Light and Life in Rural India

We spent two days in villages in the District of Udupi in the State of Karnataka meeting with our sales agents and visiting homes where the Duron Solar Home System was in use.  We were there with three of our investors who had already spent a day in Bangalore at our headquarters reviewing the business and now wanted to see the system in use in the field. We chose Udupi, since it was “only” a ninety-minute plane ride to Mangalore and another ninety-minute drive to the town. Most of the installations were within 30 minutes of the town itself.

The State of Karnataka is reasonably well electrified. One has to travel deep into the rain forests to find an area without wiring.  Almost all of our systems in this state are in homes with electricity from the grid.  However, because of the uncertainty of when power is actually available and the cost, the villagers are interested in alternative power sources.

The grid in this area gets its power from both hydro and coal-fired utilities.

In the dry season the hydropower is less available because of low water levels.  What is available from whatever source gets diverted to the industrial sector. These are usually scheduled diversions that occur when the light is most needed, i.e., when it is dark. In the monsoon season, which is just beginning, the grid itself has more power delivered to it, but the violence of the storms causes unscheduled outages from lightning or power lines falling, which can sometimes produce two or three days without power.

The alternatives are kerosene lamps, diesel generators, inverters drawing power from the grid when it is available and storing it in batteries, or alternative energy sources, primarily solar, tied into a battery and lighting system of some sort. The Duron system is one of the latter. Cost, reliability, maintenance and simple knowledge of its availability are the primary factors determining which alternative is chosen.  Kerosene lamps are ever present as the ultimate fall back when all else fails.

The visit, while terrifying and certainly rugged for us Westerners, was exciting and gratifying. I say terrifying, because any time one is on the narrow roads with all forms of traffic moving in all directions, the near-death confrontations of two or more vehicles and an occasional animal seem continuous and only Providentially resulting in no accident.  The ruggedness comes from the climate, the accommodations and the rural nature of where the customers are, combined with the uncertainty of the ultimate outcome of drinking all the chai and eating the snacks offered by the owners of each of the homes we visited.

The excitement and gratification came from seeing the diverse ways in which the system is changing lives. A few examples:

A young tailor keeps the solar panel, the power pack and one of the three LED lights that come with the system at his small, unelectrified shop at the intersection of two roads near his village. He sits in front of a pedal-powered Singer sewing machine of uncertain vintage, making and repairing clothing for his neighbors. The single light is used to extend his workday by two or more hours, increasing his income. When he closes up his shop, he locks the solar panel inside and brings the portable power pack home where he has the other two lights mounted for use by his children to study and his wife to cook.  He is probably a customer for a second system when the income from his increased business and the cost savings from using solar as his power source allow a purchase.

A woman living far away from neighbors and help tends her very sick sister. The two of them are the only occupants of the home. She says simply that she needs light for her sister all night. Kerosene is not healthy for her sister and not easily available to someone with no ready form of transportation to replenish it.  And the grid is not there when she needs it.  It doesn’t hurt that the system also has a cell phone charger, which does mean, in an emergency she has a working phone to reach someone.

A large family, living in a quite beautiful and well-kept 150-year-old home, has the three lights each installed above a desk that is used for reading and study by the children and probably some of the adults. This is a traditional home with electric lighting but much of what seems a throwback to an earlier era. The kitchen has a wood cookstove and there are many other traditional elements as well. The family can clearly afford more amenities, but I would surmise that they are savers, not spenders.  The placement of the lights in specific reading areas may indicate that the saving relates to the children and their educational opportunities. Solar lighting eliminates most excuses for not studying as well as ultimately saving money. Here, we were offered and ate freshly cut jackfruit. It would have been pleasant to spend an afternoon with the family, understanding more about their history and their current lifestyle. Our sales person had another important visit she wanted us to make, though.

This was our best sales person in the region—a senior member of a local self-help group with a personality and an element of persuasiveness that made her a natural Dale Carnegie graduate without having taken the course.  We were an out-of-place group of three Americans, three Spaniards, and two other senior Indian executives of the company. She felt it was an auspicious occasion. Our visit was to her temple. She was feeling very happy about having us there and wanted to perform a Puja (look it up) in thanks for the good feelings and the success she was having. It was quite an honor for us and clearly very important to her. As recognition of her success it certainly beat the classic over the top celebrations for the best producers that I experienced in my years in the financial industry. I will participate in a Puja every time I visit the area if it is the motivator of success for our producers.

These producers are changing their neighbors’ lives. The selling process has a bit of a feel of Avon calling, but the product lights up faces in a different manner.  What a wonderful experience.

The Gulf Crisis–Beyond Petroleum–A Game Changer?

“US Offshore Drilling is a Good Thing” A few weeks ago, shortly after President Obama announced an expansion of offshore drilling rights, that was the working title of a post I was contemplating for this blog. The premise was that it would take many years before we weaned ourselves from our use of oil, and production of additional domestic oil and gas  would have some impact on overall prices, increase natural gas usage (reduce CO2 emissions), reduce our dependence on foreign energy sources and have a positive impact on our trade balances. While I was fiddling around with this post and enjoying some late season fishing in Argentina instead of writing, along came the  “Black Swan” Gulf disaster.

The disaster is ongoing as it will be for many years to come. Much has been written and will continue to be on the environmental, human, political and economic consequences of this Inevitable Accident, which is the way it should be referred to.  I have my own somewhat disconnected observations, which I will share. trying to see what, if any, good may come out of an event that some are calling a “game changer.” I expect disagreement and dialogue and hope we get some. I hope none of what I have to say approaches the idiocy of one of our Senators who is willing ro repeat again and again that the Gulf incident is not an environmental disaster. Let’s get to some of the observations.

This disaster was inevitable—the Inevitable Accident.  In the continuing search for and production of carbon-based energy sources we keep stepping up the risk, whether that is in a coal mine in Virginia or China, a shale deposit in Pennsylvania, a tanker on the ocean, a LNG terminal or deep wells offshore  anywhere.  The technology becomes more complex, the measure of risk more difficult, and the cost of mitigating risk too high at today’s prices for carbon to be fully recognized and absorbed.  Maybe this disaster was a good thing. I hesitate to say that because of the loss of life and livelihood for those directly impacted. However, the response to it may prevent other similar or worse disasters. Although, most likely, it will simply delay the next more devastating disaster as the risk-taking outpaces the rule-making in the effort to meet the insatiable demand for energy worldwide.  One example of risk-taking outpacing rule-making is the talk of raising the liability cap from $75 million to $10 Billion.  Odds are this “incident” should cost BP well north of $30 Billion. In today’s dollars Exxon-Valdez cost Exxon about $10 Billion. If a major oil company sees its financial risk as “only” $10 Billion, there are lots of risks one can take that have an expected value substantially higher than that.

Whatever the US does in terms of limiting off-shore or on-shore drilling or raising the cost via rules and regulations, it will likely have limited impact on drilling elsewhere. In fact costs may be lower elsewhere as the supply of rigs available rises. Brazil has some heavy duty drilling ahead of it. Its costs will go down. Whatever steps are taken will also likely benefit the bigger companies relative to smaller participants. OPEC must be jumping for joy as well.

I still wonder why we didn’t bring to bear immediately the best engineering and scientific minds in this country, or the world for that matter, to get in front of this disaster. The attitude seemed to be one of “this is BP’s problem.” There was much more time spent on establishing who was at fault than responding to the problem. Certainly, it made it more difficult for BP to shift responsibility technically and financially. But, this had the makings from the beginning of a potential major human and ecological disaster if things did not go well. When a casual suggestion late in the process from our Secretary of Energy provides a solution to a specific problem (gamma rays to analyze the stuck valve) one can just imagine what might have been in a much more organized effort to bring brainpower to the problem. It doesn’t give one much confidence that our response to the next disaster will be any better.

Maybe this increases the odds of further action by the US on climate change legislation and an increase in incentives for alternative energy sources. There are powerful forces opposed to that with several senators as their mouthpieces, but, maybe this is a game changer. I don’t yet see the outrage though. A few people boycotting buying fuel at a BP service station, which only hurts the owners of the station—not BP—but not much more directed anger. A lot of “isn’t it too bad,” as people drive their gasoline guzzlers to and fro, but no real outrage. Why aren’t consumers demanding that the auto companies (the US government in some instances) substantially increase mileage standards and come up with alternative fuel systems?  The boycott should be against new car purchases unless the mpg rating is at least at China’s standard, 35 miles per gallon on its way to 55 or 60 mpg. As I have pointed out before, once we get the fleet to that level we stop buying oil from other countries except Canada and Mexico—and at some point that should end as well.

One could go on with other observations, but the above are some major ones.  The level of outrage needs to rise nationwide, not just in the areas affected, as does the level of responsive and responsible action. Let’s not waste this crisis.  Let’s not wait for the next Inevitable Accident.

Do We Need a Price On Carbon?

In his January 10 Op-Ed piece in the NY Times, http://www.nytimes.com/2010/01/10/opinion/10friedman.html?scp=8&sq=tom%20friedman&st=cse, Tom Friedman makes several points about where things stand in the Energy Technology race and reaches the conclusion that China may be winning and will continue to win unless the US gets serious about energy legislation and carbon pricing. In recent days, starting with the State of the Union address, we have heard a bit more noise from the current administration on the energy front–nuclear power, additional subsidies, no capital gains on start-ups and maybe, a cap-and-trade system or some form of establishing a price on carbon. Maybe it will happen, and, maybe it is necessary for the developed world, where replacement of existing carbon-based energy is the principal requirement. In China, India, and much of Asia, new energy sources can be put in place to meet demand growth—a very different set of economics. And the markets are big enough to drive prices down a volume-related cost curve in addition to cost reductions from new technologies and systems. It allows room for more experimentation. It is a requirement if one really wants to be energy independent. Last year China did import 4.1 million barrels of crude oil a day, a little less than half of what the US imports. But this is likely to grow as auto sales grow, unless… See the April post, “China and Electric Cars—The Stakes Have Been Raised.”
China doesn’t appear to need a price on carbon today to look for alternative energy sources. It understands the relentless energy demand it faces as its economy grows and the pressure that would put on existing energy prices. And it understands, politically,  it cannot continue to pollute its air and water. In my visits there I have even seen some evidence that it understands the Climate Change risks from continuing CO2 emissions.

A brief story: In June, 2008, at a UNEP meeting in New York, I was asked if I could name one thing that one country could do that would accelerate the path toward alternative energy adoption and CO2 reduction. I responded “I guess the expected answer would be that the US should do almost anything. But since I do not think it will, my answer would be for China to institute a $50/Ton Carbon tax. This would accelerate the pace of change in China and would likely shame the rest of the world into responding in kind or with a serious cap-and-trade system.” Immediately the Chinese delegate asked to speak. She started with a very logical argument that China was in the early stages of entering the developed world with a low GDP per capita and such a tax would be a burden on many of the people finding their way into its new economy. However, she closed her statement by saying that China could not institute such a tax unilaterally (my emphasis). An interesting choice of words. The truth is, if China did institute an internal carbon tax, it would dramatically accelerate its alternative energy adoption and innovation. The US would spend way too much time figuring out how to respond and would then be in real trouble in Tom Friedman’s race.

At the moment, it is still a race. We shouldn’t require a price today on carbon to stay in the race. It should be apparent that the present value of tomorrow’s prices for carbon and the cost of climate change would justify alternative energy adoption and innovation today. Unfortunately, our system seems to require that the price be explicit before we really get serious. And, maybe, once the Western World as a whole has an explicit price, Asia will get explicit as well. Then we will see if it stays as a race between countries or simply becomes the race to save the planet.

Trade Deficits, Energy Independence and, Oh Yes, CO2 Emissions

Our trade deficit with the rest of the world widened in September to $36.5 Billion, more than was expected.  Oil prices, a weak dollar and a rising deficit with China were viewed as the culprits. To the extent the trade deficit widens it reduces the growth of GDP. So economists are lowering their growth rate numbers for the third quarter and shaving numbers for the future as well. With President Obama’s trip to China in the news, journalists and others have jumped on the “undervalued” Chinese currency as a systemic problem that China must correct to solve the US’s trade problems and maybe those of the rest of the world as well.  It is highly unlikely, in my view, that a rise in the value of the yuan would do much beyond shifting the manufacture of some of the goods the Western world is buying from China to other Asian countries. I also think those countries, which already have strong trading relationships with China, would remain within the Chinese supply chain.  Nominally, our trade deficit with China might shrink, but it would rise with the other lower cost countries within the Asian sphere that are increasingly an integrated  part of the new center of manufacturing for the world. Of course, in the short term, deficits would rise as US companies would not easily shift from the established supply chains they have which are working well. Some combination of profit margins falling and prices rising on finished goods would be the more likely result.

So let’s, instead, turn to something that we control that would over time reduce our trade deficit—eliminating imported oil. I wrote about this in my post “Our Mileage Standards Are a Joke,” but let’s do it again with some refinement.  I apologize for all the numbers but we have to deal in facts if we want to get to a solution:

We are still importing close to 10 million barrels of oil a day, about half from OPEC (with Saudi Arabia and Venezuela the biggest), a fourth from Canada and a little more than 10% from Mexico. We have about 240 million cars on the road traveling about 3 trillion miles a year, consuming 4 billion barrels of gasoline or about 11 million barrels per day. At a scrappage rate of 4.5% a year we will have a new fleet of cars on the road in 20 years.  By the way, the current rate of new car sales is about equal to the scrappage rate.  We aren’t adding to the fleet. If we pushed our mileage standards up to get us to 55 miles per gallon on new cars in 20 years (which is where the rest of the world is going already), our usage would only be 5 1/2 million barrels per day on its way down every year after that as continued scrappage eliminated the lower mileage vehicles. Given what we are seeing already from the new start-up car companies and Ford and GM I think we could blow those standards away. I also think scrappage would accelerate if there was a real breakthrough in miles per gallon on a broader class of new cars.  The eVolt gives us a hint of what could happen.

So what about the trade deficit?  Well, the reduction of 5.5 million barrels per day of oil equivalent at, say, $70 per barrel (pick your price) is a $140 Billion annual reduction in imported oil. That is giving no credit for exports of the technology created to meet these mileage standards if the US government truly supports the development of these technologies within this country. The ARRA and DOE grants to new vehicle and battery companies are a start.  It also gives no credit for a possible share gain by US based auto manufacturers as the new technologies grab hold.

And CO2 emissions? A little more problematic a calculation since it depends on what gets one to 55 miles per gallon.  The simple calculation is the elimination of 83 billion gallons of gasoline at 20  pounds of CO2 per gallon or about 830 Megatons of CO2 per year.

Certainly, this is not the only thing we can do to reduce the trade deficit, but it provides a partial solution to existing geopolitical, economic and climate change problems that we don’t really seem to be addressing.