If you take a survey of the two most important words in Tech investing, you’re likely to get any one of many answers:
- “Market share”
- “Network effects”
- “Application ecosystem”
- “Price momentum”
All are possible responses.
In my mind, however, the two most important words in Tech investing are those which virtually no survey respondent would offer:
Grid resiliency is not on your list of top tech issues? Time to rethink that.
When the combination of a strong breeze, tall trees, and an overlooked software flaw brought down the electrical grid in eight states and one Canadian province, an estimated 55 million people lost power – some of them for the entire last two weeks of August 2003.
A large-scale power outage is not just a matter of a few people temporarily not being able to recharge their phones or access cat videos on YouTube; it quickly becomes a major economic catastrophe.
Water treatment plants, oil refineries, passenger rail lines, airports, gas stations, cable TV service, cellular towers, and even dairies function thanks to electric power.
When the grid failed, sewage spilled into rivers and flowed into the Atlantic, airlines cancelled flights, local gasoline prices skyrocketed, communications ground to a halt, Wall Street traders were left very literally in the dark, and quite a few cows were left feeling quite uncomfortable.
Things that you would never expect to be affected, were profoundly affected.
If power hadn’t been quickly restored in New York City, it is hard to imagine the chaos that would have reigned as shipments of food and other essentials slowed.
If you are thinking about the big picture, in other words, you should be thinking about grid resiliency. The electric grid undergirds our entire technological civilization – even if most people pay it no mind day-to-day.
As regular readers of this column will know, your correspondent is a big picture investor. As such, it will come as no surprise that for the past few months, I’ve been thinking a lot about grid resilience.
Knowing my interest in the topic, a friend directed me to an educational outreach program at Argonne National Laboratory called the OutLoud Lecture Series that had a talk scheduled to discuss Argonne’s efforts to improve grid resiliency.
Argonne is a U.S. Department of Energy’s Office of Science facility managed by UChicago Argonne, LLC that came into being as a key center of atomic research for the Manhattan Project in World War II. Nowadays, Argonne – as well as other facilities in the tax dollar-supported National Laboratory system network – are taking up the slack of doing the essential fundamental research and development that private industry or academia simply cannot afford to do.
That phone that you’re using to read this article is equipped with a powerful Lithium Ion battery. You might be as surprised as I was to learn that Argonne was a leader in the development of Lithium Ion battery technology. Many other projects at Argonne have also gone on to be commercialized after the hard, expensive work of the basic research was complete.
The speaker for the OutLoud talk on grid resiliency was Dr. Mark Petri, the Director of Argonne’s Electric Power Grid Program. Mark and his super-genius colleagues use the massive computing power at Argonne to model the likely impacts of power outages of various types, including weather-related and cyberwarfare-related ones.
(Dr. Petri and I spoke while Dorian was destroying the Bahamas and he matter-of-factly offered what turned out to be a phenomenally accurate prediction of the storms subsequent course.)
The Argonne team uses its weather forecasts and simulations to figure out how to set up electrical grids in such a way that when trees brush a high voltage wire or when a Category 5 hurricane grinds over a region, the affected region’s economy can bounce back quickly.
As I pointed out in my article PG&E: The First S&P 500 Climate Change Casualty, climate change is one of the factors making it much more likely that current infrastructure is going to be placed under greater and greater strain as the earth’s oceans and atmosphere warm and extreme weather events occur with greater regularity.
Take my old hometown of Houston as an example. Last month, a fetching lass named Imelda brought a so-called ‘500-year flood’ (a flood whose severity is predicted to be one in five-hundred or 0.2% during any single year).
Depending on whose count you prefer, Imelda is either the fifth 500-year flooding event to hit Houston in five years or the second 1,000-year flood to hit Houston in two years (Hurricane Harvey being the first).
Besides the fact that the terms 500- or 1,000-year flood are starting to lose meaning in an of climate change, the thing you should know is how profoundly an event like this has the potential to damage electrical infrastructure.
An article in Scientific American quotes the Energy Information Administration (EIA) in reporting that, in the wake of Hurricane Harvey in 2017, 10,000 Megawatts (MW) of electricity generating capacity, six 345-kilovolt (kV) transmission lines, and more than two hundred 69-138 kV transmission lines were temporarily lost.
Or look at footage of post-Dorian Bahamas. It’s not hard to believe that natural disasters might exert an impact on commerce and tourism there.
Argonne’s work is essential in an age of climate change but is also critical in an age of cyber-warfare, as denizens of Ukraine might tell you.
The two issues of climate change and cybersecurity are what got me interested in grid resiliency and dragged me into an activist investment project on which I’m working entirely too hard lately. From recent reports, it’s not a moment too soon for Americans to start thinking about how secure their grids are from cyberattacks as well as from changes to our climate.
The world is changing. We must change with it. Disasters are not natural anymore and wars are fought with zeros and ones rather than with planes and guns.
Greta Thunberg is right – there is no way for human civilization to continue using a finite stock of resources in an exponential way. We must find smart commercial solutions that build resilience and adaptability, and which enrich the world through development (i.e., improvements in quality) rather than growth (i.e., increases in quantity).
Intelligent investors take note.