The focus on disruptive scenarios continues in the next several posts with a look at the work of Jeremy Rifkin and his recent book titled The Zero Marginal Cost Society. In his book, he describes the economic paradigm shifts of the past, and points to three elements that converge to create a general purpose technology platform to drive the shift: new forms of communication, new forms of energy, and new mechanisms for transport and logistics. Rifkin believes a powerful Third Industrial Revolution platform (The Internet of Things) is emerging to drive an economic paradigm shift in the next 40 years. The new form of communications in this context is the Internet, while renewable energy represents the new form of energy. The new mechanisms for logistics and transport involve sensors, coordinated logistic networks, renewable energy, and autonomous vehicles. Mr. Rifkin describes this Third Industrial Revolution platform as three Internets (Communication, Energy, and Logistics) converging to operate as one. He sees the Internet of things bringing these three elements together to manage (Communications), power (Energy), and move (Logistics) economic activity.

We know that in the last decade, the Communication Internet disrupted the information industries (Music, Media, News, Publishing, etc.). But Economists have long believed that a firewall protected other industries from the transformative effects of the near zero cost phenomenon. Rifkin sees that firewall being breached; exposing virtually every industry to the same disruptive forces. We already see the impact of this breach enabled by a Social-driven sharing economy in the hotel industry (Airbnb, Roomorama, etc.) and the rental-car and auto industries (Uber, Zipcar, etc.). Additional forces like the Internet of Things, 3D printing, and renewable energies will blur the boundaries between the physical and digital worlds, driving an increase in the number of disruptive scenarios (visualized in the diagram below).

Let’s take a look at the Energy component of this Third Industrial Revolution Platform. In his book, Rifkin describes how Internet technology and renewable energies are merging to create an energy Internet that changes the way power is generated and distributed in society – a paradigm shift in energy similar to what occurred in computing. He describes an emergent system with synergies between Five Pillars that drive this paradigm shift:

1. Shifting to renewable energy
2. Transforming buildings into micro–power plants to collect renewable energies on-site
3. Deploying hydrogen and other storage technologies to store intermittent energies
4. Using Internet technology to transform the power grid into an energy Internet
5. Transitioning the transport fleet to electric plug-in and fuel cell vehicles that can buy and sell green electricity on a smart, continental, interactive power grid

In his recent book, Rifkin argues that the harvesting power of renewable energy technology is on an exponential growth curve – the same curve that took the Internet to its current heights. He points to Industry analyst forecasts that have the harvesting technology for solar and small wind power as cheap as cell phones and laptops in 15 years. In effect, the same doubling phenomena observed with Moore’s law, is occurring with Solar (Swanson’s Law, named after Richard Swanson). On its current path, solar energy will be as cheap as the current average price of electricity by 2020.

He draws on his experience in Europe, where people are producing and sharing their own green energy in their homes, offices, and factories. On average 25 per cent of electricity in Germany flows from these prosumers, and on low-demand days, it runs as high as 75 percent. As the energy Internet emerges, prosumers can stream power onto the grid and compete with major energy companies. For example, recently in Germany, energy was Abundant. A prosumer-driven electricity surplus in the power grid pushed prices into negative territory. This negative price phenomenon is already disrupting the energy industry, as investments in conventional back-up power plants are no longer able to guarantee a return on investment. What does the future hold for big energy companies? Business model innovation seems likely.

Rifkin sees the creation of miniature electric utilities through the interconnection of these home and business-based prosumers. He sees a world where sensors, data, and analytics enable a prosumer to monitor and understand the right time to send surplus electricity to the energy Internet, thereby monetizing their energy production. In this short Video, Rifkin explains this Energy Internet scenario. In essence, these prosumers are producing electricity via solar panels on the roof, vertical wind on the property, geothermal pumps for energy underground, bio converters to convert garbage to biomass energy in the kitchens, and other methods. He talks about how in Germany alone one million buildings have been retrofitted and made efficient. A feed-in tariff acts as incentive to send electricity back to the grid for a premium.

To accomplish all this, Rifkin envisions an Energy Internet to store (batteries, flywheels, capacitors, hydrogen, etc.) and distribute energy. In Europe, work is underway to transform the transmission grid to an energy Internet using the same technology used with the communication Internet. He explains that current grids are designed to be centralized and go in one direction – they are not designed to handle millions of energy producing prosumers. Although renewable energies are distributed and abundant, they exist in small amounts. Critical mass comes through collaboration (there’s that word again) across continents to organize and share energy to create lateral economies of scale. Rifkin paints a picture that has millions of buildings producing small amounts of electricity, storing it in hydrogen, and sending excess electricity across that energy Internet. The analogy he uses compares this to the creation of information, its digital storage and ultimate sharing online. He states that an actual energy Internet is operating in places like Denmark and Germany.

As is the case with each disruptive scenario, how and if the energy Internet plays out is uncertain (although Rifkin makes a strong argument that it is already happening). It is this uncertainty that complicates our visioning for the future. At the same time, inattentive companies affected by the path of this scenario could vanish if the scenario plays out as Mr. Rifkin envisions. Clearly the vertically integrated fossil fuel industries are in the path of disruption. But energy produced and consumed at near zero marginal cost has a massive ripple affect across all economic activity. Do Utilities move to a new model and manage the energy flows of the companies they are servicing as Rifkin suggests? Do they invest their energies and power to block the creation of an Energy Internet altogether? Rifkin describes existing scenarios where companies are attempting just that, pushing centralized smart grid architectures in an attempt to control both information availability and the flow of energy. Europe has taken steps to ensure an open architecture by requiring that conventional power and utility companies unbundle their power generation from their transmission of electricity.

The question we should ask is: what are the implications of near zero marginal energy costs to my business or Industry? Smart companies will realize the sheer number of disruptive scenarios – even if they play out to a small percent of their potential – have a cumulative transformative affect. Leaders will live in current and new business models, viewing their path forward as a transition to a new paradigm – versus fighting to maintain the old one. It was futile for the information related industries to fight the Internet – and the same is likely true for this emerging Third Industrial Revolution platform. As Jeremy Rifkin put it; “This is not an either-or, but it’s a transition from one to the other.”