The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism (12 page)

Exponential growth is deceptive; it creeps up on you. On day 15, the doubling process had only reached $16,384, leaving me confident that I had struck the right deal going for one million cash in hand. The next six days of doubling was a shocker. With just six more doublings, the figure had already topped $1 million. The next ten days knocked my socks off. By the thirty-first day of the month, the doubling of that dollar had topped $1 billion. I had just been introduced to exponential growth.

Most of us have a difficult time grasping exponential growth because we are so used to thinking in linear terms. The concept itself received very little attention in the public mind until Gordon Moore, cofounder of Intel, the world’s largest semiconductor chip maker, noted a curious phenomenon, which he described in a now-famous paper published in 1965. Moore observed that the number of components in an integrated circuit had been doubling every year since its invention in 1958:

The complexity for minimum component costs has increased at a rate of roughly a factor of two per year. Certainly over the short term this rate can be expected to continue, if not to increase.
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Moore slightly modified his earlier projection in 1975 saying that the doubling is occurring every two years. That doubling process continued for another 37 years, although recently, scientists have begun to predict a slowing in the number of transistors that can be put on a computer chip. The physicist Michio Kaku says we’re already beginning to see a slowdown and that Moore’s Law, at least in regard to chips, will peter out in another ten years using conventional silicon technology. Anticipating the slowdown, Intel is introducing its 3D processors, confident it can keep the doubling in place a bit longer.

Kaku points out that there is an upper limit on how much computing power can be squeezed out of silicon. He adds, however, that newer technologies like 3D chips, optical chips, parallel processing, and eventually molecular computing and even quantum computing will likely ensure an exponential growth curve in computing power well into the future.
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Moore’s Law has since been observed in a wide range of information technologies. Hard-disc storage capacity is experiencing a similar exponential growth curve. Network capacity—the amount of data going through an optical fiber—has achieved an even steeper exponential curve: the amount of data transmitted on an optical network is doubling every nine months or so.
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It’s the exponential factor that allowed computing costs to plummet for more than 50 years. When the first giant mainframe computers were being developed, the cost of computing was huge and out of commercial reach. The conventional wisdom was that, at best, only the military and a few research institutions could ever cover the costs. What experts failed to take into account was exponential growth in capacity and the falling costs of production. The invention of the integrated circuit (the microchip) changed the equation. Where 50 years ago a computer might cost millions of dollars, today hundreds of millions of people are equipped with relatively cheap smartphones with thousands of times more computing capacity than the most powerful mainframe computers of the 1960s.
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In the year 2000, one gigabyte of hard-drive space cost in the neighborhood of 44 dollars. By 2012, the cost had plunged to seven cents. In 2000, it cost $193 per gigabyte to stream video. Ten years later, that cost had dropped to three cents.
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To appreciate the significance of the exponential curve in computing power and cost reduction, consider this: the first commercially successful mass-produced business computer, the IBM 1401, often referred to as the Model T of the computer industry, debuted in 1959. The machine was five feet high and three feet wide and came with 4,096 characters of memory. It could perform 193,000 additions of eight-digit numbers in 60 seconds. The cost to rent IBM’s computer was $30,000 per year.
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In 2012, the Raspberry Pi, the world’s cheapest computer, went on sale for 25 dollars.
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The Raspberry Pi Foundation is being swamped with orders from buyers in developing countries as well as in first-world markets.

Today’s cell phones weigh a few ounces, can fit into a coat pocket, and cost a few hundred dollars. Sometimes they are even given away for free if the customer buys the carrier’s service plan. Yet they have thousands of times as much memory as the original Cray-1A computer of the late 1970s, which cost close to $9 million and weighed over 12,000 pounds.
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The marginal cost of computing power is heading to zero.

The exponential curve in generating information has fundamentally altered the way we live. As mentioned earlier, much of the human race is connecting with one another on the Internet and sharing information, entertainment, news, and knowledge for nearly free. They have already passed into the zero marginal cost society.

The exponential curve has migrated from the world of computing to become a standard for measuring economic success across a range of
technologies, becoming a new benchmark for commercial performance and returns on investment.

Free Energy

Nowhere is exponentiality more discussed today than in the renewable-energy industry. Many of the key players have come over from the information technology and Internet sectors to apply experience they garnered there to the new energy paradigm. They correctly sense two uncanny parallels.

First, the harvesting power of renewable energy technology is experiencing its own exponential growth curve in solar and wind, with geothermal, biomass, and hydro expected to follow. Like the computer industry, the renewable energy industry has had to reckon with initially high capital costs in the research, development, and market deployment of each new generation of the technology. Companies are also forced to stay two to three generations ahead of their competitors in anticipating when to bring new innovations online, or risk being crushed by the force of the exponential curve. A number of market leaders have gone belly-up in recent years because they were tied into old technologies and were swept away by the speed of innovation. Industry analysts forecast that the harvesting technology for solar and small wind power will be as cheap as cell phones and laptops within 15 years.

Second, like the Communications Internet where the up-front costs of establishing the infrastructure were considerable, but the marginal cost of producing and distributing information is negligible, the up-front costs of establishing an Energy Internet are likewise significant, but the marginal cost of producing each unit of solar and wind power is nearly zero. Renewable energy, like information, is nearly free after accounting for the fixed costs of research, development, and deployment.

Internet technology and renewable energies are beginning to merge to create an Energy Internet that will change the way power is generated and distributed in society. In the coming era, hundreds of millions of people will produce their own renewable energy in their homes, offices, and factories and share green electricity with each other on an Energy Internet, just as we now generate and share information online. When Internet communications manage green energy, every human being on Earth becomes his or her own source of power, both literally and figuratively. The creation of a renewable-energy regime, loaded by buildings, partially stored in the form of hydrogen, distributed via a green electricity Internet, and connected to plug-in, zero-emission transport, establishes the five pillar mechanism that will allow billions of people to share energy at near zero marginal cost in an IoT world.

The scientific community is abuzz over the exponential curves in renewable-energy generation.
Scientific American
published an article
in 2011 asking whether Moore’s Law applies to solar energy, and if so, might we already be on the course of a paradigm shift in energy similar to what has occurred in computing. The answer is an unqualified yes.

The impact on society is all the more pronounced when we consider the vast potential of solar as a future energy source. The sun beams 470 exajoules of energy to Earth every 88 minutes—equaling the amount of energy human beings use in a year. If we could grab hold of one-tenth of 1 percent of the sun’s energy that reaches Earth, it would give us six times the energy we now use across the global economy.
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Despite the fact that the sun is clearly the universal energy source from which all our fossil fuel and other energies are derived, it makes up less than 0.2 percent of the current energy mix primarily because, up until recently, it has been expensive to capture and distribute—this is no longer the case.

Richard Swanson, the founder of SunPower Corporation, observed the same doubling phenomena in solar that Moore did in computer chips. Swanson’s law holds that the price of solar photovoltaic (PV) cells tends to drop by 20 percent for every doubling of industry capacity. Crystalline silicon photovoltaic cell prices have fallen dramatically, from $60 a watt in 1976 to $0.66 a watt in 2013.
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Solar cells are capturing more solar energy that strikes them while reducing the cost of harvesting the energy. Solar efficiencies for triple junction solar cells in the laboratory have reached 41 percent. Thin film has hit 20 percent efficiency in the laboratory.
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If this trend continues at the current pace—and most studies actually show an acceleration in exponentiality—solar energy will be as cheap as the current average retail price of electricity today by 2020 and half the price of coal electricity today by 2030.
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The German power market is just beginning to experience the commercial impact of near zero marginal cost renewable energy. In 2013, Germany was already generating 23 percent of its electricity by renewable energy and is expected to generate 35 percent of its electricity from renewables by 2020.
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The problem is that during certain times of day, the surge of solar and wind power flooding into the grid is exceeding the demand for electricity, resulting in negative prices. Nor is Germany alone. Negative prices for electricity are popping up in places as diverse as Sicily and Texas.
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This is a wholly new reality in the electricity market and a harbinger of the future as renewable energy comes to make up an increasing percentage of electricity generation. Negative prices are disrupting the entire energy industry. Utilities are having to push back on investing in “backup” gas and coal fired power plants because they can no longer guarantee a reliable return on their investments. In Germany, a gas- or coal-fired power plant that might cost $1 billion to build, but that will no longer run at full capacity because of the onslaught of renewable energies into the grid, can
only pay for itself on days when there is no wind or heavy cloud cover. This extends the time it takes to pay off building new coal- and gas-fired plants, making the investments unfeasable. As a result, renewable energy is already beginning to push fossil-fuel-powered plants off the grid, even at this early stage of the Third Industrial Revolution.
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Global energy companies are being pummeled by the exponentiality of renewable energy. BP released a global energy study in 2011, reporting that solar generating capacity grew by 73.3 percent in 2011, producing 63.4 gigawatts, or ten times greater than its level just five years earlier.
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Installed solar capacity has been doubling every two years for the past 20 years with no end in sight.
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Even in the United States, where the transition to new green energies has been tepid compared to Europe, the power sector is reeling. David Crane, president and CEO of NGR Energy, noted in November 2011 that “in the last two years, the delivered cost of energy from PV was cut in half. NGR expects the cost to fall in half again in the next two years, which would make solar power less expensive than retail electricity in roughly 20 states,” all of which will revolutionize the energy industry.
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Like solar radiation, wind is ubiquitous and blows everywhere in the world—although its strength and frequency varies. A Stanford University study on global wind capacity concluded that if 20 percent of the world’s available wind was harvested, it would generate seven times more electricity than we currently use to run the entire global economy.
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Wind capacity has been growing exponentially since the early 1990s and has already reached parity with conventionally generated electricity from fossil fuels and nuclear power in many regions of the world. In the past quarter century, wind turbine productivity increased 100-fold and the average capacity per turbine grew by more than 1,000 percent. Increased performance and productivity has significantly reduced the cost of production, installation, and maintenance, leading to a growth rate of more than 30 percent per year between 1998 and 2007, or a doubling of capacity every two and a half years.
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Naysayers argue that subsidies for green energy, in the form of feed-in tariffs, artificially prop up the growth curve. The reality is that they merely speed up adoption and scale, encourage competition, and spur innovation, which further increases the efficiency of renewable energy harvesting technologies and lowers the cost of production and installation. In country after country, solar and wind energy are nearing parity with conventional fossil fuel and nuclear power, allowing the government to begin phasing out tariffs. Meanwhile, the older fossil fuel energies and nuclear power, although mature and well past their prime, continue to be subsidized at levels that far exceed the subsidies extended to renewable energy.

A study prepared by the Energy Watch Group predicts four different future market-share scenarios of new wind- and solar-power-plant installations, estimating 50 percent market share by 2033, with a more
optimistic estimate of reaching the same goal as early as 2017.
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While solar and wind are on a seemingly irreversible exponential path to near zero marginal costs, geothermal energy, biomass, and wave and tidal power are likely to reach their own exponential takeoff stage within the next decade, bringing the full sweep of renewable energies into an exponential curve in the first half of the twenty-first century.