Experience Curves — Basic Business Concept that Too Many Congresspeople Don’t Understand (or Don’t Care About)

We’ve written about the issues in this post below a number of times (though, without specifically mentioning “experience curves”). But it’s an issue that deserves a lot more attention and Rob Day’s piece, reposted in full from Greentech Media, is an excellent one that really drives home the key points, so I’m sharing it here with you all.

One important comment I would make, though, is that there may be a little truth to this line — “Both parties are at fault one way or another” — the blame is certainly in no way equal. GOP ‘leaders’ in Congress, despite the preferences of their constituents and even the clean energy support of state GOP leaders across the country, seem to have made it one of their key missions to delay a clean energy revolution as much as possible. A very small number of Democrats (from fossil-fuel-dominated states) also consistently go against clean energy. Democrats’ main fault is that they don’t fight harder for clean energy, but there’s no doubting this is a very hard Congress to work in, and their blame for that is minuscule compared to the blame that should be put on the GOP Congresspeople who fight 100% for dependence on fossil fuels.

Anyway, now, Rob’s wonderful piece on experience curves and attacks on the US military switching to renewables:

Experience Curves: Why Doesn’t Your Senator Understand Them?

By Rob Day

Do you know what an experience curve is? Does your representative in Congress know what it is?

It’s a well-established and oft-proven truth of manufacturing costs that as you make more of something over time, costs come down. This is separate from manufacturing scale effects, which can also drive costs down, but simply put the more we make of something over time, the more we figure out how to drive the costs out. “Incremental innovations” add up to significant cost savings over time.

BCG summarized this way back in the mid-1960s as: Costs fall about 20-30% every time cumulative installations double.

This is not rocket science. It’s well understood, and frankly pretty basic.

So why can’t many politicians and their lamprey (like the RAND Corporation) understand this very basic business concept?

We’ve seen attacks on all kinds of renewable energy technology policies because the renewable energy costs are high. That is, high today. Early in their experience curves. Well… duh.

Most recently, some politicians have even gone so far as to deny the military the ability to acquire relatively small amounts of advanced biofuels. The argument made, of course, is that these biofuels cost too much.

Energy is a crucial strategic issue for our military. Much of our military strategy is dictated by energy supply, at both a national and a tactical level. Soldiers regularly carry 20-60 pounds worth of batteries into battle. From 2003-2010, more than 3,000 soldiers were wounded or killed while guarding energy supplies. The US military spends more than $19B per year on energy and that’s expected to rise over time. Every 3 days, the US military consumes 1 million barrels of petroleum (pdf). The military has undoubtedly done lots of studies to understand just how vulnerable they are to disruptions from foreign-supplied energy, especially liquid fuel, before making this request. And they’ve decided it’s a strategic priority, as a critical part of their mission, to help buy down the cost of advanced biofuels (as well as advanced energy storage and distributed electricity generation techs) by making some early purchases, to jump start those experience curves. They understand they’re under budgetary constraints. They’re not making a political request. They’re making a strategic request. They’re planning ahead, beyond the current budget crisis, to the next military crisis.

Politicians supposedly pride themselves on their business savvy. And supposedly, they support our troops.

Why don’t these politicians understand experience curves? And why don’t these politicians understand the life-and-death nature of energy supplies for our men and women in uniform?

I would suggest to you, Gentle Reader, that these politicians understand both concepts quite well. And that this is a sign of how toothless the alternative energy lobby is in DC. Because what’s really driving this is that the partisan hacks in DC drove a bad political deal last year where there are significant cuts in defense spending to be triggered if they can’t make a budget together. And they’re realizing they can’t make a budget together. Because they’re partisan hacks and it’s an election year. So therefore when they see an undefended target like advanced biofuels spending, especially since these same partisan hacks have decided to politicize energy technology as an election issue, so therefore it’s perfectly fine to ignore well-established concepts like experience curves. And, I guess, to ignore the welfare of our troops.

This simply should not be a partisan political issue. It’s not even a “green” issue. It’s a strategic military issue. Shame on them.

This should piss you off. They’re either being ignorant, or disingenous. And it’s far from the only case of this. It’s just the most eggregious example. Perhaps the most unpatriotic example.

Contact your Senators and Congressperson. Tell them to stop it. Both parties are at fault one way or another. If they don’t put a stop to it, do what you can to make them feel implications of their ignorance or disingenousness come November.

PS: I’m not a Democrat. And I’m not even a big biofuels supporter. I’m just sick and tired of the cleantech sector being politicians’ undeserving punching bag, and suffering collateral damage from their incompetence at governing. Make your voice heard. You’re more influential than you might think. But only if you speak up and participate.

Image: USA Capitol courtesy Shutterstock