 At the same time as Thomas Edison, we had a guy named Nikola Tesla. Now, Thomas Edison's generator was a DC generator, and Thomas Edison's vision was small generators close to the load. The problem that we had was those generators were relatively expensive, and there was a thing that Sam Insell recognized called economies of scale, and those economies of scale were larger is cheaper. In other words, the larger I build the power plant, and the more power I carried over the transmission lines, the cheaper per kilowatt hour the electricity would be. The economies of scale were economies of massive scale. Well, the problem that you have with DC is it's very hard to raise the voltage. It's very hard to control a system that's a DC system, and Nikola Tesla, AC, it's interesting if you look back, Felix Frankfurter's wife, he was a Supreme Court justice, said one time that he had two problems as a speaker. The first one was that he couldn't keep on topic, and the second one was that he keeps coming back to the topic. I have trouble staying on the topic, but I want to mention that at Niagara Falls, that initial generator at Niagara Falls was DC, and the first time they decided to turn it off to try to interrupt Niagara Falls, they opened the switch, it just arched over, they couldn't turn it off. They had to divert the water from the sluices in order to let the arc extinguish. That was one of the problems with DC, high current for a given voltage, so if I start building power plants that are larger farther from the load, I need a higher voltage or I lose all of my energy and losses. Tesla was an AC guy. Tesla and Edison fought fiercely over the years. Tesla was the nice guy, Edison was not the nice guy. My favorite story is their fight over who got to do the first electric chair. Have you heard this story? There's a book called Edison Illuminating the Century where you get the details of this, but they argued as to which would be better AC or DC or electrocuting somebody to death as opposed to hanging or a firing squad. And Tesla won. He got the bid. Well, nobody really knew exactly how to electrocute somebody, and it took them the better part of a day to accomplish it. They clamped the guy in, wet him down, turn it on, took the better part of a day. My favorite part of that story is somewhat gruesome story, but what Edison said when he heard this, and this was well watched, sort of like these days Bill Gates or Steve Jobs, he said to the press, see, I told you DC was safer. Much safer to kill a guy with DC than with AC. But anyhow, we moved to an AC system largely because it enabled us to move to larger power plants, larger transmission lines, a model which is a 100-year-old model in the United States. It is a model that has prevailed in Europe. It has prevailed in all of the developed economies because it made sense to build bigger power plants in centralized transmission systems. The problem is that those power plants are economic in large part because they run 8,000 hours a year. As I build these things, a coal plant, a nuclear plant, a base load plant, I run it flat out all the time. They have two problems. One is they're not economic if I don't run flat out all the time. In other words, the capital costs need to be spread over as many kilowatt hours as possible to be competitive. And secondly, they're not very controllable. And we're seeing this in Germany now. As you're well aware, we have a huge problem in Germany with the amount of PV that we're backing down on base load power plants, operating them at non-economic levels and operating them at levels that the grid was not designed to accommodate. In other words, the grid was designed that these things are running full out and all of the edges were managing based on these base load plants running full out. That's the same model that we've had in the United States. Well, now in Texas, I live in the great nation of Texas. Some of you may think of that as a state. We think of it as the Republic of Texas. There's the 49 United States of America, and there's the Republic of Texas. We are isolated electrically from the rest of the United States. We are connected through two very weak DC ties to the rest of the U.S. in large part because we don't like the government of the United States of America. We don't want them regulating our electric utility company. But within ERCOT, we are now, we have the world's largest single installation wind farm up the border of Texas and New Mexico, which reminds me, Brian, can you stand up for a second? I want to introduce my colleague, Brian Carr. Brian is one of the owners of Millsoft, my company. We develop software for distribution utilities. So our kind of customer is ESB. Although in the United States of America, we have 1,200 of those customers. Electric co-ops, municipal electric systems, investor on utilities, federal and state agencies. We don't have the nice thing that you have, which is a single unified distribution network, which is going to make things possible for you that are impossible for us. But within ERCOT, we are now in the market walking off of our nuclear plants and our coal plants to the point of nearly shutting them in, quit using them because we can't take the wind. The wind is carbon neutral. There is no carbon effect of the wind. It's renewable. You'll never hear about a wind spill. And there is a strong motivation to take the wind. And in the market, the wind is cheaper than nuclear. And remember, nuclear was going to be too cheap to meter. But this is where we are. What has happened is, in the world, that we've gone from economies of scale for large centralized generation and transmission to diseconomies of scale, which are risk. In other words, risk has begun to swamp the economies of scale of this old model. Build it big, build it central, operate it centrally. The diseconomies of scale, the risk economies, are, first of all, can I build it on target, on schedule? I remember Comanche Peak Nuclear Generating Station in Texas, which was supposed to be online in 1979 for $780 million, a nuclear plant. $780 million, 2,500 megawatts. Do you suppose it went online in 1979? No, it went online in 1993. Was it $780 million? No, at that point it was $3 billion. Was it 2,500 megawatts? No, at that point it was 2,100 megawatts. And we've seen that now, that it gets harder and harder. If we build a coal plant today, unlike the first, up through the 70s, when every new plant we built rates went down, if I build a new power plant today in the United States, rates go up. There are no economies of scale. Even apart from the risk, the budget risk, et cetera, the marginal cost of a new power plant is higher than the average cost of electricity, so it's going to raise rates. So we no longer have this motivation for centralized large scale, a variety of risks that keep us from doing that. In addition to that, in the developed countries, we use just about as much electricity as you can possibly use per person. I mean, we'd have a hard time using more electricity. And a large part of the growth in our use of electricity is not base load electricity. It's the war warts that plug these things, that charge these things up. Electronics load is the fastest growing load, LED lighting, computers, et cetera. I don't need a base load power plant to serve that. And especially in the presence of wind generation. So we don't have what we had in the first 70 years of the business, which was exponentially growing load. Every year, the load grew anywhere from 5% to 12% compounded, year after year after year. Economies of scale meant that the price was going down, year after year after year. Post-73 OPEC oil embargo, that has reversed. We don't have exponentially growing load. In fact, in the United States, our demand is now declined. We are right on the verge of our energy consumption actually being in decline. So now we've got all of those costs that were based on exponentially growing load that are being spread over a declining amount of consumption. Prices are not going down. There are not economies of scale. So the old model, if we were building from scratch today in the presence of wind and solar foldable tech, we wouldn't build the grid that we built today. We would build a different grid with more intermediate generation. We would have some base load generation, but it would be a much smaller part of the mix. So what happened was that all of the things that supported Sam Ensell and Thomas Edison and Nikola Tesla, all of those economic factors have reversed. Now what else has happened? Well, we have a situation in the world where, for example, in the United States of America, we have 4.5% of the world's population, 4.5%. What percentage of the world's kilowatt hours do you think we use? 4.5%? More? It's about 25% of all the kilowatt hours used in the world. We have about 33% of all the installed generation capacity in the world, because we don't run our generation capacity 100% of the time. Where does the world live? In the United States, in Ireland? Where's the population? China, India, East Asia. We use 14,000 kilowatt hours per person per year in the United States of America. In China, 1,200 kilowatt hours per person per year. An order of magnitude less. Russia, 2,500 kilowatt hours per person per year. What are those folks going to do about electricity? Are they going to use more? Absolutely, they're going to use a lot more. Why? What has electricity done for us in the United States of America? The highest quality of life and productivity of business in the universe. That is the value of reliable, economical electricity. The rest of the world understands that. Well now, if 4.5% of the world's population uses 25% of the world's electricity and the rest of the world starts using an incomparable amount, is that a lot more than we use? Are they going to build central station power plants? Yeah, they're building some. China is building some. In fact, every 10 days, China puts a new coal-fired power plant in service every 10 days. What are they learning? It's not a good thing. We can't breathe. We've got to do something different. And so they have become the world's leader not in percentage yet, but in volume of renewable energy. Because they get it. Also, China has 50 cities of a million population or more. Are they going to couple those together in a nationwide synchronous AC grid? They're not. They're going to have 50 individual grids. They're not going to connect them together. India tried to follow our model. And remember what happened last year in India? Remember the blackouts? They couldn't keep those seven segments in India operating because they simply cannot afford to build the kind of grid that we built. The economies aren't there. The risk keeps that from happening. So in the midst of that, what is China buying more of than any country in the world? Wind and foldable techs. Economies of scale have moved from massive economies of scale, building bigger power plants and bigger transmission lines to Elon Musk economies of scale. Build a lot of batteries. Henry Ford's economies of scale. Mass manufacturing. Elon is going to change the world. Elon is today's Nikola Tesla. I think it's interesting that he called his car the Tesla. I don't know if you follow him at all, but he just opened a new battery factory. It's called the Gigafactory in Reno, Nevada. It's taken a big gamble. But he understands that the way you get batteries to work is to make a lot of them over and over and over. How many of you have driven or seen an electric vehicle? Have you ever looked at the batteries? Have you ever opened it up and looked at the batteries? Have you ever looked out and opened up those little boxes at the batteries and what do they look like? AA cells and AAA cells and C cells. Why? Because the entire battery industry has been manufacturing to that form factor for decades. Is that the most economic way of making batteries for a car? No, it ought to be a few modules, not hundreds and thousands of AA cells. All the wasted metal, all of that. So what has happened in the industry is that the economies of scale have moved away from massive economies of scale to miniature economies of scale, making a lot of little things. Solar cells, wind generators, batteries, electronic monitoring and control systems that allow me to optimize the operation at my house or in that distribution system or in that wide area grid through smart electronics, distributed electronics. I mean, under the old grid, I used to work in the, at Houston Ionium Power Company back in the 70s. I worked in the central dispatch area for a year and the entire system was monitored and controlled from one place. We knew exactly what was going on. All we really needed to know was whether the frequency was going down or up on the generators and ramp them up or down because that meant the load was going up or down. It was a very simple control scheme. Now it becomes a decentralized control scheme when I have, for example, in the United States of America, we have 140 million-metered electricity customers, roughly. If 1% of those put in distributed generation, we go from 7,000 generators in the United States of America to 1.5 million generators. Can those be centrally monitored, dispatched and controlled? Who dispatches PV? The control center? God dispatches PV, right? Who dispatches wind? God dispatches wind. It's stochastic. It's intermittent. Worse than intermittent, it's stochastic. Clouds come over. PV changes a lot. Okay? I begin to have to, if I've got distributed generation, I have to have distributed monitoring and control. Not talking about smart meters, we're talking about smart nodes. We're talking about a smart grid that enables me to get the data that I need to, I wish you guys could have been in our lunch conversation. I wouldn't even have to make this presentation to you. We had such a robust conversation and I learned a bunch and I already thought I knew everything, but, you know, what do you know? Every now and then you learn something new. So the other thing that's happening in the grid has nothing to do with the grid. How many of you have heard of the Internet? How many of you have heard of the Internet of Things? What is the Internet of Things? You don't know? You've heard of it. It is. It's a little bit like the smart grid. What is the smart grid? It's a little bit like the definition that they have in the United States of pornography. There's often lawsuits about pornography and they had a witness one time that said, well, I don't know how to define it, but I know it when I see it. That's the smart grid. I don't know exactly what it is, but when I see it, yeah, that looks like a smart grid. So the Internet of Things, when the Internet started out, there was always a person at one end, or both ends. It was a person sending something or receiving something from a person. In fact, the original Internet, the Department of Defense and then the National Science Foundation was about exchanging data between university computers and the Department of Defense and Department of Energy research. Then we began to see people that interacted with things, but still a person at one end making an order from Amazon. I don't know what you think, but when you order something from Amazon, there's not a human being at the other end. It's a customer service. Are you with me here? And now, we are in a world in which things are interacting with things over the Internet. Cisco thinks that, in fact, in 1984, the number of things connected to the Internet surpassed the number of people connected to the Internet. Not in 1984. 2004, I'm sorry. This is the interesting thing about the Internet. Do you know how many websites there were in 1991? One website. You know how many there are today? Three billion. Three billion websites. That's what's going to happen in the grid. That kind of change is going to happen in the grid because of the same thing that caused the Internet to change. Moore's Law, Matcalfe's Law, Smith's Law, Radcliffe's Law, Wright's Law. What do they basically say? I don't know how many of you know Ray Kurzweil. If you ever get a chance to hear him or read anything, he's written. You want to do that because he gets it. There's a new law called Kurzweil's Law, which is the law of accelerating returns. I'll leave that as an exercise to you, but it basically says that things get better because we do it more often, and the more often we do it, the better we get at it, and the more of them we make, for example. I'm going to quit here in just a minute so that we can have questions and answers. Moore's Law says what? Electronics improves in performance at the same cost or for a given performance drops in cost. And his observation back in the early 70s, Gordon Moore was that every year to 18 months, I would double the power of the electronics at the same price. Or conversely, every year to 18 months from now, I can buy the same amount of computing power or storage power, etc., for half the price. Now in my experience, that always happens the day after I buy the computer. But in the long run, that has held steady for decades. And the projection is that it will continue to hold steady for the foreseeable future, and that doesn't take into account any quantum leaps in technology. I'm not going to miniaturize continuing to become more efficient. Well, here's what Ray Kurzweil says. He says, okay, what do computers use? They use electronics, right? How do I design electronics? I use computers. All right, so if the electronics are doubling in power or halving in price, the computers that I'm using to design the electronics, so it's a positive feedback loop. In other words, it's a hockey stick on the top of a hockey stick. It's not only as the underlying components of the computer improving so that the computer is improving, but now my ability to design new electronics improves. Solar cells are Moore's law devices. They're silicon. They are directly affected by the Moore's law. Now one generator is not so much because that looks like a power plant. That's physical equipment. We're not going to miniaturize any time soon. I mean, maybe, I don't know if that could happen, but electronics continues to improve. Telecommunications continues to improve. Anybody here have a Nest thermostat? Anybody here heard of a Nest thermostat? Consumers are buying those things and using them. And they're using them with their iPhones. How many of our electric utilities are iPhone ready? Not very many. Almost none. You guys are so much farther along in Ireland than we are. You have a unified distribution system. You have a unified wholesale power market. You have a unified retail power market. We have none of that in the United States. You're a way ahead of us, but at the same time you are just as subject to this revolution in the price and performance of solar cells, wind generators. They're cheaper because there will be more and more of them made because why? Because we're buying so many in Ireland in the United States? No, because they're buying so many of them in China and India. They're going to get cheaper and better and cheaper and better. And that will continue to change your grid. As revolutionary as it does our grid, you're just better situated to take advantage of it because you have had some really good decisions in the past about a unified distribution system, a unified wholesale power market and a unified retail power market. Okay, so we've got some negative things that have caused the old things that made the grid and the developed countries work so well go south of us. We've had some new things come along that even if we still had economies of scale and growth and weren't worried about climate change. And remember, climate change has two issues. One is the carbon issue. Whether or not you believe that if we turned everything off in the developed countries it would solve the carbon issue or not, we do have a carbon issue. We can't continue to burn everything in sight and put it in the water, air, in the ground. Sooner or later you have to take out the trash. But there is another climate issue. In the United States of America we monitor this very closely and we are seeing the frequency, the duration of weather events grow not yet exponentially, but faster than linearly. Now is that related to climate change? Well, that's some kind of climate change. I don't know what you call it. And as a result of that what we're seeing in the United States of America is a substantial increase in outages. In the period from 2000 to 2004 we had about 150 what we call major outages in a year. Outage being 100,000 customers or 100 megawatts. That was a major outage. In the next five year period that doubled. We went to 300. We're approaching the end of the third period. What do you suppose has happened? Tripled. In part because of weather events in part because I no longer have the kind of load that I built my grid to operate with. I've got a stochastic load. I've got an aging grid. Once again, something that you guys don't have as much a problem with as we do. But our grid is worn out. The depreciation expense for every electric utility in America is higher than the new investment being put into the grid. The car is wearing out. When you're driving a car and the repair bills are more than it would cost to pay for a new car, you buy a new car. We're not buying a new car is the solution to build more and more coal and nuclear plants? No, the solution is at the edges. We call it grid edge. It's decentralization. I've talked a lot in a hurry. Tried to give you some things to think about. The internet of things becoming the control thing Bob Metcalfs calls it the internet. I encourage you to research that and look at it. But I will stop now and ask if you have questions, comments, complaints, I hope you argue with me.