Why build small?

The Lenfest Center for Sustainable Energy’s PhD alumnus Eric Dahlgren wrote a paper “Small Modular Infrastructure” with LCSE Director Klaus Lackner, along with Garrett van Ryzin and Caner Göçmen from the Graduate School of Business, Columbia University. It was recently selected for the Eugene L. Grant award for best paper in the Engineering Economist for 2013. Dahlgren reflects on some of the inspirations for and concepts of the paper below.

What inspired you to make the case for small? What shaped your thoughts in doing so?

“In my very first discussion with Klaus Lackner he told me an interesting and, in terms of scaling, very intriguing realization he had about car engines. First, one should think of these pieces of equipment as machines that convert chemical energy into mechanical energy, rather than something that just makes the wheels turn in the car. Now, except for the generator, a power plant does the very same thing. The interesting observation is that building a power plant costs around $1,000 per kW whereas a car engine costs closer to $10 per kW. Accepting this comparison, the orders of magnitude difference in cost beckons further investigations.”

Where do you hope to see the argument for modular infrastructure adopted?

“I hope that industries which today rely on a high degree on centralization, and where economies of scale have been the main historical driver to this state, revisit the entire value chain without a bias towards bigger is better. In some cases distributed operation has apparent advantages, whereas in others a centralized but modular approach might prove superior to the present paradigm. Moreover, downsizing the scale of individual process units in a way embodies a liberalization of physical capital since it becomes accessible to a larger number of potential users. For example, rather than having to put up more than $8 billion dollars to be able to convert natural gas to a liquid fuel, which was the price tag for a recent GTL plant in Nigeria, a small-scale (room sized or even desk-sized) unit doing the same thing for a fraction of the cost could be highly attractive for the owner of a shale gas well. Similarly, water processing (e.g desalination), fertilizer production and power production all share these features and would benefit from revisiting and possibly revising the notion of a single optimal scale. However, modularity need not be confined to these fundamental processes. One could say that Amazon drone delivery is a taste of the possibility of small scale thinking as well.”

Are there any examples companies, entrepreneurs, or innovators that we can learn from?

“The computer industry is perhaps the best example showing the possibilities and benefits of a small-scale approach. The initial trend about half a century ago was towards ever greater individual supercomputers. That prognosis paints a stark contrast to today’s reality where the challenges lie in resolving concurrency issues with the computational horsepower spread out over thousands of separate processors. Additionally, the observed translation of Moore’s law into declining cost of the entire computer was likely greatly helped by the introduction of standards that allowed for parts to be produced separately and put together as the computer manufacturer best see fit. While it might be a stretch of the imagination, one could see for instance carbon atoms being moved around in a controlled chemical system the same way charges are moved around integrated circuits. Now that would be small scale.”

What are the major lessons that we can learn from small modular infrastructure?

“This paper chips away at the notion of bigger is always better. However, in order to fully assess the benefits of a small-scale and modular approach it is not just engineers that need to rethink scale. Educators need to let go of that bias. So does the business community. The fact that vast resources are tied up in individual investments, which subsequently require decades to recoup the upfront cost, points to significant inertia when it comes to innovation in many parts of our economy. I think that an illustration of the opposite is best captured in a quote from Klaus Lackner ‘How much would you pay for a 30-year warranty of your brand new laptop?’”