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Renewable Energy - The Next Opportunity for Silicon Valley

by Brian McConnell
12/10/2004

Editor's note: For a detailed description of how Brian recently retrofitted his home to generate its own energy and significantly reduce its energy footprint, check out Hacking Your Way Off The Utility Grid.

There are striking parallels between the renewable energy industry today and the personal computing industry circa 1980. Much of the basic technology required for personal computing was already in place and was on the verge of becoming economical for mass production. The personal computer hardware and software industry was characterized at that time by small, under-capitalized firms that catered to a hobbyist market (known today as "early adopters," in industry parlance). The software and hardware of that time was more complicated to install and use (early computers were generally useless except to programmers).

Since that time, computers have become orders of magnitude faster, lighter, and cheaper. While the pace of innovation has been rapid, the evolution of computing technology has been an incremental process characterized by continuous refinements in materials science, mass production, and marketing. These innovations can be traced back to two basic inventions: solid-state transistors and solid-state light-emitting devices (lasers and diodes). Nearly all the advances in computing since 1980 are the result of improvements in the way these devices are manufactured and combined to create machines that perform new functions.

The State of Renewable Energy

The same basic dynamic applies to renewable energy. The basic technology required to translate solar energy into heat and electricity has existed for decades (centuries in the case of wind power). Solar electricity can be produced by means of photovoltaic arrays (based on the photoelectric effect discovered by Hertz, Lenard and Thompson -- Thanks to Patrick Smits for the correction) or by using conventional heat engines whereby solar energy is used to power a turbine. Solar heat is simpler still, requiring only a blackbody and a mechanism for storing and transferring heat.

The basic technology has been built and proven, and even without further investment, some forms of renewable energy, such as wind electric, are nearly breaking even with fossil fuels. They are actually cheaper when the real costs of fossil fuels are taken into account.

Global spending on energy represents a significant percentage of gross economic activity, especially when multiplier effects are taken into account because some form of electrical, mechanical, or heat energy is consumed in every stage of the production and delivery of a product or service. Per-capita energy use worldwide will increase as advanced technology and automation spread to developing countries. Gross usage will also increase as a result of population growth. We are already seeing early signs of competition for fossil fuel resources by first- and second-world countries. While timing the market is risky, it is reasonable to predict that demand for energy is not going to decrease in the years ahead, while available supply is not going to increase dramatically.

Silicon Valley and Green Energy Overlap

This may present an opportunity for the Bay Area technology industry as the computing industry matures and becomes a commoditized consumer product business. There are many areas where Silicon Valley and green energy overlap:

  • Materials science plays an important role in renewable energy: computing is a materials science business. This overlap is especially evident in photovoltaic arrays and microprocessors, both of which are made from silicon-based semiconductors. Conversely, renewable energy technology may also be applied to computing technology.

  • Competition in the computing industry is based on cost per unit of performance: the IT industry’s relentless focus on reducing per-unit costs through economies of scale, production technique, and efficiency yields annual decreases of 10 to 20 percent, sometimes more, in cost per unit of performance. A similar trend in reducing the real cost of personal energy production systems translates into a ten-year reduction of 65 to 90 percent (not accounting for inflation in the cost of fossil fuel-based energy).

  • The technology industry is a packaging and marketing business: personal computers were once complicated and intimidating devices that are now marketed as user-friendly consumer products. (Apple is an especially noteworthy example.) This expertise can be used to integrate and repackage energy production technologies to make them cheaper, easier to sell, and simpler to install and use (design and installation is a significant component of personal energy production system costs).

  • The Bay Area tech industry has a tremendous amount of financial and human capital that can be directed toward developing and marketing green energy technology. Much of the research, manufacturing, and marketing expertise learned since 1980 can be applied to green energy systems. Silicon Valley’s unique combination of financial resources, technical leadership, and entrepreneurial culture enables it to become an important player in this emerging industry. One could argue that Silicon Valley can do more than government-sponsored programs are able to do to accelerate the development and adoption of these technologies.

  • The information technology industry attracts creative people, most of whom see technology as a way to solve problems. Much of the computer industry is based on the free exchange of ideas and on collaboration, as has been demonstrated first by the industry's early hobbyists and most recently by the success of the open source movement. This population is highly literate in science, and few people among them will argue with the fact that major change is necessary to cut our dependence on fossil fuels. Engineers, with their focus on practical incremental improvements and innovations, are also well represented within this population.

  • The computing industry, semiconductor companies in particular, invests heavily in fabrication facilities that become obsolete within a few years. Some of these facilities could be retooled to produce large quantities of clean energy components such as photovoltaic cells, potentially enabling companies to realize a better return on investment by extending the useful life of their fabs.

  • Last, and perhaps most important, predicting the future demand for energy is much less speculative than predicting the demand for as-yet uninvented information technology. One can argue that we are already reaching a saturation point where most people have more than enough access to computing and information services. On the other hand, energy is a vital commodity. People are not going to voluntarily abandon their appliances, automobiles, and climate-controlled homes. The energy to power these devices both in the U.S. and abroad has to come from somewhere.

All of these factors combined position Silicon Valley to benefit from the green energy business, should it choose to invest aggressively in this area.

How can Silicon Valley best capitalize on this opportunity? Primarily by improving on and simplifying existing energy technologies and by looking for ways to retool existing facilities to produce energy production components once the fabs become obsolete.

Example: Solar Electricity

Solar electricity is an obvious opportunity for the tech industry, primarily because solar electricity, like computing, is a semiconductor business. The basic technology behind solar electricity is not new and is fairly mature.

Even with the maturity of the basic technology, there is a lot of room for improvement in production costs, per-unit costs, and product packaging. Reducing per-unit costs by 30 to 50 percent would make solar electricity very competitive with grid-supplied electricity.

Retooling aging fabrication facilities to produce photovoltaic cells would enable semiconductor manufacturers to extend the useful life of their facilities, while also increasing the supply of PV cells used in solar electric arrays. The increased supply and additional competition will force prices downward.

Even if it is not possible to dramatically reduce direct per-unit costs, it is possible to simplify solar electric systems, which will reduce design and installation costs (a significant fraction of total project cost, especially for residential and small commercial sites).

One thing the computing industry excels at is simplifying formerly complex technologies. Products such as the Apple PowerBook are examples of how a once complicated and esoteric technology can be simplified and packaged as a consumer product. This same skill could be applied to building second-generation solar electric modules that are modular, integrated, and fairly idiot-proof.

The current generation of solar electric systems consist of a hodgepodge of components, all manufactured by different vendors. My rooftop system combines 18 British Petroleum solar panels, DC electric wiring, a 2500 watt Sunny Boy DC-AC inverter, and grid interconnect hardware. Designing and installing this system required a specialist. I estimated that design and installation accounted for at least 30 percent of the project cost.

One easy way to reduce total project cost is to simplify systems so they can be installed by an ordinary contractor or even become part of a do-it-yourself project. A manufacturer could do this by designing solar modules that integrate the photovoltaic panel, DC-AC inverter, safety features, and modular wiring into a single device. If all these features are combined, designing the system becomes much easier. You'd simply guestimate the number of panels needed, throw them up on your roof, and connect them to your existing wiring by way of standard electrical wiring. The panels would feed power back into your household wiring. Safety electronics, similar to fault protection power outlets, would sense anomalies such as a short circuit or external power outage and would isolate the solar panels from the electrical grid when needed.

Even without banking on major breakthroughs, it should be possible to substantially reduce costs. For example, a 50 percent reduction in design and installation costs (due largely to simplified components, not exotic new technologies) would reduce total project costs by 15 percent or more, even if production efficiency remains unchanged. Factor in reasonable assumptions about improvements in production efficiency, say 10 percent per year, and it will be possible to reduce overall per-unit costs by 50 percent in five years, more than enough to tip the balance in favor of solar electricity in many markets, especially if energy prices continue to creep upward.

The U.S. presently consumes almost four trillion kilowatt-hours of electricity per year (worth several hundred billion dollars per year depending on wholesale prices). This is a substantial market by any measure and one worth pursuing.

It is interesting to ponder what would happen if the technology industry were to invest aggressively in energy. This is an industry that invented computers and then made them so powerful and so small that today we think nothing of toting a supercomputer in a backpack.

Brian McConnell is an inventor, author, and serial telecom entrepreneur. He has founded three telecom startups since moving to California. The most recent, Open Communication Systems, designs cutting-edge telecom applications based on open standards telephony technology.


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