of seed, fertilizer, and equipment.
- Pooling resources with other farms to minimize costs
- Optimized timing to sell agricultural products
- Bank payments and receipts

Mobile technology has the potential to make an order of magnitude impact in just one of these scenarios. As long as increases continue in processing power, the data pipe, and to some degree energy cost and storage, the potential for mobile technologies in the developing world is the most significant technological change listed in the report.