Saturday, 3 April 2010

Utility of the Green Energy Bubble

Continued climate skepticism, international treaty failures and government spending malaise are still the state of play as far as renewable energy generation is concerned, right? The planet is already doomed to a 2-4deg.C rise, while home-owners bicker over new wind turbine locations... But forget all that!:

"China steams ahead on clean energy"

From the perspective of this BBC article, a clean energy boom is already well under way. Even the UK, with our apparently doddering government, was 3rd in the world for renewable investment (in 2009), not far behind the US in gross expenditure. Way out in the lead, in terms of investment, and soon installed capacity, is China. Yes, the nation getting the most international evils for it's ballooning coal addiction, will soon pass it's 2020 target of 30GW of renewables (when counting just its wind power), and it is the world leader in photovoltaic cell production.

While US investment fell 40% during the sub-prime mortgage crash, overall global investment has been buoyant. South Korea's capacity grew 250% in the last 5 years!

Greenpeace may be moaning about data center power use, but Google are already heavily reducing their carbon footprint, spurring the rest of the industry, and society as a whole to follow suit. Their roves are carpeted with solar PV and the Climate Savers Computing Initiative (CSCI circa 2007) they co-founded has pretty ambitious targets.

Admittedly, the internet uses (very) roughly 5% of global power (and rising). I consider this should be no more alarming than the evolutionary explosion in brain size that led to humans; 25% of our food energy is burned by thinking, still totally worth it. The difference is, I don't see any upper limit to expansion of computation and communication. And it doesn't matter how much more efficient LED TVs, Data centres ( are; increases in their use/demand will still produce a consistent increase in overall power use. Just as 70% per year deflation of individual computer component values posses no threat to IT sector growth. We'll just have to foot the bill because it's the most important development since our cerebral cortices.

So anyway, there are strong signs that a Green Bubble is forming: from governmental investment schemes to promotional materials for energy solutions that sound like they're selling snake oil (I'm talking about you "Bloom Box"), and “recession proof investments” in green energy. Legitimate R&D results are definitely coalescing too, from home hydrogen storage (Dan Nocera lecture) to the latest lithium car battery nanotech triviality.

Established news outlets have already trumpeted the inevitability of a Green bubble and books (from at least as early as 2007) claim to foretell the details. So I'm far from being ahead of the curve here, whether I stumbled on this meme independently or just forgot I had read about it. Some even worry that financial regulation is needed to prevent a rapidly gestating bubble setting back green energy by decades... I doubt this is practical or useful beyond a national level, international being the only level that really matters here.

Anyway, are bubbles actually a bad thing?:

I think the economic boom/bust cycle mirrors nature: species explosion and mass extinctions. A new ecological niche opens up, so bountiful that it allows every variation of weird and wonderful creature, however implausible, to flourish for a time. Then circumstances change, times get harder, killing off all but those most intimately suited to the niche's requirements.

The 'dot com' boom, that fledged the Google generation, funded anything and everything to do with Internet businesses. Because of this mania we can be fairly sure that no great idea was passed over because of market skepticism. And no one was directly killed in the mania, unlike the great aviation bubble: Freeman Dyson refers, in Chapter One of "Imagined Worlds" (1997), to Nevil Shute Norway's autobiography "Slide Rule":

" ..,Norway started a company on his own, Airspeed Limited. It was one of the hundreds of small companies that were inventing and building and selling airplanes in the 1920s and 1030s. Norway estimated that 100,000 different varieties of airplane were flown during those years. All over the world, enthusiastic inventors were selling airplanes to intrepid pilots and to fledgling airlines. Many of the pilots crashed and many of the airlines became bankrupt. Out of 100,000 types of airplane, about 100 survived to form the basis of modern aviation. The evolution of the airplane was a strictly Darwinian process in which almost all the varieties of airplane failed, just as almost all species of animal becomes extinct. Because of the rigorous selection, the few surviving airplanes are astonishingly reliable, economical, and safe."

A perfect example of the evolution of memes, technological in this case. I'm not sure how much influence the aviation bust had on the great depression, I would imagine causation mostly went the other way, but it did a useful job of pruning nonetheless. These days 100k of speculative aerodynamic designs can be simulated on computer, encoded in genetic algorithms, thus sparing the embarrassing FAIL movie footage (and many test pilots). But genetic algorithms are still a burgeoning tool, many memes are too complex or deeply embedded in the rest of the world to be encoded in computer simulations. Hence the need for the dot com bubble.

On the other hand, I am not sure if the the latest, housing, boom/bust had any utility. It could have weeded out the weakest banks, or the most unscrupulous lenders, but instead banks were propped up by governments. Even the practices that created bad debt seem only to be on a temporary hold while lenders stockpile reserves and recover their nerve.

I think this particular cycle demonstrates a major fundamental flaw of free market capitalism: it's blind indifference to whether it's solving a real world problem, or merely taking advantage of a systemic loop hole. Like a genetic algorithm that produces a nonsense solution, exploiting unexpected rounding/overflow errors in the calculation of it's evaluation function. If any agents found the housing bubble to be a personal boon, it was the super-rich (with investment funds) who bought government bonds (to finance government subsidy of the banks 'they' control).

I've heard a lot of talk about how investment banks, like Goldman Sachs, are almost certainly causing (commodity) bubbles on purpose. Former employees have penetrated top government positions where they've repeatedly relaxed financial regulations that were in place since the great depression. Then 'Laddering' stock prices or even sucking down bailout money directly becomes easy. This Rolling Stone article makes for scarily compelling reading: “Inside The Great American Bubble Machine” (discussed in detail here). It makes me certain that they will be raking in any direct benefits of a Green Bubble, regardless of whether they set it deliberately.

So anyway, aside from “vampire squid investment banks” sucking out society's life blood, how will the Green energy economic cycle pan out? My badly informed speculation:

  • Trendy (dot com) companies are again leading the way, making renewables fashionable.
  • Government has waded in too (Obama's stimulus package) with assured funding, commercial lenders will gain confidence.
  • The short term solutions will garner the most immediate over-investment, courtesy of the promise of a quick profit: Bloom Boxs to Carbon Sequestration Coal fired plans. I'd expect significant numbers of these schemes to bust well before the end of the decade.
  • With the Green snowball well and truely rolling, solar PV will gain the universal prominence it deserves. Increasing returns bolstered by a next generation of cell technologies, smart grids and battery/fuel-cell storage solutions having attained sufficient market penetration, the latter (bigger) wave of investment will flood this way. Then things go one of two ways:

[1] PV could actually be *the* ultimate energy solution, but I expect market enthusiasm will still manage to be premature, creating an s-curve ahead (and behind) of the exponential growth in the technology. Reality will be restored by a large pop, with only the best and most established PV solutions surviving.

[2] The exponential growth in PV is so sensational that it absorbs investment right past the peak in national/global PV installation. In this case there would still be a relative bust as legacy energy sources are put out of business.

A property price escalation type event is also feasible, with home owners taking out/extending loans to install roves full of PV. Energy generation surplus causes grid prices to plummet, reducing income from selling to the grid, causing repayment defaults. Also, as panel technology continues to improve price-performance exponentially, earlier adopters will pay much more for panels, wrongly expecting this outlay to be reflected in a permanently increased property value.

I think the latter PV scenario (stopping short of the 2nd paragraph) is a little optimistic: effectively a mass market bet on a solar energy singularity that pays off (smoothly). It seems that economic fluctuations (and recessions) are becoming increasingly vigorous and regular. Unsurprising really, as accelerating technological returns mean that profits from successful developments come faster and bigger than ever before. Making the near future of businesses harder to predict. Investment has to be equally fast, and on a global scale, in order to win out. Peter Thiel talked on this subject at the Singularity Summit 2007, describing booms as bets on the Singularity, all of which have been wrong so far (found via this Wired article).

He claims that it's possible to see the housing/financial crash as a bet on singularity through perfected finance, that the new tools (including AI agents) used by the bankers of London and Wall Street, might solve the allocation of resources problem. But of course this was a fake, a bubble, just like the expections in the 60s that we'd now be living on the moon, or the spectacular nonsense valuations of Japan in the 80s, when it was expected to rule the world.

When he reprises this topic at the 2009 summit he casually predicts (at 18min20) that there will be no more 'fake' bubbles for the next 20-30 years because people are just too focused on it, and we have run out of plausible, bubble fueling fantasies. We will either have sustained growth or continued bust. That sounds rather too good to be true! Also, he's very worried that technology is not advancing nearly as fast or as automatically as we presume: it needs a return to prominence; a kick start, back to the days of the quantum leaps we had in the 50s.

Perhaps the assertion of betting on a singularity is a meaningful insight into the group psychology of finance; the biggest fishes contending for the ultimate prize that will let them rule the world. But bit by bit they are *already* winning as wealth becomes increasingly concentrated in the hands of factory/property/company owners. But they're still hoping for the really big win, though they have no idea what that will mean. For example, it could be owning transhumanly intelligent robots, the particular ones that (financially) conquer the world. That would be a short lived reign of glory for the fat cats, no doubt.

However, I would like to draw more attention to the happy side effects that are the main consequence of this megalomania: the speciation and selection pressures that unwittingly help spawn commercial scale innovation. To this end, the fluctuations drive (and are driven by) progress. They are an unavoidable feature of our society. As such, they should be expected and allowed to happen 'naturally'. Bailing out institutions misses the point, and cutting public spending to do so is criminally stupid, or at best an excuse to keep the work force poor.

Perhaps if squeezing ever more capital out of the masses, to feed the corporate greed machine, can be proven to speed up technological growth, then it can be justified. For this, the successful start-ups (and established companies) would have to grow/develop faster through a boom and bust cycle than they would have through an equivalent time period of steady growth.

I see no easy way to determine the best trade off of sacrifices now for benefits later. Evidence, that our society is not far from an optimal 'poor milking' balance, is the success of capitalism over communism. Presumably, leaving capital in the hands of a greater number of economic agents (the general public) would not be as efficient at creating speculation fluctuations: AI tools now allow financiers to make an ever increasing number of 'bets' anyway, and the general public is not as greedy as these 'experts' in the long term; the average person would happily make do with a new car now, rather than the chance to command thousands of corporate slaves a decade down the line.

Ray Kurzweil predicts that advances in Genetics, Nanotechnology and Robotics (GNR) will dominate the 2020s, 30s and 40s, respectively. In retrospect, will these periods be refereed to as the "Nanotech Boom" (for example) with the same connotations as last decade's “dot com boom"? And will the 2010s contain the "Green Energy Boom"? Technological history defined by what caused the biggest economic FAIL...

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