Renewable Energy And The 'New' Modern Corporation

by: John M. Mason

Summary

Renewable energy sources are gaining a greater share of energy output, and predictions for the future see them contributing more to the output of the US, Europe, and emerging nations.

Falling costs have made renewable energy sources competitive, and because these sources are more closely tied to intangibles, like intellectual property and network creation, they can achieve scale unlike others.

Here, in the energy area, we see how the modern evolution of the corporation is creating substantial differences, differences that cannot be overcome by trying to hold on to the past.

Recently, I have been writing quite a bit about the “new” modern corporation. Serving as a model for this “new” modern corporation has been Apple, Inc. (NASDAQ:AAPL).

In one recent post, I discussed some of the defining characteristics of the “new” modern corporation. Perhaps the most important of these traits was use of intangibles, like intellectual property. The intangibles are closely related to current technological innovations, especially those connected with information technology, and these intangibles are subject to building the scale of organizations and to creating interactive networks that can also enhance the scope of what a business can engage in.

The evolution of the modern corporation seems to fit into what is happening in the energy field as the split between renewable energy sources and non-renewable energy sources is really coming into its own.

Russell Gold writes in the Wall Street Journal about how “Global spending on renewable energy is outpacing investment in electricity from coal, natural gas, and nuclear energy, driven by falling costs of producing wind and solar power.”

“Once supported overwhelmingly by cash-back incentives, tax credits and other government incentives, wind- and solar-generation costs have fallen consistently for a decade, making renewable power investment competitive.”

In fact, as Francis Sullivan, the research director of the MIT Energy Initiative says, “wind and solar now represent the lowest-cost option for generating electricity.”

China has invested heavily in this technology. And, innovation has been a major driver.

The choice of energy source has now become an “economic choice,” according to Danielle Merfeld, the chief technology officer of General Electric’s renewable energy unit. This, according to Mr. Gold, is disrupting General Electric’s (NYSE:GE) business of producing large gas-burning turbines, which has already announced substantial layoffs in the area.

Not only it's much easier to get renewables built, the technology related to renewable energy sources is still in its infancy, and the organizations involved in this industry are just beginning to realize the network economies that can be used in such a technologically embedded field. Those engaged in the effort have not yet begun to recognize the scale and scope economies that are available to this portion of the industry.

Bern Fowke, Chief Executive Officer of Xcel Energy, Inc. (NYSE:XEL) is quoted as saying, “I think across the nation, you could get to 40 percent renewable energy” in the United States.

But, this is not just a United States thing; the same outcome is being experienced in Europe and in developing nations.

And, to back up the advances in technology, the amount of capital flowing into this area is growing very rapidly. In addition to what is happening in the US and in Europe, Mr. Gold gives examples of such funding becoming available for projects in Chile, Saudi Arabia, India, and Mexico.

The economies that are achievable in the renewable energy areas are just not there for the more traditional sources coal, natural gas, and nuclear energy. The renewables are all connected in one way or another with intangibles, like the intellectual capital that goes into producing solar panels or energy producing windmills. These technologies have vast opportunities in creating greater scale and scope. They are not tied down with legacy production methodologies that can only improve incrementally.

This kind of bifurcation is happening more and more in the business world these days. These out-of-equilibrium situations are going to be resolved by people and organizations that can creatively accumulate knowledge and knowhow, not depend upon just physical capital. And, these are the kind of situations that lend themselves to opportunities for the investment community.

There are efforts afoot to help out the energy areas that are falling behind. “The Trump administration is weighing actions to subsidize the operation of coal and nuclear plants, arguing that these units are needed for the reliable operation of the power grid.”

But, coal, natural gas, and nuclear energy seem to be legacy. Oh, they will stay around, but the future is being built on the spreading use of information technology and the organization of corporations to maximize the use of such technology.

It seems odd to talk about the energy field and end up talking about information and information technology, but this is the essence of what is to come.

As mentioned in my earlier post, the “new” modern corporation is going to be built more around intangibles, like intellectual property, and this will divide the high performers from those that are just getting by…if that.

More and more pressure is going to be put on managements to find out how their business or their industry can find opportunities to re-structure in this direction. The emphasis on intellectual property and network creation may seem a little on the edge right now, but this is where the future is coming from.

Out-of-equilibrium situations can only be resolved through creative responses; they will not be resolved by trying to hang on to the past.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.