Disruptive Technologies & Exponential Growth

Lately, I’ve been thinking a lot about disruptive technologies & exponential growth. Over the course of past few weeks, discussions have been abound between fellow bloggers Jay from FI Fighter, Bryan from Income Surfer, and yours truly discussing investment themes. In trying to identify good investing options, we keep directing our focus towards technology and its disruptive nature. It is no secret that the ‘green’ movement is not a niche anymore and is now mainstream.

Jay from FI Fighter recently posted this article: Disruptive Technology – Always Underestimated, which I highly recommend readers to read and follow the thought process and also follow up on the links posted (there’s a lot there). It presents a great picture of how things are changing. Fast.

We humans are terrible at understanding exponential growth. Due to the way we evolved, we humans always think in linear terms or incremental changes. We don’t expect things to change fast and almost always get the timelines wrong. Even the ‘green’-oriented media gets most timelines wrong. When making predictions, they always predict that things will look better for the solar and renewable energy space by 2040 or 2050. That timeline is completely off-base. When you truly understand exponential growth, you realize that its going to come much faster than that.

linear-vs-exponential-41

One only needs to look at history to realize how quickly things change. When the motor vehicle was new in early 20th century, most people discounted it as just a niche market. Folks laughed at the idea and never thought that the horse-and-buggy was going to be disrupted. So, did it take 40-50 years for the market to get disrupted? No. It took 12-13 years. Same goes for other disruptive tech that has followed – the computer, the internet technology, the smartphone revolution etc.  Now, we stand on the cusp of disruption in the energy space.

To best illustrate exponential growth, I always refer people to what Ray Kurzweil has to say about it, who puts it beautifully. For those unaware, Ray Kurzweil is a futurist and a visionary, who has done amazing work in the past and currently works for Google. There are some absolutely amazing articles and videos online that I highly recommend if you want to get an idea of what the future will look like. Ray Kurzweil has the following to say about exponential growth:

Here’s another way to think about it: imagine you are going to walk down a road taking steps a meter in length. You take 6 steps, and you’ve progressed six meters (1, 2, 3, 4, 5, 6). After 24 more steps, you’re 30 meters from where you began. It’s easy to predict where 30 more steps will get you—that’s the simplicity of linear growth.

However, setting anatomy aside, imagine you could double the length of your stride. Now when you take six steps, you’ve actually progressed 32 meters (1, 2, 4, 8, 16, 32), which is significantly more than the 6 meters you’d move with equal steps. Amazingly, by step number 30, doubling your stride will put you a billion meters from where you started, a distance equal to twenty-six trips around the world.

Ray Kurzweil has identified that solar is the future of all human energy needs and points to the fact that we are already at 2% of meeting the world’s total energy needs. He also points that people might think that its a “fringe market”, but when you are on the exponential growth path, you only need a few strides to reach the goal. With the current renewable energy meeting 2% of the world’s needs, we are only 6 doublings away (about 12-13 years) from reaching the 100% goal of reaching all of the world’s energy needs! From that point on, it’s free energy forever.

This is a nutshell is what disruption is. There will be massive repercussions across various sectors of the economy – from the obvious oil market to transportation to utilities to food & water. Investors who pay attention and position their portfolio can come out on top or lose a big portion of their fortune. I intend to evaluate some of my thoughts in a follow up article in the coming days. Stay tuned!

Meanwhile, I invite you to watch the following clip (about 1 hr long) which is a great overview of the disruption and where the world is headed. The speaker, Tony Seba, also highlights which sectors to look for growth and investment.

 

Looking for investment ideas and want to stay up-to-date with the development in the industry? I curate interesting reads and links on the Renewable Energy sector on Pinterest. Follow to stay up to date.

Further Reading:

20 thoughts on “Disruptive Technologies & Exponential Growth

  1. Really like where both you and FIF are going with this. I’ve been becoming increasingly more interested in the renewable energy space and am considering looking at some ETFs even. My top picks right now are RNW and AQN, but I need to do more research for sure. Keep it up. Look forward to reading more of this.

  2. I tried this in 2008/09 with solar companies during the recession time,i got burned on lot of them and currently staying away from it.I will get back into it soon.

  3. Thanks for sharing the article Sabeel. I’m with you on Renewables and lately, I’ve been obsessing with them. I like this space very much and will invest heavily moving forward especially the utilities side. I was reading Enbridge’s 2015 statements and like the fact that they are investing heavily into renewables and have close to 2000 MW of Green energy (I have a 20k position in ENB). All of this year, I’m gonna invest in Transalta Renewables, Brookfield Renewables and Algonquin. I like this space bud. Hope to hear some more posts on this.
    Have a good one bro.

    • I always forget that ENB has a big renewable energy exposure. Those are some good names that give you exposure…but lately Ive been thinking that utilities may not be the best option when it comes to investing in the green space. I intend to write about this in a follow up article.

      cheers
      R2R

  4. Thanks for the mention Sabeel, I appreciate the shout out. It’s been a lot of fun discussing the topic of clean energy and outlook of the future with both you and Bryan; you guys are helping me learn a lot as well.

    That Tony Seba video is a must watch and I hope that your readers all get a chance to tune in. Change does happen quickly, and as is often the case, we will blink and miss it entirely.

    With paradigm shifts, comes with it the opportunity to make lots of money as well, and this is something anyone on the path to early FI should be focusing in on. I can’t say I have the answers, but I’m keen on doing my homework and research earlier rather than later.

    It’s an exciting time to be alive!

    • It sure has been great to discuss the topics and the exchange of ideas over the past few weeks. That Tony Seba video is a great one…I didnt want to miss the opportunity to share it in the article.
      Paradigm shifts are what drive new economies and the markets – and we need to position our portfolios to take advantage and get ahead of the game.

      Thanks for stopping by and commenting
      Best
      R2R

  5. Although I’m generally in agreement (in principle), any technology also has unintended consequences. Nuclear has fuel cell disposal, cell phones = radiation. Lithium has questions with safe transport, wind disrupts migratory birds. Two major issues I envision are 1) Is it economically viable without government support, and 2) what of China and their dependence on inefficiencies to maintain living standards – or at least stave off massive unemployment.

    • Hi Charlie,
      There are always byproducts and unintended consequences from introducing and adopting new technology. We have ended up in this position of overconsumption and heating up the planet in record time (100 years or so) because we, as a species, did not anticipate the effects we have. The green revolution is a step in the right direction and will come with its own complications and side effects, Im sure. But do we simply ignore it (as some industries have, such as coal and oil industry over the past few decades) or do something to fix it. The first problem we have started seeing is even though the battery technology is supposed to make it green, the mining of the elements – lithium and graphite and processing them has resulted in immense pollution (in China) and now there is more awareness and backlash to move to greener options, if you will (using better grade lithium, using natural graphite instead of synthetic etc). IMHO its a matter of will, policy and technical ability and applying them to fix the issues.
      Regarding your comment about economic viability lacking gov support – current estimates now suggest that the industry can sustain and support itself and grow at the projected rate. The immense growth originally came from government spending, and the tax breaks and other incentives, but if you remove them, the industry is mature enough and the movement is strong enough to progress. Re China – Im not sure I understand the question or concern that you are trying to raise.

      R2R

      • Like I said, I agree in principle. I’m not sure if solar is ready for prime time yet. Take a look at how sales tanked prior to US tax incentives being reinstated. One day, most likely. On China I could have been a little clearer. Even with the will to be greener, they realize it’s a delicate balance to maintain their GDP versus shuttering inefficient factories and increasing unemployment. With their population, I doubt a viable solution will present itself in my lifetime.

        I enjoy the blue sky scenarios, but I tend to be more basic, like life sustenance. Food and fresh water technology in my book are more vital than alternate power sources.

  6. Hey R2R, great discussion.

    I think humanity is finally trying to do things the right way, if we can just change all electricity to be renewable/solar then that would be a fantastic change! Obviously for some countries like Canada, the Scandinavian region, Russia etc it’d be hard. But for the USA, Portugal, Spain, Australia, Mexico, Middle Eastern region etc, it’s possible!

    To be 100% will be almost impossible. Every person in the world would need to drive an electric car (easy enough for G20 countries, what about other places – who would pay for that?). Ships and airplanes would also need completely re-configuring – batteries would need to come a long, long way for that to work. I’m not sure it could ever work for ships – think of the size of the battery power they’d need.

    I think the growth can be described as compounding, which is what we’re all trying to achieve with our investments 🙂

    Tristan

    • You are right – some of the sunnier places like US, Spain, Australia etc have a great location to take advantage. Even some part of Canada are pretty good when it comes to sunlight hours…but as the efficiency increases and new technology is developed – it will become more viable to used everywhere. The latest I read somewhere was to augment the solar panels to generate electricity via raindrops, which would be a great addition to increase the total output.

      There will always be a portion of the economy that will continue to run on oil. Some applications will still require oil and petroleum products to run, but the majority of it will move towards solar and renewable energy. The best parallel to note is how some of the emerging markets are just leapfrogging the traditional telephone systems and just going to cellphone usage. Once solar prices collapse, we can expect similar leapfrogging for energy usage.

      cheers
      R2R

  7. What’s funny is that all the talk about linear vs exponential growth makes the case for–if nothing else–dividend growth investing. After all, what is compound interest other than the exponential growth of your money? Fresh capital, dividend reinvestment, and dividend growth all working together to make you more money faster than you ever would from working or waiting for your stocks to go up.

    As for the actual topic everyone is talking about, don’t a lot of the existing energy companies already do renewable energy as part of their existing energy portfolios? I can’t believe that XOM and CVX would roll over and die rather than capitalizing on a new energy paradigm.

    Of course, if anybody knows some good dividend payers in this space, I’m all ears.

    Sincerely,
    ARB–Angry Retail Banker

    • Thats the beauty of compounding, isnt it? It feeds on itself and grows year after year.

      There are some serious problems with XOM and CVX and they are blindsided as they stick their head in the sand. Oil companies need to adapt and change with the times, but the US companies seem to spend more time and money on lobbying in order to protect their market rather than compete intelligibly. In that sense, the EU companies are adapting better – Total recently bought Saft to get into the battery business, Shell has been moving to a natural gas world over the past decade, StatOil has been investing in windfarms. These companies are now becoming ‘Energy Companies’ instead of just ‘Oil companies’, which is the smart thing to do.
      CVX on the other hand – is selling its downstream business, where the prospects are better than upstream and sinking more money (they just released plans to spend $40B for oil E&P in Kazakhstan, I think). Terrible strategy from the management..its why I sold my shares in the company. XOM is finally starting to explore some options with fuel cells – which is not a proven technology and is hard to harness, but they like it because its closer to their current business model. These are dinosaurs that are resisting change and I wouldnt touch these companies with a 10-ft pole, unless their mentality changes.

      I am hoping to explore some options for investing in the green space in the coming days. Stay tuned 🙂
      R2R

      • I think the mentality will change. In a vacuum, there’s more more money to be made with oil than with solar. Customers need to constantly pay for more oil; infrastructure takes money to change, etc. I could see why they wouldn’t want to pay and change to a business model that is probably inherently less profitable.

        Once the realities of the energy world prove to be undeniable to them, I think the big oil companies will be some of the biggest players in clean energy space. I think they’re too smart to deny the changes; they just have an interest in these changes not happening. These giant corporations will figure out a way to make money, you’ll see. In the meantime, I’ll be looking towards both types of companies with a new focus on dividend paying clean energy companies (or companies that have shown dedication to growing and supporting their clean energy segments).

        Sincerely,
        ARB–Angry Retail Banker

        • Agreed that Big Oil will not go down easy and will be kicking and screaming.
          What you mentioned is why XOM is interested in the Fuel Cell tech. Because its closer to their current business model. They can continue to supply the liquid hydrogen and charge similar amount as it is with gasoline these days. The future revenue and earnings will stay same….but with solar – the Big Oil stands to lose big — as it means that the consumer needs one time investment and its free energy thereafter. The investment pays for itself in a few years. Yes, some things will need updating like batteries get worse over time and will need to be replaced, but as battery tech improves, that life can be extended.
          Having said that, I dont think that energy companies will be useless…we will still need some oil, but that share will be smaller in the big picture. We will still need natural gas for heating home (unless we get to a point where (solar) energy is free and we move to electrification of heating home). The biggest consumer of petroleum products is transportation — and the disruption will occur in the blink of an eye. We are already seeing the electrification of transportation. Tesla grabs the headlines because the mainstream media is lazy and does not want to report whats really happening on the international stage, but there are plenty of other companies in EU, China and other countries pushing for electric vehicles – not just cars, but trains, buses etc.

          There are some utilities that are dividend plays when it comes to renewable energy — I will be sharing some of my finds in the coming days 🙂
          Thanks for the input, ARB. I always enjoy the converstaion we have.
          R2R

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