The Next Big Thing

During the period from the late 1950s to early 1970s, racing for the moon was the next big thing as a result of Soviet-American power competition. Although the impacts for the Soviets were less apparent, the moon program has contributed enormously to the technological prowess of the United States, especially in jet propulsion, satellites, aircraft, new composite materials, wireless communication, and computers.

The new space technology laid the groundwork for later development of integrated circuits, the personal computer, and ultimately, the Internet. We know that investing in a new technology naturally leads to another because it opens new frontiers. Little did we know then that the moon program, being the next big thing at that time, would lead to the Internet, which turns out to be another one, even bigger, that continues to change the world today.

The moon program was triggered by a supply push. The first push came from Sputnik, the first satellite put up by the Soviets to orbit the earth in 1957. It created the fear that the US might have fallen behind in missile technology to defend itself against a Soviet nuclear attack. The second push came from President Kennedy’s vision to put a man on the moon within ten years. Then heavy government investments started to flow into the space and related industries. Nowadays, the situation is totally different: the Soviet Union is no more; the US government runs out of money; and no leader has a bold vision. There is little chance of a supply push for any new technology.

However, there always exists a demand push for the next big thing, as exemplified by the personal computer, the Internet, and the cell phone. It develops organically in the market system rather than relying on heavy investments from government. It is based on three basic human instincts: need, profit, and fear. We just don’t know when the demand push will explode because it requires the convergence of several critical factors tied to the three basic human instincts.

What is the next big thing for this decade? I venture to say solar energy is the next big thing brought about by a demand push. All we need is to draw some insights from what has happened already, and investigate the major critical factors that are converging right now.

First, how big is the demand? Although hard to quote a number, the mass demand is quite obvious for the personal computer, the Internet, and the cell phone. It originates from the need and profit instincts that I’ve just mentioned: to communicate far and quick, to do business more efficiently for better profit, and to become more independent in one’s work. All of these mean empowering the individual, rich or poor, young or old, locally or globally.

Does solar energy empower the individual? It does in a similar way. First, you look at the automobile that has become part of human life. As an ordinary citizen, driving a private car means personal empowerment in many ways. Most of us aspire to owning even a better one. The automobile satisfies the same basic instincts of need and profit that I’ve just described. What if the car runs on solar electricity to be supplied at home, in a car park, or at a roadside station? The answer must be a resounding yes if the cost is low enough for substituting gasoline, because we are at the mercy of rising gasoline prices unless we stop driving.

Therefore, the demand for autos will inevitably grow, but faster for plug-in hybrids and electrics requiring solar energy at comparable prices. A zealous environmentalist would urge us to stop driving and ride a bicycle. That is not going to happen. What will happen is substitution of gasoline with electricity. The pace of electrification of autos will depend on the cost of the conversion of sunlight to electricity.

Besides the automobile, great demands exist for solar lighting, heating, air conditioning and all other in-house applications, again subject to the cost of electricity conversion from sunlight. If you live in a remote village in the developing world where transmission lines are either absent or unreliable, solar electricity will save you from the dark ages. It turns you into an independent generator of electricity without relying on building a power plant and a transmission infrastructure. Doesn’t this mean empowering the individual? It means empowering the whole country, too, if overall energy supply is insufficient for economic development.

Solar electrification of autos and buildings represent the two biggest areas of fossil fuel substitution. We can add ships to the equation, too. In view of the huge numbers of autos, boats, and buildings worldwide, this tsunami demand is obvious. What will trigger this demand to explode? It boils down to the cost parity of electricity generation between using sunlight and using fossil fuels.

Solar energy has so far been ignored because we have been accustomed to fossil fuels without realizing something free and plentiful as an alternative. In addition, the fossil fuel industry has erected all kinds of obstacles to retard solar development. But the market system will ultimately win. In other words, the relentless rise in oil prices due to real shortage is promoting solar energy.

Solar energy is already here today. In my previous essay “Sun Power”, I mentioned that total production of the top ten solar companies almost quintupled from 2006 to 2010. At the same time the price has fallen by about the same rate. This looks like a replay of the electronics revolution where mass production is accompanied by sharp price drops. What about efficiency? Currently, solar cells operate at less than 25% efficiency rate. This signifies potential more than weakness. The advance in technology will inevitably bring up the efficiency rate, resulting from concentrated packaging of solar cells, and innovations to be delivered by the nano-tech industry. As efficiency of solar cells improves, the price of solar energy will come down even further.

Due to the rapid drop in prices, a shakeout is now taking place in the solar industry where less competitive firms are eliminated (Solyndra for instance). The stock prices of all solar companies have fallen precipitously. This reflects more on the shakeout uncertainty than the health of the industry as a whole, because nobody knows which firm will be next to die. Those that survive depend on two things: a large sales volume to compensate for the price drop, and the ability to exploit the economies of scale. When the dust eventually settles, the survivors will grow rapidly because they will have captured the market shares of the fallen.

Within a few years’ time, parity will most likely be achieved where electricity generated from sunlight will cost the same as from fossil fuels. That will be the threshold of explosion as people begin to switch over to solar for autos and buildings. In fact, recent developments are contributing to earlier realization of the solar threshold:
*Significant government subsidies in Germany, Italy, China, USA, etc.
*Feed-in tariff (FIT) in Germany, China and other countries to enable household solar electricity to be sold to utility companies at fixed prices.
*Solar companies in US begin to offer zero down payment for installation.
*On-going cross-fertilization of technology between solar and two very dynamic industries: electronics and nano.
*Major oil companies are quietly buying solar companies and subsidizing their research budgets (e.g. Total S.A. of France bought SunPower in US).
*Arab oil countries are even investing in solar, too (e.g. Saudi Arabia and UAE). Perhaps they see the eventual solar substitution of oil.

Finally, there is the push from the fear instinct that I’ve mentioned earlier. Although the Internet does not depend on the fear factor, the solar industry is being pushed by worries about climate change and environmental degradation. As people become more aware of environmental pollution and energy sustainability, they will switch to clean and renewable sources for a better quality of life. Therefore, the question is not whether but when. I think solar substitution of fossil fuels will take place en masse within the next few years when cost parity is achieved. This by no means spells the end of the fossil fuel industry, but will reduce its importance significantly.

(November 2011)

This entry was posted in 21st Century, Business/Investment, Environment, Game Changer, Inspiration, Science/Technology. Bookmark the permalink.

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