A CONTAGION OF GOOD EXAMPLE

April 20, 2011 § Leave a comment

A Sustainable Energy Future Will Require Changes in Public Behavior

At a recent meeting at Duke University, President Brodhead was asked about how they prepared students for the real world.  He responded to this softball question in a conventional manner and then ended with a statement of belief in “a contagion of good example.”  Having delivered this almost sotto voce, he then left with no further explanation.  I took him to mean that the Duke community, by its actions, instilled lasting values in departing students.

Although I was willing to give him credit for this nice turn of phrase, I looked it up.  The earliest reference is in Luke where the belief is stated that the contagion of good example is “the best means for inculcating virtue.”  Jesus is believed to have used this in his method of teaching.  The theologian philosopher George Berkeley is quoted as “neighbor will emulate neighbor and the contagion of good example will spread.” This last brings us closest to the situation with green behavior today.

A number of offerings can be expected in the arena of green energy.  Examples would be electricity from renewable sources, car variants such as hybrids, natural gas and electricity powered vehicles, and smart meters in homes, to name a few.  These involve making choices.  Innovators of technology know that the barrier to wide-scale adoption is particularly high when it involves substitution of something familiar. Research in the motivation of early buyers of hybrid electric vehicles showed a disposition to be being “seen as green.” This is close to Berkeley’s neighbors emulating neighbors.  But we all know that early adopters are not necessarily representative of the general population.  Widespread adoption will require a viral spread of beliefs.  This is why the word “contagion” is so appealing in its very unusual use in a positive context.

Robert Cialdini and co-workers at Arizona State University conducted an interesting set of experiments in Phoenix hotels.  One set of guest bathrooms had “re-use towels to save the environment” type placards, as we have all seen ourselves.  In another set of rooms, the placards read that the majority of guests in that very room had re-used their towels.  The incidence of compliance in these latter rooms was 33% greater than in the control set.  Is this an incidence of at least a minor infection of good example?

Energy efficiency is possibly the most powerful weapon in the clean energy arsenal.  This is because no matter how dirty the energy source, using less is a net positive.  Some approaches will be transparent to the public, such as the sub-one watt standby power standard being proposed for household appliances.  However, the choice to keep each one of these plugged in even when not in active use is a conscious one, at least for power hogs such as phone chargers and printers.  Studies have shown that standby power accounts for between 7 – 10% of total household consumption.  To be perfectly clear, this power is  simply enabling a convenience feature, and therefore amenable to behavior modification.  Technology can and will address this issue.  But low power devices will only get you so far.  Can people be pushed in that direction without the compulsion of laws?  Richard H. Thaler and Cass R. Sunstein suggests that this is possible, in their influential work Libertarian Paternalism.  Their concept is further elucidated in their book Nudge.

The Smart Grid is essential to support diurnal sources of electricity such as solar and wind.  It is also needed to assure the proper implementation of electric vehicles.  An aspect of the Smart Grid is smart meters in homes.  These will provide homeowners with considerable data on their energy usage and offer the opportunity for more efficient use.  Time of day pricing will help.  But ultimately, the concepts flowing out of Cialdini’s study cited above are likely to play a role in influencing behavior.  Neighbors emulating neighbors may be literal in this case.

THE POST COVID 19 ENERGY WORLD

April 9, 2020 § 3 Comments

A webinar conducted by the Research Triangle Cleantech Cluster this week, in which I participated, triggered this piece. Some points made by the other three panelists Ivan Urlaub, Renee Peet and Gary Rackcliff are reflected here, but I take responsibility for this product.

For purposes of this discussion, energy falls largely into two buckets: electricity and oil and gas derivatives. In the last two months or so, the price of oil has halved.  Part of the driver was the Saudi/Russia spat, which is likely to end soon because neither can live with USD 23 (price at the writing) oil for long.  But the “shelter at home” policy in much of the world has slowed industrial output to a dull idle. Gasoline and jet fuel use has plummeted. Electricity usage has dropped.  Here we will discuss the likely longer-term implications, especially as relating to energy.  Some of the issues addressed arise from questions that were asked in the webinar mentioned above.  Here is a crack at a list of outcomes that I see as highly probable.  A modicum of support is also offered for the assertions.

  • Electricity from renewable sources will not take a hit, except for diminished access to capital due to federal loan paybacks and the availability of workers for production and installation. An uptick in this space is possible, in which case closer attention to storage will be required.
  • Distributed electricity production, with associated microgrids, will remain unaffected, except for capital constraints.  Non reliance on a grid makes this segment attractive for resiliency in the face of disasters such as forest fires and hurricanes, but that sort of resiliency is less applicable to this disaster. To the extent that current deployments are in underserved communities, especially in low- and middle-Income countries, oversupply is unlikely because the supply usually just barely keeps up with demand, or the potential demand of increased productivity.
  • Electricity suppliers with a heavier footprint in smart features, such as remote monitoring of home usage, are benefitting during this crisis because so much service can be provided without deploying personnel.  Post crisis enthusiasm for these features, leading to wider adoption, is likely.  This can only help with resiliency as well and ultimately with enterprise profitability. Compared to other power industry investment, the scale of this one is small.
  • Oil prices will hover in the range USD 30-50 per barrel, with possible excursions to USD 25, with considerable volatility.  For the first time in a Very Long time, Texas producers may agree to a cap on production.  The Texas Railroad Commission, which has had nothing to do with railroads since 2005, regulates the industry.  Prior to OPEC, they were the determinants of oil price.  Production controls, whether mediated by the TRC or not, are likely to return.  Were that to happen, and if Russia and the Saudis reciprocate with production cuts, oil price could well be in the upper reaches of the range noted above, once the economic recovery is in full swing.  The US government has also announced a purchase of 77 MM barrels of oil for the Strategic Petroleum Reserve (SPR).  Since the SPR is depleted by about that amount, this would top it up.  The average cost of the current reserve is USD 28.  If they go through with it (funding for it is in doubt) the new oil will likely be at a similar price.  I have blogged previously that the SPR is not really needed any more, that shale oil in the ground is the reserve, but this could help prop up the price at a bargain cost.
  • In not agreeing with OPEC on production restraint, Russian intent was to kill US shale oil.  Shale oil will be wounded, but not killed.  As in the last plummet in oil prices in 2015, highly leveraged players will declare bankruptcies.  The properties will be scooped up by the major oil companies for dimes on the dollar.  With deep pockets, the majors will simply keep shale as a portfolio item and unleash when profitable.
  • The short- to medium-term reduction in shale oil production will reduce associated gas production.  After the winter of 2020, natural gas prices will begin to firm.  This firming will not be enough to reverse the attrition in coal demand for power.
  • Electric vehicle (EV) adoption rate will not materially be affected by the drop in gasoline prices, no matter how sustained. The fully loaded cost of EV fuel is dominated by cost of amortization of the batteries.  At a battery cost of USD 100 per kWh, as forecast by Elon Musk for next year (he actually said 2020, but I will cut him some Queen Corona slack), a 200 mile range EV will have a fully loaded cost of about USD 1.50 per gallon equivalent.  This is based on a lot of assumptions, but the electricity “variable” cost is between 17% and 30% of that figure.  The main takeaway is that unless gasoline price drops to a sustained USD 1.50 or lower (unlikely in most of the US, very unlikely in California and incomprehensible for Europe), gasoline pricing will have little influence on EV adoption.  If a battery swapping model is adopted (where the consumer does not own the battery and swaps a charged one at each “fill”), the pay as you drive concept will be appealing, with lower car purchase cost and lower per mile cost.
  • EV adoption rate is on the upswing, but still hard to predict. Oil and gas companies would do well to diversify their portfolios into electricity, which has other markets as well.  This has indeed been happening for a while.  But wind and solar don’t fit the core competencies of these companies.  A relatively new entry is scalable geothermal energy.  The operations are not only a fit, but oil (and oil service) companies are uniquely positioned to speed up the entrée and scale.  Once in their portfolios, they can balance them based on the EV adoption rate, much as they currently do with their oil versus natural gas components.
  • Remote working will have some measure of sustained adoption post apocalypse. It is being “field tested” by outfits that may not have used the mechanism in the past.  Some may find that it is cost effective.  I remember when Shell Oil went to a 10-hour day, four days a week, in Houston to reduce commute miles and associated emissions.  Remote working is that on steroids.  During this emergency each company will have sorted out which functions (and persons) are suited to this approach.  They can take an informed view on adoption.
  • Virtual meetings will have an even greater adoption rate.  Technology has kept improving, but inertia or conservatism has kept adoption down.  Now, with the enforced testing regime, informed decisions will be made.  I see a strong uptick in this area.  Winners are IT connectivity companies.  Losers are airlines.  Business travelers are the most profitable passengers on a plane.
  • Both the above will reduce use of oil derived liquid fuel.  Depending on scale this demand destruction could materially affect the price of oil. Natural gas pricing will remain unaffected; different markets served.

One, somewhat off topic outcome is rise in public empathy, and possibly altruism. When behaviors such as these are entrenched for months, they are more likely to stick. This is good. The (positive) irony would be if the pandemic caused “a contagion of good example” to spread. From an entrepreneurial standpoint, innovations in enabling this trend could be effective.

Vikram Rao

April 9, 2020

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