Compound or more properly exponential growth is a little non-intuitive. Well. maybe a lot non-intuitive. It applies to far more things than money and interest.
Google’s in-house smart guy, Ray Kurzweil, points out an interesting example of something in the rest of the world. Solar energy. Forbes magazine has described Kurzweil as “the ultimate thinking machine,” so probably we should at least listen to his ideas.
Over the past 30 years solar energy capacity has doubled about every two years and is presently less than 1% of the total of all energy provided. Big deal or not? If you are a linear thinker, not something to notice. If you think exponentially, it is earth shattering.
If the “double every two years” number holds, then we are are growing solar energy capacity by 40% per year. At that rate, in 13.7 years solar capacity will equal all of the generating capacity in the world today. In 15.8 years it will be more than double the present capacity.
That has implications for each of us. Among them:
- Should you own oil companies, pipelines or electrical utilities?
- Should you buy stock in solar panel manufacturers?
- How fast will third world countries develop?
- Should I plan to replace my natural gas furnace and appliances with electric.
- How many solar panel suppliers will go broke when the fast growth slows.
There are other questions that might be worth answering too:
- Will 40% growth last or will it falter? If it last for 5 years and then falls to 20% solar will be equal to all capacity now 16 years after that. 21 years instead of 13.8 years.
- What do you do for power at night? Old technology will not go away that quickly so it may be the back-up. Alternatively energy storage may be a growth industry.
- Las Vegas is a more benign location for solar than is Winnipeg, what difference will that make? The distribution grid will still be there and the need to distribute will be less than now. Maybe they will just build more panels in areas with lower insolation.
- What about the cost? Solar is vastly more expensive than fossil fuel now but the price of panels is falling exponentially too. They are down 75% in the past five years. They may continue to fall but probably more slowly. If they fall 5% a year because of economies of scale and new techniques, they will be cheaper than the current cost to produce electricity in about 10 years. In some areas, like Australia and the south-west US, solar is already cost neutral with fossil generated electricity.
We live in interesting, even fascinating, times. This is a development that we should all notice and track. It is a potentially disruptive technology.
I wonder how wind turbines will fare?
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: firstname.lastname@example.org