Got Electricity?

I’m sorry, but the world’s scarce supply of capital has more important work to do right now than deliver you a burrito.

I see the problem each time I turn on my PC. The question is, Will it turn on? I keep an uninterruptible power supply (UPS) next to my PC, and if the lights go out that will keep me going for about an hour.

That’s enough time to move things to my laptop, and by plugging that into the UPS I can go longer. But it’s a limited, short-term solution.

Server farms have the same problem, only magnified. For them, buying, installing, and keeping generators as backups is a huge expense. But even that is limited since the generators, like everything else that produces electricity, run mostly on petroleum products like natural gas.

While Washington argues over conservation or drilling in Alaska, there is a real solution out there. It’s called the fuel cell. A fuel cell turns hydrogen and oxygen into water and energy. There are currently 750 companies working on fuel cells, and if the boys at the late Kozmo.com want to know where their capital went, they can just scan the list.

Critics will note that even fuel cells are a limited solution. Oxygen is easy to get, but the best way to produce hydrogen today is using electricity, and electricity is usually produced by natural gas, so we’re right back to where we started.

The ultimate solution is to find new ways to generate electricity, off the current grid, and then ship the results in the form of hydrogen to consumers with fuel cells. I saw the logic of this clearly on a recent visit to Hawaii. They pay $2.30 per gallon for gas there, as they import all their energy from the mainland. But the place is filled with energy sources — volcanoes and waves and wind. If you could just bottle all that, Hawaii would become the next Texas. (Alaska also has volcanoes, wind, and waves, but they’re not in the Arctic refuge.)

Hydrogen offers a way to bottle energy. The only necessary pollution is visual. But two things must happen first. Fuel cells have to create demand for hydrogen (backup power for server farms would represent one great source of demand) and we’ll need new distribution systems to get the stuff to market.

All that takes capital, a lot of it. Government can help at the margins by creating incentives for capital to go there, and setting a floor price for energy so OPEC can’t kill the industry in its crib by turning on the oil spigot. But that’s small stuff. The real solution will come from the market.

Until these solutions come on-stream, we’ve got a ceiling on our growth. Whenever things get good, the price of gas rises (as it has recently). Then things slow down, and the price of gas falls. It’s stagflation, guys, but you can’t end it anymore by fighting, only by building.

The bad news here is there will be a lot of competition for capital, and Internet companies of all types will not be first in line for some time. No more free burrito deliveries until there’s cheap fuel for the truck.