It was 1855, and Yale professor Benjamin Silliman was on the run. The report he had in his possession was worth trillions of dollars.
At the time, Silliman was a distinguished scientist and the author of top chemistry and physics textbooks. But academia just didn’t pay enough, and he needed money.
So when a prospective businessman approached him to conduct a study on a new way to provide indoor lighting, he was glad to sign on. After three months of work, he was owed $526.08 – about $14,000 in today’s money.
Here was the problem… The guys who hired him didn’t have the money. They needed the report to get funding for their business, and they needed the funding to buy the report.
So Silliman hid his report with a friend, left New York City, and went on a tour of the South. Now out of touch, the businessmen got the message: “We’ve got nothing to talk about until you pay me.”
The investors scrounged up the money, and Silliman delivered the report. The 20-page document may very well be the most valuable research in modern history.
The ideas it contained not only birthed one of the largest industries in the world but fueled the growth of the global economy for years. It helped win two world wars and entirely altered global politics.
True innovative technologies – like the ones that evolved from Silliman’s paper – are like a hurricane. Sometimes you can see it coming… But you don’t know when it may change course or what things will look like after it passes.
A new advance like Silliman’s can shift the entire economy around it. It can lead to a new ecosystem of infrastructure, products, services, careers, and industry peripheral to its intentions – but many times bigger.
Silliman received his commission from business leader George Bissell. At the time, Bissell and his associates had wanted to find a way to provide a few hours of light at night. What they found instead was an entirely new, trillion-dollar industry.
In the words of Daniel Yergin in the Pulitzer Prize-winning book, The Prize, Bissell, “more than anybody else, was responsible for the creation of the oil industry.” Bissell had seen a bottle of “rock oil” on a friend’s desk and realized it could be burned for lighting.
Prior to this, petroleum was used mainly in folk medicines and as an occasional lubricant. Meanwhile, the wealthy used expensive whale oil to light their lamps. The less fortunate used camphine, which tended to explode in their homes.
Silliman’s report demonstrated exactly how oil could be used as an illuminant. It also showed how oil could be refined into its constituent parts, creating all sorts of flammable fuels.
We now know that oil is so much more. But it took around 50 years for it to really come to fuel the world.
The biggest technological revolutions lead to advances branching out in completely new ways. And afterward, they just seem like “common sense.”
But the biggest technological revolutions lead to advances branching out in completely new ways. And afterward, they just seem like “common sense.”
That’s because no technology exists in a vacuum. Most technologies get invented only when “complementary” technologies allow them to happen. Uber couldn’t be invented before GPS-enabled smartphones. Smartphones couldn’t be invented before the Internet. And so on.
Similarly, Bissell wanted to explore oil as a fuel for lamps. At the time, no one had the imagination to foresee the internal combustion engine, the affordable mass-produced automobile, and the national network of roads and highways that would make oil so desirable.
Nor could Bissell have envisioned the advances in drilling, deep-sea production, complicated pipeline networks, and financial services that get oil and its products to the people who need it.
While the companies that find the oil and pump it out of the ground have built fortunes over the past century… even more money was made on the periphery by all the companies developing and supplying the technologies to extract petroleum and use it in a myriad of new ways. All these industries grew from nothing, and they grew fast.
All it took was a new, cheap source of energy to ignite it.
Profiting From the Next Tech ‘Hurricane’
The next technology hurricane is renewable energy… And it’s already here.
You may not realize it, but the U.S. generated 18% of its electricity in 2017 with solar, wind, and hydro power, doubling its share over nine years. That’s nearly as much power (20%) as our fleet of nuclear power plants contributed to the grid…
It’s undoubtedly the fastest-growing energy source. In the last year, energy generation from utility-scale solar alone grew 47%.
That’s in the midst of a U.S. oil and gas boom with prices for those fuels well below the highs of a few years ago.
But what about government subsidies, you ask. Aren’t these renewable technologies just giant boondoggles for government bureaucrats and the tree huggers who love them?
The basic fundamentals of solar and wind energy have gotten to the point where they make sense without subsidies or environmentalist motivations.
Look at the “levelized cost of energy” (LCOE). This is the measure of the total cost of lifetime production divided by units of energy produced. It’s a way to figure out how much to charge for electricity to break even on a project.
The above chart shows the average LCOE of different energy sources. For solar, it’s specifically “utility scale solar.” This refers to fields of solar cells run by a utility and is different (and much more efficient) than the rooftop installations you may see bolted to your neighbor’s house.
Right now, building a new utility-scale solar plant will cost you about $50 per megawatt-hour produced (and that doesn’t include any subsidies). Building a natural gas “combined cycle” plant would cost about $60 per megawatt-hour.
Naturally, we have many operating gas, coal, and nuclear plants that have already been built. It’s cheaper to run an existing gas plant than to build a solar one. So we’ll keep running them.
But when it’s time to expand electricity production or replace old plants… it now makes more economic sense to build a solar or wind installation instead of the more costly coal or gas plants.
And that’s happening, fast.
Europe has outpaced the U.S. in introducing renewable energy. Those countries supported its development through massive subsidies and investments. Now, the technology stands on its own.
Last year, governments in Germany, the Netherlands, and Spain offered contracts for energy generation to find the lowest bidder. They were flooded with low-cost proposals to build subsidy-free offshore wind farms.
Allan Baker, global head of power at European bank Société Générale, says, “It is clear that costs are now getting to a point where renewable projects, including offshore wind projects, based wholly on market prices are becoming possible.”
Yes, plenty of people want to switch to renewable energies for environmental reasons.
Others see national security implications. China plans to invest $360 billion into renewable energy by 2020 to ensure that it won’t be dependent on other nations for the future of power.
And one other factor will make these plants more attractive as time goes by: Once you build a renewable power source, you have free energy.
These facilities need maintenance and upkeep. But if you’ve got a utility-scale solar installation, it doesn’t matter if you produce one megawatt or 500. It’s all the same cost.
This means that energy, one of the biggest costs in nearly every endeavor in our economy, will soon be dropping drastically in price.
Paradoxically, this is a major problem.
Southern California, for instance, has so much solar and wind power that there are times when wholesale electricity prices flip negative – meaning if you are a power plant and you don’t want to shut down, you have to pay to put your power on the grid.
Through July 16, California has seen 76 negative energy days in 2018. Texas hit 49 and New England saw 66. That’s not to mention Germany, which saw 194.
It’s wreaking havoc on an electrical grid that’s not built for such things. And it may slow the spread of renewable energy. But that threat means profits for certain companies…
You may have heard the quip, “Solar’s only got one problem – night.”
The sun only shines in the day, and the wind blows only when it wants… And that doesn’t always match up with when and where we want electricity.
The biggest problem with solar and wind is “load balancing.” The sun only shines in the day, and the wind blows only when it wants… And that doesn’t always match up with when and where we want electricity. The problem is trying to store excess energy during peak production times and use it during peak demand times.
Load balancing is a major challenge. We suspect that we’ll see a significant slowdown in solar installations as a result. And it means we’ll still need gas, coal, and nuclear plants.
But citing load balancing as a reason to dismiss the promise of renewables would be like dismissing oil’s potential because it’s trapped so far underground.
Solving problems like these is what creates profits for businesses and investors. And given the cheap energy we can gain from solar, the solutions to the load-balancing problem will bring huge profits.
Just like the revolution in oil brought pipelines, refineries, highways, and generations of new technologies, this new, cheap energy source will sprout its own ecosystem.
Estimates for the necessary updates to the energy grid top $20 trillion globally. Investors – even those who may scoff at renewable energy – should be watching.
Dr. David Eifrig worked in arbitrage and trading groups with major Wall Street investment banks, including Goldman Sachs, Chase Manhattan, and Yamaichi in Japan. In 1995, Dr. Eifrig retired from Wall Street, went to UNC-Chapel Hill medical school, and became an ophthalmologist.
Today, he publishes a 100% free daily letter on both health and wealth that shows readers how to live a millionaire lifestyle for far, far less. Click here to learn more.