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Technological Advancements

Pittis (2019) emphasizes that advancements in technology associated with decreasing costs have made renewable energy production not only environmentally beneficial but also economically viable. As such, it should be expected that the sector's growth will gain attention and investments due to its economic viability, suggesting that leveraging renewable energy will result in economic prosperity. By introducing the argument of advanced technologies, I am reminded of a concept that I learned this year in an advanced finance course – the theory of creative destruction (Schumpeter, 2017). To put it simply, new technologies have been replacing old, non-innovative technologies for centuries. The landline telephone was replaced by the Nokia flip phone which was replaced by the Blackberry which was replaced by the Apple iPhone. Technology is constantly developing through either product efficiency or process efficiency. The key word is efficiency. Another concept that was introduced to me in the same finance course is the Schumpeter circular flow of capital (Schumpeter, 2017). Capitalists provide innovators with funds to execute their invention and reap the rewards in the end when the innovation is profitable. But without the investment from capitalists, the innovation cannot thrive and benefit the investors. This is essentially the idea behind equity financing. When combining these two concepts, you can get the bigger picture on how new, innovative technologies that have enough capital funding replace old, non-innovative firms/technologies and make our economies more productive and efficient. Innovative technologies historically created positive spillover effects for other businesses. With that, new innovations not only benefit the initial investors, but the positive spillover effect of a new technology allows other businesses to be more efficient as well and contributing to the overall positive effects on the economy as explained in the following paragraph.

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Increased labour and inputs only explain a small fraction of the gross domestic product (GDP) growth, as the majority of economic growth is driven by technological/innovative advancements, also known as the Solow Residual (Solow, 1957) – a term I learned in an advanced finance course. This means that economies are producing more in terms of actual GDP using the same amount or less inputs and labour. This is accounted for in positive externalities (spillover effect). When one innovation is discovered, it can be used by many other businesses which increases the productivity and efficiency of an economy. I think finance makes the (economic) world go round. Without innovators, the world would not see so much progress as we do today. And without capital to fund innovations, entrepreneurs would not have the resources to successfully implement new innovative ideas that have positive spillover effects, making the world more efficient.

New technologies that provide superior project value, exceed customer expectations, and create new markets is an optimal opportunity for growth. Many global firms, especially in resource-intensive industries (e.g., oil and gas, chemical mining, forestry), are recognizing that focusing on emerging markets and new technologies is critical to long-term profitability and growth (Hartshorn et al., 2005). These firms view sustainable development as profitable opportunities that they can exploit by establishing a competitive advantage and leapfrogging over existing unsustainable technologies (Hartshorn et al., 2005). Firms who engage in sustainable development will realize higher long-term profits, as their operational costs will decrease, and they are not reliant on the oil and gas industry or political trends that affect the prices of oil and gas. Given this context, I think that with enough influence, renewables may have the opportunity to substitute a large proportion of traditional energy in the energy market, as this is often the general trend for new efficient technologies.

Site Summary

Renewable energy sources, such as sun, wind, water and geothermal energy, are derived from resources that are replaced constantly and are not degraded when used. Traditional, non-renewable energy sources (such as coal, oil, and natural gas) exist at a finite quantity that is depleted with each use. Research has shown that the addition of non-renewable energy to the grid not only decreases consumer costs and increases supply stability but also increases company stock values (due to a variety of factors). However, most energy providers and governments are reluctant to provide an opportunity for renewables in their energy supply. This hesitation in accepting sustainable solutions may be explained by the very successful lobbying by traditional non-renewable players in the market and by the reputation renewable energy sources have as a purely green, climate change related solution. Unfortunately, with the observed slow adaptation of renewables into the power grid, energy providers are missing out on the economic potential of sustainable energy. One solution to this shortcoming could be the increased reporting and distribution of relevant study results through mainstream media to reach the general public. The information on this site is aiming at contributing to this solution at a very small scale.

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