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Jeremy Rifkin says the world is going through a ‘third industrial revolution.’ The Internet and other technology, he says, allows small players to compete with giants in producing some goods. (John Kolesidis / Reuters)
Jeremy Rifkin says the world is going through a ‘third industrial revolution.’ The Internet and other technology, he says, allows small players to compete with giants in producing some goods. (John Kolesidis / Reuters)

The New Business Normal

On the verge of a new era, where electricity flows free Add to ...

On a recent Sunday in Germany, the juice was plentiful. The power grid had such a surplus of electricity that wind and solar producers were pushing the price of electricity into negative territory.

This has been happening more frequently. Effectively, electricity producers weren’t selling their power as normal that Sunday, but paying energy wholesalers to take it.

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U.S. economist and bestselling author Jeremy Rifkin noted this keenly.

To him, this was more than just an isolated abnormality, more than a sign of the rise of renewable energy or shifts in the energy sector. For him, it was yet another example of the massive change happening across the entire global economy, where zero or near-zero costs are becoming the new norm.

“What we’re beginning to witness now is the emergence of the third industrial revolution,” said Mr. Rifkin, who’s also the head of The Foundation on Economic Trends.

The first industrial revolution was driven in part by coal and the locomotive, the second by electricity and trucks. The third, Mr. Rifkin said in an interview, as well as in his recent book The Zero Marginal Cost Society, is a revolution based on the Internet, renewable energy and the exponential growth in digital sensors moving, tracking and transporting goods.

In the case of energy, surplus renewable electricity produced by small producers (power-generating co-ops, farms, even individual homes) is streaming into the power grid and competing against electricity produced from the major energy companies. This is made possible partly by the emergence of smart grids, or an energy Internet, allowing the smallest producers to take on the biggest.

“It’s all producer co-operatives and consumer co-operatives, farm organizations, small and medium-sized businesses and homeowners. And the banks are giving them low interest loans,” Mr. Rifkin said. “So the vast majority of green electricity going to the grid in Germany is coming from small players and co-ops.”

He equates it with the same thing that has happened to the music industry, publishing and other traditional media, the hotel industry (with the rise of companies such as Airbnb), the auto and rental-car industries (with car sharing), transportation (with the current development of driverless cars) and so on. “Millions of little players can actually run havoc on larger vertically integrated businesses,” he said.

It all comes down to this: The cost of digitally producing an extra unit of so many digitally related products is near zero. Once the initial equipment is purchased and the computers are set up, the marginal cost of producing one additional e-book, one additional set of data for a 3D-printed product or one additional watt of wind power are near zero. Wind, after all, is free.

From media to the energy sector to trucking, industries are reeling from a shift which Mr. Rifkin is trying to mould into a new economic model. He describes it as a collaborative commons, a system in which goods are sold or shared, a new system working alongside capitalism.

“None of us in the economics profession or in the business community ever expected a technology revolution so extreme in its productivity that it might reduce marginal cost [the cost of producing one additional unit] to near zero – not for everything, but for an array of goods and services, making them nearly free and abundant, and not really subject to market forces,” Mr. Rifkin explained.

For this new economy to develop, Mr. Rifkin said three things need to continue happening.

First, we need our current Internet to remain neutral and open, a free flow of information. Second, we need an energy Internet, a smart grid that’s also open and neutral, in which small power producers can enter without restrictions to sell, trade or simply store their surplus power. Third, there needs to be a logistics Internet, an increasingly more robust and automated system of transporting and tracking goods, perhaps through driverless transportation (not so far-fetched considering the new driverless Google cars).

Talking with the exactitude and plain-spoken metre of a U.S. country preacher, Mr. Rifkin has been presenting his idea to leaders and policy makers, particularly in Europe and China, and is emerging again as a popular herald of things to come, much as he was in the mid-1990s with his book The End of Work. Mention his name to those following the debate about the future of electrical grids, for instance, and there’s immediate name recognition. Mr. Rifkin is affixing a label and economic model on to something so many businesses have long seen coming.

As for electrical grids already allowing in little players: “We’ve got the basic market structure in place that already does that. The big difference as we move forward is that this technology will enable the number of players involved in this to increase dramatically,” said Bruce Campbell, president and chief executive officer of the Independent Electricity System Operator in Ontario, which operates the province’s electricity market. Mr. Campbell is also chairman of the group’s Smart Grid Forum.

Players already exist in the Ontario market who aggregate surplus electricity from small producers and sell it on the grid. For the smallest power producers, this can result in a simple rebate on their energy bill, when their meter shows that they are adding power to the grid rather than taking power out. Yet, this could develop into far more complex systems of adding power and storing it, requiring a larger smart grid infrastructure.

“I think we’re on the verge of big, big changes in all of this,” Mr. Campbell said.

A major hurdle is the development of technical standards, essential for all devices to connect and talk to each other. Without this, the playing field isn’t level for all producers big and small. These and other barriers to entry could be a problem, Mr. Rifkin said.

But others, such as Daryl Wilson, president and CEO of Mississauga-based energy components and fuel-cell company Hydrogenics, point to the rapid change already happening.

Noting the German example, Mr. Wilson said that on average 25 per cent of electricity in Germany flows from households and small producers, not the traditional, other way around. And on windy, sunny, low-demand days, this can run as high as 75 per cent coming from small producers.

“This new world of energy flows requires large scale energy storage to buffer and stabilize the grid operation,” Mr. Wilson said, adding that “today, almost 50 per cent of the time, Ontario has surplus energy amounting to more than nine terawatt hours per year.”

Will this mean lower electricity prices? “I think at the end of the day, this is going to make us much more efficient, both in our use of energy and in its production. So that, I think costs will be lower than they otherwise would be without all of this,” said Mr. Campbell, of the Ontario electricity operating system.

But he added, “I tend to be very careful about not saying that this is going to reduce [electricity prices] in absolute terms. But certainly, what we look to operate is an efficient market that produces the best possible price for consumers.”

As with so many other industries changing radically with the Internet and near-zero marginal costs, the future is highly uncertain. The big energy companies “can adapt their business model to absorb these technology developments and market developments. Or there’s the possibility, if they stick to their current business model, that they will simply be bypassed,” Mr. Campbell said.

He points to Google’s investment in renewable energy. Google has spent more than $1-billion (U.S.) on wind and solar electrical systems. “Google and the other companies that are investing in these areas, they are not doing it just because they like to do it. They’re doing it because they see a good business in it,” Mr. Campbell said.

“I think the business is going to change through the implementation of this technology. I think the big question is not if. The big question is when.”

The business of sharing

With the Internet’s emphasis on free (free information, free entertainment), access is now as important as ownership. Access to a shared car, for example, is for some better than owning a car. Jeremy Rifkin notes some ideas for traditional businesses:

1. Companies could sponsor sites such as Yerdle.com, which helps people share things freely. By having a presence there, retailers and manufacturers could entice users who are thinking of buying, say, a better tennis racquet to upgrade from the one they are trying from Yerdle.

2. Manufacturers and retailers could initially sell a product more cheaply, with the expectation that people will later share them online, and put into place a system where each new user pays a fee for the good.

3. Retailers and manufacturers could set up a sharing service of their own, charging a fee per use.

Follow on Twitter: @Guy_Dixon

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