Monday, August 22, 2016

Trade and Technology

Can Elon Musk change the way the world does business?

The rise of the British Empire can be traced to free trade.  Well, free trade for the British Empire, anyway.   They used a clever system to grow opium in India, then trade it with China in exchange for trade goods, and more importantly, silver, to fill their coffers in London.   It is no coincidence that the British currency is known as a "pound sterling" as it was based on silver.

Prior to that time, the situation was reversed - British traders bought goods in China, paying in silver, while the Chinese failed to buy any foreign goods.   By altering the trade balance, the British altered the flow of wealth from outward to inward.

So long as that trade pattern continued, the British Empire remained an empire.  But eventually China became tired of playing this game - seeing its people turned into drug addicts and its coffers emptied.   And in a post-war era, new trade patterns emerged, and the UK became a debtor nation.   When trade patterns change, fortunes are made and lost.

Today we do business with some pretty odious people in the world, just to get oil to run our economy.   We are dependent on oil for almost everything, or so we think.   A lot of people are starting to wonder whether this is really true.   There are reports that Israel is trying to get to an oil-free economy or at least an economy less dependent on oil, as they must trade with hated neighbors (who hate them as well) in order to obtain this needed energy resource (recent discoveries of natural gas and the collapse of an electric car company seem to have put these plans on hold, however).

For years, people talked about solar and wind power as an alternative to an oil-based economy, and for years, this was largely a fantasy.  Solar panels were so expensive and cumbersome that they didn't make economic sense.  The same was true for wind power.  And since both depended on the weather to operate, they were not a complete answer for our energy needs.

Similarly, electric cars were mostly in the realm of hobbyists or experimenters or as show cars trotted out by the car companies to show their environmental credentials.   Reliant on lead-acid batteries, they were slow and had limited range.

But that has changed, and a lot more may change soon.  Lithium-Ion batteries have largely solved the problem of energy density, and as a result the range and power issues with electric cars.  Solar panels are now more efficient and cheaper, although not quite on a par with other energy sources.  For a while, with tax breaks and with the utility companies buying back solar power from homeowners at retail rates, they actually made a profit.   But tax breaks can expire and more and more States are dropping requirements that utility companies buy back solar power at retail rates (which makes sense, if you think about it) but instead at wholesale rates, which they pay for other energy sources.

But, suppose you could take the power company out of the equation?   Besides the oil companies and Arab oil States, the local utility companies are probably most hated by the average consumer.   Since we are dependent on electricity, we have to buy it from them, at standardized rates that guarantee them a profit.   Since their profit is guaranteed, they have little incentive to be efficient or cheap.  They have us over a barrel, just like the oil producers.

Musk's plan is simple:  Provide solar panels to consumers combined with home-based "energy banks" of Lithium-Ion (or even more advanced technology) batteries so that a homeowner could basically own his own utility company.   During the day, the power bank charges and at night it can be used to charge up your car or run home appliances.   Since you are not selling back excess power to the utility company, you are, in effect, getting "retail" value for your Kilowatt-hours.

Could it work?  Sure, from a technical standpoint, there is nothing blocking the way.  No new breakthrough in technology is required.   It simply is a matter of cost.   And that is the sticking point.  We live today in an era of cheap oil, and perhaps not by coincidence.   As I noted in another posting, the biggest enemy to the electric car or the hybrid car is cheap gas.   And if everyone goes to electric or hybrid cars, the cost of gas will drop as demand drops.    And as demand drops and prices drop, the economic value of electric or hybrid cars drops, creating a vicious circle.    Theoretically, electric cars will never be viable as a result, unless the world actually and truly runs out of oil.

And that may be a problem for Musk as well.   His energy system should work, but how many people can afford to buy it?  Solar City, which he recently acquired, leased panels to home owners and then reaped benefits from the energy sold back to utility companies at retail rates.   Once the utility commission re-set these rates, the entire business model was no longer viable.    A home-based energy bank may be a solution, but a costly one for most homeowners.   Even if sold on installments or leased, the cost may rival or exceed the monthly cost of a standard utility bill from the electric company.   Consumers may be simply trading one form of monthly payment for another.

There is also the issue of maintenance and repair of such a complicated system.   Granted, homeowners today typically own a fairly complicated HVAC system, hot water system, refrigerators, and other appliances.  Some even go nuts with hydronic heating and wood furnaces and whatnot, which require miles of piping, pumps, and controllers.  Arguably, a home energy system like Musk proposes might not be much more complicated and in fact may be simpler - merely a plug-and-play black box (albeit a large one) that is simply set in the garage or basement (or even outdoors in a weathertight enclosure).

Complexity and cost is one reason I haven't made the switch to solar.  I looked into buying a solar hot water heater, as hot water is one large part of our energy bill.  However, the number of pumps and controllers involved, plus the plumbing and panel (and drilling holes in the roof) made me pause.  The staggering cost didn't seem justifiable over time.   Finally, the prospect of a tree limb from the decaying pine trees surrounding my house shattering the expensive solar panel sealed the deal.  It just didn't make economic sense to me.

Similarly, putting solar electric panels on the roof might be problematic for me in terms of amount of light available and tree limb damage.   Solar power promises to be a boon for people in new developments in the suburbs who have large roofs and clear Southern views.   It will be less useful to city dwellers, condo or townhouse dwellers, or people who live in matured, treed neighborhoods.

Still, it is exciting technology, and I for one would like to see it work.   Sadly, there are people out there who not only think it won't work, but will go out of their way to insure it doesn't.

I wrote before about NEV - neighborhood electric vehicles.  I concluded that even though they are legal on our little island, they make no economic sense - for the price involved, I can drive my existing car an additional 1200 miles a year that the typical NEV travels.   But since I wrote that posting, the State of Georgia put the nail in the coffin of NEVs by adding a $200 registration fee.   They argued that since "electric cars" don't pay road taxes, they were getting a "free ride" on the backs of gas-burning cars.   Maybe this is true for a standard electric car, but these little golf-cart like NEVs hardly travel more than a thousand miles a year, and they hardly "wear" on the roadways.

However, like with anything else, there is a loophole.  We are still allowed to drive modified golf carts - and even NEVs  - on our island, and avoid paying the fee provided you don't bother to register them as motor vehicles.   I am sure the oil lobby will close that loophole soon enough.

Like I said, it would be neat if the technology worked.   But by "worked" I mean to the point where the decision to buy an electric car is a no-brainer - that the cost is so much lower than a gas-burning car that only a fool would pay extra to burn gas.  Sadly, that might not happen in my lifetime, but we are getting closer than ever before - almost every major automaker today has an electric car in their showrooms right now, for you to buy if you want one.  This is a far cry from days gone by when electric cars for largely for experimenters, hobbyists, and kooks.

But an argument could be made, and a sound one, that subsidies for solar panels and electric cars might be a good thing.   If our demand for oil was substantially or even marginally curtailed through the use of electric cars and solar panels, our reliance on oil from odious sources (those damn Canadians!) would decline.  Like with the British and their trade with China, we could reverse the flow of money or at least attenuate it somewhat.   More importantly, we would not have to intervene in Middle East politics as we frankly would no longer care about their internal matters.

So good luck, Mr. Musk.  You might end up changing the world.