The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism (21 page)

The increasing public awareness of both the corporate “rip-off” and the opportunity of becoming a prosumer—a producer and consumer of one’s own green electricity—has turned the tide toward millions of small-business owners and homeowners who are becoming the primary drivers of a shift to distributed renewable energies. A growing number of the millions of consumers of electricity who are footing the bill for the feed-in tariffs are also beginning to reap the benefits. They are investing their own capital to install renewable energy harvesting technologies on site. While the up-front capital investment is significant, they are beginning to receive low-interest-rate green loans from banks and credit unions. The lenders are more than willing to lend money at reduced interest rates because the premium in selling green electricity back to the grid virtually ensures the loan will be honored.

The shift from being a consumer to being a prosumer of energy marks a tipping point in the way power is generated and used. The giant oil, coal, and gas companies of the twentieth century, often in collusion with banks and other financial institutions and abetted by favorable government subsidies, were able to amass and employ huge sums of financial capital to
gain control of the nation’s power supply. Today, millions of little players are underwriting their own renewable energy revolution by taking advantage of feed-in tariffs financed by the slight monthly rate hike attached to their electricity bill.

In Germany, which is setting the pace for transitioning into green electricity in Europe, the big traditional power and utility companies—E.ON, RWE, EnBW, Vattenfall Europe—owned only 7 percent of the renewable-energy capacity installed by the end of 2011. Individuals, however, “owned 40 percent of the renewable energy capacity, energy niche players 14 percent, farmers 11 percent, various energy-intensive industrial companies 9 percent, and financial companies 11 percent. Small regional utilities and international utilities owned another 7 percent.”
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Nearly half of the German wind turbines are owned by residents of the regions.
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In other EU countries, the pattern is the same. Consumers are becoming prosumers and generating their own green electricity.

Gérard Mestrallet, CEO of GDF Suez—the French gas utility—says that just ten years ago the European energy market was dominated almost exclusively by a handful of regional monopolies. “Those days are gone forever,” says Mestrallet, now that “some consumers have become producers.”
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Peter Terium, CEO of RWE, the German-based energy company, acknowledges the massive shift taking place in Europe from centralized to distributed power, and says that the bigger power and utility companies “have to adjust to the fact that, in the longer term, earning capacity in conventional electricity generation will be markedly below what we’ve seen in recent years.”
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Had anyone suggested ten years ago that the big power and utility companies of Europe would begin to crumble as millions of small, distributed, renewable-energy micropower players began to generate their own green electricity for the grid, it would have been dismissed as fantasy by the powers that be. Not now. “It is a real revolution,” says Mestrallet.
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Consumers and small business owners are not only paying most of the costs for bringing green electricity online through rate hikes in their electricity bills and taxes. They are also paying the lion’s share of costs in the build-out of the Energy Internet. Just recently, the U.S. government shelled out $3.4 billion in Federal Recovery Act funds, which will be leveraged with an equal or greater amount of private sector resources, for a total $7.8 billion investment to support grid modernization.
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If this sounds like a lot of money, consider for a moment the cost to businesses and consumers in power interruptions, brownouts, and blackouts each year resulting from an underperforming and inefficient power grid. “Power outages and interruptions . . . cost Americans at least $150 billion each year—about $500 for every man, woman and child.”
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Most power interruptions in the United States stem from the fact that the old electricity transmission lines are still above ground, with wire strung across decaying wood poles. The problem is that more extreme
weather events brought on by climate change—winter snow storms, torrential spring storms and floods, hurricanes, etc.—are downing transmission lines on a much more frequent basis, forcing brownouts and blackouts across wide areas. Power losses, which used to be occasional events, are now the new normal across large parts of the United States, as extreme weather events take a ruthless toll on old sagging transmission lines that should have been tucked underground a long time ago. If this weren’t enough, “more than 10% of all the electricity used is ultimately lost due to conversion inefficiencies.”
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Installing a secure, twenty-first-century, digitalized, distributed smart grid underground would dramatically reduce electricity losses and power blackouts while increasing the efficiency of electricity transmission along the lines.

A study carried out by the Electric Power Research Institute (EPRI), the nonprofit think tank of the U.S. electricity industry, estimates that it will cost between $17 and $24 billion a year over the next 20 years, or about $476 billion, to phase in a national Energy Internet.
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Not cheap, but then again, not overly expensive either, especially when you consider the return. That’s approximately the same amount of money per year as the Department of Defense spends to build two new aircraft carriers—or, to put it in energy terms, Royal Dutch Shell’s annual revenue of $470 billion in 2011 nearly equals the cost of building a national Energy Internet over 20 years.
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The EPRI price tag is probably too low. It assumes a bargain-basement, no-frills approach to smartening up the energy grid by installing smart meters and laying out additional power lines. Other studies suggest the price could be as high as $2.5 trillion when we take into account energy storage, the wiring of every machine, appliance, and thermostat to the grid, and the cost of IT management of Big Data feedback from billions of nodes across the Energy Internet. Vaclav Smil, a leading energy analyst, reminds us that even this figure doesn’t include the write-off of the existing fossil fuel and nuclear power plants, whose replacement value is at least $1.5 trillion.
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In reality, the costs are probably going to be somewhere in the neighborhood of $1.2 trillion, stretched out over three decades. Power companies will pass on some of the costs of constructing an Energy Internet to their customers in the form of increased charges. Still, the hikes will be tiny and easily manageable. The rest of the costs will be absorbed by the local, state, and federal governments in the form of direct outlays, subsidies, incentives, and allowances. This is how the communication/energy infrastructure of both the First and Second Industrial Revolutions were financed, through a combination of private and public investment.

The EPRI study shows that the increase in “energy savings” to customers in the installation of a continental Energy Internet would be in the neighborhood of $2 trillion, well worth the up-front infrastructure costs.
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However, that $2 trillion doesn’t even begin to take into account the dramatic increase in potential productivity that will result from embedding
all economic activity in an intelligent, networked IoT infrastructure that is continually using Big Data feedback and state-of-the-art analytics and algorithms to increase thermodynamic efficiency and productivity in every corner of society. As mentioned earlier, it’s the steep rise in overall aggregate energy efficiency from the peak level of 14 percent in the Second Industrial Revolution to 40 percent in the Third Industrial Revolution and the accompanying productivity gains that are going to move us ever closer to a near zero marginal cost society.

Fourteen countries are currently implementing smart grids, and, in the majority of the cases, the Energy Internet is being financed by raising the electricity bill to consumers and by taxes paid by its citizens and businesses.
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A significant part of the financing of the Energy Internet will go to reconfiguring electricity lines and establishing the substations and other hardware components that make up the physical operating systems. Much of the rest of the financing will be dedicated to the intelligent communication technologies that will coordinate the complex flow of green electricity being generated, stored, and shared by millions of individual prosumers.

As mentioned in chapter 5, every device in every building will be equipped with sensors and software that connect to the Internet of Things, feeding real-time information on electricity use to both the on-site prosumer and the rest of the network. The entire network will know how much electricity is being used by every appliance at any moment—thermostats, washing machines, dishwashers, televisions, hair dryers, toasters, ovens, refrigerators, and so on. The continuous feedback of information allows on-site prosumers to optimally program their own electricity use while the distributed and collaborative nature of the system allows millions of energy players to share electricity in ways that optimize the efficiency of the entire network. For example, millions of energy prosumers can preprogram their nodes—it’s a voluntary system—so that if the demand for air conditioning spikes because of a heat wave across the region, their thermostat will automatically take itself up by one or two degrees or their washing machine will automatically shift down to a shorter rinse cycle to save on electricity use, allowing the system to level off the increase in electricity demand. Prosumers who assist the grid receive a credit on their next electricity bill.

Utility companies, anxious to profit from the smart grid, would prefer to control the communications across the network. The smart meters installed in millions of buildings are owned by the utility, even though the customers end up paying for them because the cost is passed on in their monthly bill. By locking up the communications that are essential to the management of the Energy Internet, the utility companies can prevent millions of businesses and home owners from fully benefiting from the smart electricity system they are funding.

Their efforts are likely to fail. Dozens of companies are coming to the market with new Web-connected smart energy devices that allow
prosumers to connect every appliance in their building and communicate via wireless networks with the power grid.
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Dave Martin is the president of Intwine Energy, a U.S. start-up company that facilitates wireless smart grid connection. Like others who have put their faith in wireless interfaces with the Energy Internet, Martin sees the opportunity of bypassing the old centralized and proprietary approach to communications in favor of a distributed, open, collaborative, and lateral model:

We believe being able to tap into the existing Internet connectivity in broadband-equipped homes and use the World Wide Web, rather than having to rely so much on proprietary, “closed” systems, offers significant benefits to homeowners and utilities.
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Martin points to the agility, mobility, and simplicity, and the reduction in costs that come with using wireless networks and remote devices to program, manage, and distribute energy across an Energy Internet. He explains the rationale behind wireless smart grid connection:

Our systems enhance collaboration between the homeowner and the utility. As a result, energy users can customize their energy management practices based on their lifestyle, and energy producers can meet their demand management commitments without having to engineer and deploy their own proprietary systems.
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Wireless network devices will empower millions of people to take direct control over their energy generation and use and enable them to reduce the marginal costs of managing energy to near zero on a continental Energy Internet.

Transforming the entire infrastructure of society into a Third Industrial Revolution seems daunting—but no less so than the First and Second Industrial Revolutions. Both came to fruition in less than 40 years. This time around, the process is likely going to evolve more quickly, in large part, because the global connectivity of the Internet makes possible the active engagement of billions of people in the build-out of the new communication/energy matrix. That level of involvement allows for the lateral scaling of the Energy Internet at speeds that resemble the exponential growth of the Internet over the past two decades.

The Clean Web

A young generation of social entrepreneurs are just now beginning to use social media to mobilize their peers to become as engaged with the Energy Internet as they are with the Communications Internet itself. In the process, they are creating new technologies that will unleash the thermodynamic efficiencies and productivity potential inherent in the IoT infrastructure.

It’s called the Cleanweb, a grassroots movement that took off in 2011 in the United States and countries around the world. Writing on the
MIT Technology Review
website, Sunil Paul and Nick Allen, two young venture capitalists, describe the Cleanweb vision:

We believe the next opportunity is what we call the “cleanweb”—a form of clean tech that takes advantage of the Internet, social media, and mobile communications to alter how we consume resources, relate to the world, interact with each other, and pursue economic growth.
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The Cleanweb Movement, also called energy IT or clean IT, is likely going to drive the paradigm change with lightning speed, leaving conventional business practices at the side of the road, with business leaders wondering how they failed to pick up on the cues—just as was the case when the Internet generation began to create applications and employ social media to share music, videos, news, and information, leaving much of the media and entertainment industries in the dust.