Learning by Proxy | Energy

The internet will increasingly look like each country has its own LAN; Our energy consumption and where it comes from is changing radically; Amazon is losing the ability to call itself small.

This is one planet and so many things on this planet are shared by all of us. Our environment, the internet and so much more. Should nations take charge of these things individually or should some of them get regulated through a single authority?

Splinternet

After the Second World War, the American government was worried that an attack on the communications infrastructure might render their soldiers on the battlefield unable to communicate. DARPA wanted a decentralised communication network and the mandate was given to a bunch of researchers. They created the internet by connecting three universities by cable. 

Since its origins, the internet has been free and open. Everything was accessible to everyone so long as there was a cable that went there. Then China joined the internet bandwagon. They created a Chinese version of the internet which is highly censored. And companies that were willing to bow to the government for having unhindered access to the Chinese market - almost all Chinese - made it big there.

Now as these companies develop global ambitions and begin to venture beyond China in the current environment (refer to the China edition of Learning by Proxy) the entire world wants to push back. Also, it is perhaps the safest thing to push back on. China cannot retaliate in any way since they never let the other platforms in.

It began when Indian banned 59 Chinese apps to retaliate against border disputes. Now the US is joining the bandwagon.

The US state department announced today that it will expand its “Clean Network” initiative, first rolled out in April, to root out major Chinese tech products from the US system. The department said the move is aimed at guarding US citizens’ privacy and US companies’ sensitive information from “aggressive intrusions by malign actors.”

Source: Quartz

In the name of data security, almost all countries are moving in the direction of restricting or ruling what would be allowed and not allowed. The greater problem is that even when not acting out of nationalistic fervour, the priorities of different nations can be quite different when it comes to privacy and so on. Ben Evans had argued about the same issue in his blog.

These regulatory spheres are probably going to start bumping into each other. GDPR made it clear that rules would increasingly apply no matter where your servers are: if your users are in the EU, you have to obey EU rules, and for practical reasons that probably means you have to obey them for all of your users. CCPA effectively does the same in the USA, where California has increasingly become the national privacy regulator by default. An intriguing further step came from this case, in which an EU court held that Facebook must take down libellous content not just in Austria, where the case began, but globally. Meanwhile, the new Hong Kong security law appears to apply to behaviour by non-HK residents outside HK, which is truly extra-territorial. The obvious next question is what happens when an extraterritorial rule collides with a trade-off. What happens when the UK says you must do something and Germany says you must not?  

Source: Ben Evans

All this is creating a situation where the internet can no longer be the same for everyone in every country. Are there businesses where we need to arrive at a global standard and agree on the same thing? Four years back as the sharing economy was on the rise I had written a blog which is more relevant now than ever before.

The trouble with the law is that it is defined with a set of assumptions in mind. Every once in a while there is a change, a disruption, a paradigm shift, that uproots those set of assumptions completely.

[…]

The time has come when governments across the world begin to think about lawmaking as a service. Imbuing the process with greater speed and efficiency, taking the process online and making the process more participative. The steps should be taken now rather than waiting for a day when the government is disrupted.

Source

I was told at the time by a lawyer that the stability of policy is critical for businesses to thrive and the goalpost cannot keep shifting. Well by the looks of it, whether it is TikTok or numerous other services, the goalposts continue to shift either way. There are certain things that we share as a platform across the globe and we need to address them as a civilisation rather than individual nations. We have done that for space exploration, why not for things within the planet as well?

Energy Momentum

In 1880, it was prize money of 50,000 Francs from the French Government that formed the foundation of the Volta Laboratory. The Volta Bureau setup in 1893 still stands in Washington D.C. It was later renamed after the founder, Alexander Graham Bell, as the Bell Labs. In 1947, two scientists at the Bell Labs created the transistor. Their supervisor, William Shockley not only took credit for it but also was as awarded the Nobel Prize as one of the inventors. He left Bell and took some land and money from Stanford to set up Shockley Semiconductors. Some deceit and a couple of plot twists later in the summer of 1968, the world got Integrated Electronics. We call this company Intel.

In the last issue, I had mentioned Intel is fighting hard to die. The initial rise of Intel was supported by government contracts before they became the preferred supplier to computer manufacturers. It took 30 years for the invention to turn into a well-defined business.

In 2009, the Obama Government created a new body called the Advanced Research Project Agency-Energy (ARPA-E). ARPA-E had the explicit agenda of supporting new energy technologies, renewable energies, new battery technologies, advanced vehicles, power electronics, etc. One of the not so well-known beneficiaries of the ARPA-E support is Tesla, which got a loan of over half a billion dollars and successfully returned it as well. But often, thanks to the republicans, the company that is brought up is Solyndra, which lost half a billion.

Unlike Intel, where the science had been proved before the investors showed up with the cheques. With initiatives that ARPA-E supported, investors went and poured in the money as soon as these companies had received support. This disallowed them the slow incubation which would have allowed the science to become more robust before scale was forced.

Either way, you cannot hide good work.

The initiative forced a lot of thought about renewable energy and many countries, not just America started investing and competing in the area. Manufacturing scales rose, bringing costs down as a result of economies of scale. As competition rose, the costs moved down just as fast.

As a result…

During the first half of 2020, the world’s coal-generated power capacity shrank for the first time since at least the 1950s, according to the non-profit Global Energy Monitor. New plants haven’t entirely stopped coming online: The world added 18.3 GW of new coal-fired generation. But it retired plants capable of generating 21.2 GW, mostly in the US and Europe, cutting about 1% of total global capacity.

Source: Quartz

Currently, the US solar industry employs about 242,000 people and generates tens of billions of dollars of economic value. By the end of September 2019, the US had deployed over 2 million solar PV systems, totalling about 71,300 MW of solar capacity, and generating over 100 TWh of electricity (2019 total, est.). In 2018, solar generated about 1.5% of US electricity. Of all renewable energy generation, solar PV is expected to grow the fastest from now to 2050. Some solar-heavy grids, such as the California Independent System Operator have experienced times where over half of the demand was met by solar PV.

Source: Forbes

But not every country is headed in the same direction.

But we are seeing two energy worlds emerge. In China and India, coal plants still generate lots of jobs and electricity (as well as attract government subsidies). In industrialized countries, coal plants are closing down as the price of electricity from natural gas and renewables undercuts them, and climate regulations take hold. Net coal capacity would have been declining since 2018 without China, estimates Global Energy Monitor.

Source: Quartz

With the larger western countries moving in the direction of renewables, it is highly likely that the economics will soon tip over in favour of renewable energy. This will force India and China move in that direction if not for any other reason, just to save money and attract investments.

With commercial real estate completely out of action due to the shutdowns forced by the pandemic. The electricity consumption patterns are also changing.

The country's coal imports registered a drop of 29.7 per cent to 48.84 million tonnes (MT) in the April-June period of the ongoing financial year, according to industry data.

[…]

"The weak trend in imports is in line with market expectation, given the continued high stockpile of coal in the system. The plunge in thermal power sector's PLF (plant load factor) in the past couple of months and the sharp decline in cement output do not augur well for import demand in the coming month," mjunction MD and CEO Vinaya Varma said.

Source: Business Standard

Solar is also finding new spaces in countries like India.

But one of the main challenges in building solar farms is finding the right place to do it. The land is relatively expensive in India and often has multiple owners, so the purchase of land involves many formalities. India’s high population density also puts pressure on the land, with an average of 464 people per square kilometre. Rooftop solar panels are one solution, but sunny space atop buildings is limited too.

In Gujarat, the answer has been to cover its canals with solar panels, as a solution that saves land, water and carbon emissions in one.

Source: BBC

While this is the state of electricity production, oil has taken a beating in the past few months. Some of the largest oil companies are looking toward renewables.

BP reported a $16.8 billion quarterly loss on Tuesday and cut its dividend in half — the first reduction since the Deepwater Horizon disaster a decade ago.

[…]

Mr Looney, though, was more specific in his investment goals, saying that he intended for BP in a decade to be investing around $5 billion a year in renewable energy like wind, solar and hydrogen, a clean-burning gas, about 10 times the current amount. BP’s capital spending is likely to be about $12 billion this year.

Source: New York Times

Even Shell is applying for tenders across Europe for renewable energy plants. Oil companies are some of the wealthiest and largest organisations on the planet. If they start moving towards renewable energy what hope does the coal syndicate have? Further, imagine the degree to which the cost of setting up renewables will fall if the scale increases.

2020 has been a year of enlightenment for oil companies. They have seen how swiftly things can change for them. With the rising demand for EV and the coalition against climate change, the writing is on the wall. They are reacting before they have no time left to.

World oil demand will tumble by 9.06 million barrels per day (bpd) this year, the Organization of the Petroleum Exporting Countries said in a monthly report, more than the 8.95 million bpd decline expected a month ago.

Source: Reuters

Having said that

Despite the steep fall in earnings, to $6.6 billion from $24.7 billion, the company said it would continue paying a quarterly dividend of $18.75 billion, almost three times its cash flow. Aramco is locked into paying such a large amount — $75 billion a year — because of commitments made in the run-up to its initial public offering on the Saudi Tadawul stock exchange.

Source: New York Times

With the decline of traditional energy businesses, all the new age carbon sequestration businesses are taking a hit. Almost all of these businesses had a model that involved making pollution generators pay for their sins. With the sin on decline…

The $1 billion systems, known as Petra Nova, was built in 2017 to catch CO2 from one unit of a coal plant near Houston. That plant is one of the dirtiest in Texas, both in terms of climate and air quality impacts, according to a Rice University study. Petra Nova was meant to cut the unit’s carbon footprint by about a third—roughly the equivalent of taking 300,000 cars off the road each year.

But on July 28, E&E News broke the story that the facility has been shuttered since May. And while the plant’s owners have said they plan to get it running again once the economy improves, Petra Nova’s shutdown exposes the weird market dynamics that could threaten the sustainability of carbon capture facilities in progress around the world.

Source: Quartz

Panic Buying

When the pandemic started in March, there were stories about how retailers were running out of stuff in their stores. There was a toilet paper emergency! The lockdowns came into place so suddenly, people did not know how to react. Amazon recorded greater sales last quarter than they did during last Christmas!

That means Amazon outdid the $87.4 billion in sales it recorded during the holidays last year when demand typically peaks before levelling out again. On the company’s earnings call yesterday, CFO Brian Olsavsky said it was “unheard of” to surpass those sales at this time of year—and then added that next quarter is also on track to surpass that level.

Source: Quartz

I think two things are happening. Jeff Bezos’ defence of Amazon being a small player because they don’t own 100% of retail is coming apart. With the pandemic, people are preferring to buy online rather than go to stores. Amazon has used every trick in the book to kill every other e-commerce competitor. There is no other legitimate competitor left!

The not so well to do in America have been receiving a $600 cheque. In many cases, I think this amount supersedes their normal income. More money in hand has meant more spending power, which in turn has implied greater sales for Amazon. Those cheques stopped on 1st August.

Now that retail is dying…

The e-commerce juggernaut has been in talks with Simon Property Group, the largest mall owner in the US, about turning some of the spaces occupied by its anchor department stores into distribution centres, according to the Wall Street Journal. The talks have focused on spaces held by JC Penney, which filed for bankruptcy in May, and Sears, which has struggled since its 2018 bankruptcy filing.

Source: Quartz

In this case, Amazon seems to be panic buying warehousing!

Shoot yourself in the foot and saw your hand off

The year that the USA decided to shove itself down the path of reducing their influence globally by electing Trump and turning itself into a joke, the UK decided to leave the European Union. 3 Prime Ministers and a lot of dilly-dallying later the Brexit will be complete on the 31st December 2020. The fact that the pandemic struck the same year is a little more than inconvenient. Britain was supposed to be in economic shambles without a deal with the EU as it is. Now they are in a recession.

The economy shrank 20.4% compared with the first three months of the year.

Household spending plunged as shops were ordered to close, while factory and construction output also fell.

Source: BBC

I am sure they are not looking forward to the new year!

Moving Away

A couple of weeks ago when I had written about China, I had mentioned about the China Vs Rest of the World dynamic that is developing. The one lessons most countries have learnt is that they never want to create an economic situation where they have all their eggs in one basket. In no other arena can be it be more obviously seen as in the case of manufacturing. Under pressure is Foxconn, a Taiwanese company which is responsible for a massive amount of electronics manufacturing. The chairman of the companies said China’s days are over.

“No matter if it’s India, Southeast Asia or the Americas, there will be a manufacturing ecosystem in each,” Liu said, adding that while China will still play a key role in Foxconn’s manufacturing empire, the country’s “days as the world’s factory are done.”

Source: Bloomberg

Launchers

I have harboured a deep fascination for space since I was a child. With the rise of private space startups, I was fascinated at the opportunities that it opens up. At the same time, I was quite dismayed to find the Indian space ecosystem to be filled with pocket satellite makers. I heard about Skyroot a couple of years ago and upon reading about them made it a point to meet Pavan, the Founder & CEO, when I visited Hyderabad. A group of scientists who had quit their jobs at ISRO and decided to create India’s first private space launch startup.

Pavan was very agreeable and I spent a good hour speaking to him. They had found initial support from Mukesh Bansal of Myntra and Cult fame. I was thrilled to read that they completed their first test firing.

Indian aerospace startup Skyroot Aerospace successfully test-fired an upper-stage rocket engine, which is the third and fourth stage of a traditional multi-stage rocket, fired at high altitude and designed to operate with little or no atmospheric pressure. Skyroot has thus become the first Indian private company to demonstrate the capability of building an indigenous rocket engine. 

Source: Inc42

I suppose their cause was helped in a major way with the support that was announced for Private Space Companies as a part of the “Stimulus” package. They moved out of a legal grey area and this would have helped them a great deal.

I am thrilled, this will be the first space launch startup from India and I can’t wait to hear Elon Musk begin to weep and whine about it. Why? They will be way cheaper than SpaceX.

Nine Lives

They say a cat has nine lives. Looks like Kodak is a cat. Kodak is a company that is immediately associated with photography. The one thing that traditional photography involves a lot of is chemicals. Do you know another thing that has a lot of chemicals in it - Drugs. So Kodak is pivoting to become a pharmaceutical company. Also, because they got money for nothin'.

Last week, the US federal government announced a first-of-its-kind loan to Eastman Kodak, a US-based company once known for its leadership in the film photography industry. Kodak will be using the $765 million to begin producing components for generic drugs—specifically, active pharmaceutical ingredients (APIs), the chemicals that make a drug work.

Source: Quartz

Their share price jumped 15X before cooling off! And somehow the company got into trouble even before the loan came in - for?

Kodak’s manufacturing may be on hold, however, until the US Securities and Exchange Commission completes an investigation regarding the disclosure of the federal loan. Kodak offered its chief executive 2 million stock options on July 27—the same day it leaked details of the loan to reporters. The subsequent news reports and the official announcement, which Kodak made public on July 28, caused share prices to skyrocket.

Source: Quartz

Human greed!

Signing off…