Sunday, October 21, 2012

Rate of Return and Risk: The Analogy to a Power Plant & Battery System


In this post, my plan is to lay out an analogy for understanding rate of return on investment and risk, using batteries and power plants as an analogy. The goal is to answer the following questions:

What is the definition of a power plant?
What does it mean for a power plant to have a positive rate of return on work invested?
How do we quantify risk?
What are the units of measure for risk?

Rate of return on investment of a power plant and the battery analogy
Let's begin to answer these questions by imagining that we start out with a battery that is not fully charged, but not completely drained either. Let's say that the maximum storage energy is 1 MWh and we currently have only 200 kWh of energy stored in the battery. This means that we have 200 kWh of useful work that we can spend. (Let's imagine also that there are no rules against fully draining the battery.)
So, what should we do with that 200 kWh of useful work? Should we spend it on building houses, cars, or TV's? If we spend it all on these items (as well as a whole list of items I can think of), then we will have spent all of the 200 kWh and we would have completely drained the battery. We will have no "useful work" left in the battery.
Instead, we could spend half of the 200 kWh of stored electricity by giving 100 kWh of electricity to companies that drill natural gas wells and that build natural gas combined cycle power plants. We can either give the electricity to the company in a form of a bond (in which the company agrees to give us a certain return on investment after X years) or in the form of stock (in which we become co-owners of the plant and get paid in dividends if/when there are profits.) In the case of bonds, after X years, the company may agree to pay us 200 kWh of electricity. In the case of stocks, as long as we chose a good company, the company will pay us (in electricity in this analogy) and the company will likely pay us more than 200 kWh of electricity in dividends after X years. So, if we spend our electricity on building natural gas wells and natural gas power plants, then after X years (where X is likely between 4 and 12 years in this analogy), we will have increased the amount of stored electricity in our battery. If we invested 100 of the 200 kWh, then after X years we will likely have more than 300 kWh of electricity. We could spent 50 kWh of electricity on goods, such as clothing, food, entertainment, etc..., and we would still have more than 250 kWh of electricity in the battery. [Note that there is no return on useful work when you invest in clothing, housing, and entertainment. We clearly need clothing, housing and entertainment, but these activities do not grow our economy, i.e. our capability to do useful work. These activities are necessary because humans run power plants and humans need clothing, housing, and entertainment.]

When we invest money in power plant companies, the company is basically agreeing to give us some of the electricity produced at the power plant in exchange for our investment into the initial capital cost of building the power plant. This cycle of investment of electricity and production of electricity can continue as long as there are exergy sources that yield positive rates of return on work invested (which will be the case for at least the next billion or trillion years.) This is the cycle of growth. You invest useful work into projects that increase the total amount of useful work. We started with 200 kWh and now we have more than 300 kWh of useful work, from which we can spend between 0 and 100 kWh of electricity during that time period on 'goods' and still have more electricity than when we began.

Definition#1: The technical definition of a power plant is a project that has a positive rate of return on useful work invested

Sunday, October 14, 2012

The Death of Supersymmetry/String Theory & Saving the Theoretical Physics Community from a Descent into Nihilism, Timelessness and Meaninglessness

We should try to simply the laws of nature and to attempt to relate the known particles to more basic constituent particles. In this sense, it makes sense to study string theory, supersymmetry and grand unified theories. Our current laws and our current set of basic particles seems a little ad hoc, and it is likely there are ways to simplify the known forces or known particles. So, it makes sense to try to understand and simply the laws of nature. String theory is one such attempt. String theory became an exciting area to work in because a quantum version of gravity came naturally out of string theory. At first, string theory provided a means to possibly simplify the known laws and particles in the universe. But string theory does not appear any longer to simplify physics. Worse, string theory and supersymemtry predict particles for which there is no experimental evidence. For example, there is no evidence of super-particles, and dark matter very likely cannot be the particles predicted by supersymmetry. This is a problem for the theory of supersymemtry, but it's also a problem for string theory because supersymmetry is a component of most of the versions of string theory. But rather than admit that string theory and supersymemtry are incorrect descriptions of reality, some people in the physics community appear to be doubling down on these theories.

In this post, I'll look at how we got to the point in time in which some physicists don't even seem to care that their theories don't have anything to do with the real world. The goals of this post are multiple: (1) to analyze the larger philosophical trends that have led us to the current state of nihilism in the physics community, and (2) to show that string theory and supersymmetry are actually part of a larger descent into nihilism, timelessness, and meaninglessness, which is actually an escape from Francis Bacon's original goal: using science to better society and to grow life. As Francis Bacon put it,  "The task and purpose of human Power is to generate and superinduce on a given body a new nature or new natures."  The New Method (Nova Organon) Book II, Aphorism I.  Further Bacon writes in the General Preface to the Great Instauration, "Lastly, I would address one general admonition to all; that they consider what are the true ends of knowledge, and that they seek it not either for pleasure of the mind, or for contention, or for superiority to others, or for profit, or fame, or power, or any of these inferior things; but for the benefit and use of Life; and that they perfect and govern it in charity."

Saturday, October 6, 2012

Various transitions to future energy sources


I normally try to avoid making predictions about the future because there is only one true statement about predictions: as soon as you make a prediction about the future, it's wrong. Every prediction is inevitably wrong. Luckily, on average, humans are pretty good the making investment predictions that pay off (though, not always.) So, keeping in mind that there are many possible futures, I'd like to given some details into what I see as some of future paths for our energy technologies.  In each  topics I discuss below, the transition will be slow, but in each case, the technology can grow without government subsidies. The main thing to remember is that we live in a society in which most of our power plants sit idle. We live in a society in which our cars operate only roughly 1 hour a day (and many operate less than this much on average.) At 1 hr / day, that's a capacity factor of roughly 4%. We spend a lot of money on the engine, and then only use roughly 4% of the time. In the future, I expect to see our cars being used to generate electricity that can be directly used at our homes or be input directly into the electrical grid. Below are a list of some of the important changes I expect to see in the future:  (Note that the ideas here should not be construed as advice on into which particular companies to invest)

(1) Fuel cell vehicles that power our homes when they are parked in the garage
The use of our cars to power our homes will require that there is a reformer that converts natural gas into hydrogen. Luckily, this technology is already being developed by a variety of companies (including Honda and Nuvera.) Producing hydrogen in your garage from natural gas could rapidly change the economic viability of owning a fuel cell vehicle. The reason why producing electricity via your car could work is that (a) a fuel cell vehicle is extremely quiet, (b) the only emissions from the vehicle are water vapor, and (c) the emissions from the reformer are water vapor and carbon dioxide. The reformer runs fairly quietly because it doesn't need to be large since it runs throughout the day to produce the hydrogen. The exhaust from the reformer must be vented via a pipe to outside of the garage, but that's only so that you don't decrease the amount of oxygen in the garage. The reformer makes no local pollutants (i.e. no NOx, SOx, and particulates.) Initially, only a few multi-car families will likely purchase fuel cell cars. In the short-run, the driving force for buying a fuel cell vehicle will be to lower your electricity bills and to allow the family to fill up a car from home without having to go to the gas station. This will likely first take off in Southern California, where there are already a number of hydrogen refueling stations. Here's a list of existing hydrogen fueling stations. It's not a larger number stations, except in places like LA. In the long-run, once there is a critical mass of fuel cell vehicle owners, there will be a lot more options for filling your vehicle with hydrogen.
The reasons that I could see fuel cell vehicles really taking off in California are the following: (a) high electricity prices, (b) high gasoline prices, (c) reasonable natural gas prices, (d) favorable weather for aqueous fuel cells equipment...i.e. no freezing weather, (e) a number of celebrities who probably don't want to fill up their cars with gasoline at the pump, (f) net metering laws allowing people to sell their excess electricity to the electrical grid, and (g) a free-thinking, independent mindset of wanting to produce electricity at home rather than relying on an electricity grid that will likely become more erratic as the mandates for renewable energy increase.
So, it seems like CA has a lot of the right things in place for fuel cell vehicles to take off rapidly. What's missing is companies that will sell fuel cell vehicles and home-based NG-reformers. Though, this appears to be not too far in the future. Honda was the first fuel cell company to start leasing fuel cell vehicles in the US when they started a pilot-program in Southern California, and now it appears that Hyundai will be doing something similar with its Tuscon crossover vehicle, though this program will start in Europe first. In addition, Honda and Toyota have also recently confirmed launching fuel cell vehicles in 2015. My guess is that people in CA might only be a few years ago from being able to purchase a relatively cheap fuel cell vehicle and NG reformer. Another reason that I'm optimistic about the "fuel cell vehicle / NG reformer" combo is that interest rates for cars is so much lower than interest rates for power plants right now. (The reason is that if the people who take out the loan on the car/reformer end up defaulting, then the bank can take the car/reformer. You can't repo a power plant like you can repo a car/reformer and sell it to a new owner.)