The late 1990s gave us the dot com boom. Companies with a website garnishing a shopping cart icon traded at multiples of negative profit. Exuberant valuations were based on predictions that online commerce would soon sound the death knell of traditional retail.
Meanwhile, the traditional bricks and mortar retailer Walmart, was systematically asphyxiating small business retailers across America. By the end of 2000, the dot com boom was bust and Walmart, was growing like a virus.
A couple of companies that survived the dot com bust were selling products that leveraged the internet to make a step change in delivery efficiency – digital books and music.
Fifteen years after the dot com bust, Amazon surpassed Walmart as the largest U.S. retailer and in 2018, Apple became the first publicly traded company valued at over a trillion dollars. Today, the Walmart behemoth is in retreat and other retailers like JC Penny, Sears and Macy’s have all but capitulated. It’s been a brutal, Darwinian battle for survival.
Recent evidence suggests that the predictions about online commerce were true, albeit early. Might it have been possible to cut through the hyperbolic claims at the time and identify hallmarks of success? Who might flourish, who might face extinction and why?
I believe we can but in order to do so, we need to look at the real fundamentals. Factors that lay deeper than dollar valued metrics. And for those who have read my previous posts, you’ll be none too surprised to hear me once again suggest …. it’s all about energy.
Today’s companies and organisations share a common goal. One shared by almost everything and everyone on the planet – maximizing available energy.
If you believe that “money makes the world go ’round”, you’d be right, but only partly so. It’s a cornerstone of modern civilization but yet money itself is just a technology. Money has no intrinsic value, being just pieces of paper or ones and zeros on a bank’s computer. It has made trading far more efficient but if we look at the things we value and trade with money, what we discover is that everything takes energy to create. Everything. What actually makes the world go around, is energy.
It’s all around us but yet we struggle to see and touch it. It’s the ocean in which our universe swims and we’re like fish, struggling to grasp the concept of water. And within this ocean the current flows in just one direction, toward greater energy access and dissipation.
Behind every adopted technological innovation, business success story and even biological evolution is the ability to achieve an incremental improvement in total accessible energy. Our existence was born and evolved out of a capacity to access and use the energy around us.
In nature, when a species evolves a trait to better survive or access food it flourishes, most often at the expense of that which doesn’t adapt. The result is an increase in the total amount of energy accessed and dispersed through the most ancient of energy dispersion processes, biological metabolism.
Similarly in business, disruption happens when it becomes possible to access more or use less energy than incumbents. Large companies are the most susceptible to disruption because they’re the ones with the scaled systems and processes that most efficiently execute business-as-usual. However, when a new technology becomes available that improves access to energy or uses less, systemic inertia simply won’t permit them to adapt fast enough.
Amazon and Apple initially leveraged a step change reduction in the amount of energy required to sell books and music. Companies such as Borders, Barnes and Noble and Sony had the means and motivation but simply couldn’t afford to amputate large pieces of existing business to compete in this new, more energy efficient space.
Success and often survival is a function of how much improvement is made toward the goal of increasing available energy and this is where our insight into solar and batteries begins.
Today, the world’s largest companies are those that have achieved the greatest incremental improvements to the amount of available energy in one of two ways; either by accessing new forms of stored energy (Exxon, Chevron, BP, Shell, etc.) or by reducing the amount of energy we use to achieve the things we want (Amazon, Google, Apple, Facebook, Netflix).
I worked in the Oil and Gas Industry for 18 years. My job was to build the commercial and technical justifications in support of mega-project investments all over the world. Today, this industry has its challenges. While hydrocarbon projects still extract enormous, peta-joule quantities of energy, the energy investment required to develop them is also becoming much larger. The remaining fossil fuel reserves are harder, more dangerous and more complex to access, now often requiring multiple tens of billions of dollars to develop. The incremental amount of available energy is reducing because a lot of what is being extracted must be reinvested to access new resources.
It’s no coincidence that the mantle of world’s largest publicly traded company recently passed from an oil and gas company (Exxon) to a tech company (Apple). Today it’s easier to create value by reducing the total amount of energy used than by extracting new energy resources and this trend will only continue for the hydrocarbon industry. It’s this underlying trend in available energy that allows us to predict what the future will hold.
Despite what politicians, the pundits and the activists suggest, there’s only one way to sustainably replace the use of fossil fuels without severely degrading our current standards of living on this planet. Alternative energy sources *must* generate and store energy at a lower cost than fossil fuels. And with cost as a proxy for energy, that means the energy returned for the energy invested must be better for renewable energy than nonrenewable energy.
Today, renewable technologies such as solar and batteries struggle to compete with incumbent carbon-based energy production technology. However, the energy cost to manufacture solar panels and batteries is becoming progressively less. In contrast to fossil fuels, it will take less energy to create these products next year than it did today.
Whether it’s reduced cost of production, or increased cost of competition, inevitably the energy returned on energy invested will be superior for alternative energy production than fossil fuels. As was the case for online commerce, predicting the timing is complicated but the trends are clear. It’s not a question of if this will happen, simply when.
Battles will be fought, lost and won but the winner of the war will be the technology that creates the greatest access to energy and uses the least. This is where the combination of solar and batteries has a unique trick up its sleeve that I believe will ultimately allow it to reign supreme.
In contrast to not only fossil fuels but also nuclear, wind, wave and hydro electric energy production, solar panels and battery cells bear no penalty for lack of scale. A single panel by itself is no less efficient than ten or one thousand panels together. In fact, solar electricity generation is even more efficient when split up and located as close as possible to the point of energy consumption. The other technologies will remain beholden to centralized generalization and grid distribution and must bear the cost of maintenance and energy transmission losses. Not to mention the cost, time and effort required to negotiate power sales agreements, perform load balancing and manage demand response by incumbent utility companies with large systemic inertia. These challenges alone have been enough to cripple new wind, wave and centralized solar farm projects.
Symbiotically, as battery prices reduce, the local demand to charge batteries for your house, electric car, bike, skateboard, tools, appliances and probably your delivery drone will only increase, further increasing demand for batteries which will further reduce their cost. Electricity grids won’t disappear anytime soon, but the cheapest energy generation and storage will be that which you generate through solar panels on your own roof and walls.
This lower cost, distributed energy generation will be of benefit to everyone but the most exciting, life-changing impacts will be for the estimated 3 billion people who currently don’t have access to grid electricity on this planet. Improvements in human rights, education, gender equality, health and sanitation are all positively correlated with improved access to energy and if that energy can be generated and stored where these people need it, cheaper than fossil fuels, the world will look a lot different. A lot better.
True, genuine prosperity is generated from incremental improvements to available energy. The desire to pursue this goal has quite literally evolved within our DNA and we can tell you from first-hand experience that there is no greater satisfaction than being on the leading edge of creating the next evolution in energy. It’s a trajectory our civilization has always taken and it is this very trend that tells us that the future of energy production on this planet will be that which provides the greatest energy access at the lowest energy cost. All indications are that this will be solar and batteries and we’re betting more than the house on it.
About the Author: David Morgan worked as an Engineer, Business Analyst, Commercial Manager and Project Manager for international energy projects before developing Iron Matrix as a way to generate and store energy cheaper than fossil fuels. He’s “energy obsessed”.