Category Archives: Science & Technology

When Dynamic Pricing Meets Energy Storage


Will Gathright

Other states are targeting energy storage as an industry of the future but Virginia may have the most hospitable climate for it.

by James A. Bacon

Will Gathright was living in New York, where he had earned a Ph.D. from Renssalaer Polytechnic Institute, when he got fired up with the idea to use storage batteries to help business customers cut their electric bills. The idea was to buy electricity when it is cheap to charge the batteries, then draw down the batteries during periods of peak demand to offset consumption when electricity is expensive. For the business model to work, he needed to find a location where there was a wide differential in the cost of electricity.

Initially, he figured he might wind up in Hawaii, California or New York, states that are putting a high priority on energy storage. But after conducting a national search to see where his value proposition would fare best, Gathright moved to Northern Virginia.

“Virginia has the winning combination of three factors not present elsewhere in the country,” he explains. First, although Virginia’s peak-demand rates aren’t the highest in the country, they are relatively high. Second, while a few states have cheaper base rates, Virginia’s are significantly lower than the national average. The spread between low base rates and high demand charges creates a bigger potential for savings.

A third factor, Gathright says, is that Virginia electric utilities belong to PJM Interconnection, which manages the electric grid and wholesale markets for 60 million people in the Midwest and the Mid-Atlantic region. When his batteries aren’t helping shave a building’s peak demand charge, they can help PJM fine-tune short-term fluctuations in the supply and demand of electricity.

Welcome to the new world of electric load management. Power companies around the country are experimenting with novel rate structures that encourage customers to curtail their electricity consumption during periods of peak demand — typically summer afternoons when air conditioners are running flat-out. One of the most promising strategies for shifting electricity demand is energy storage, usually using batteries, and other states are targeting the sector as a strategic priority. California is requiring its utilities to purchase 1,325 megawatts of energy storage by 2020 and the state of New York state has invested $1.4 million in six battery and energy storage start-ups.

Gathright thinks Virginia may be the most promising location in the country to implement energy storage — not that the idea has gotten much attention here. What Virginia has done is experiment with dynamic pricing: using the price mechanism to encourage customers to shift electric consumption away from periods of peak demand when it is most costly to supply.

The results of Dominion Virginia Power’s dynamic pricing pilot program have been modest so far — positive enough to encourage Dominion to continue the project but not dramatic enough to persuade the company that a revolution in electric consumption is in the offing. But the outlook could change if entrepreneurs like Gathright figure out how to help customers capture the savings that the dynamic-pricing rate structures make possible.

With the encouragement of the State Corporation Commission, Dominion rolled out its dynamic pricing program in 2011, branding it as the Smart Pricing Plan. “The basic premise,” explains SCC spokesman Ken Schrad, “is that if customers are willing to modify behavior and use less electricity during high price periods, they will have the opportunity to save money, and the company in turn will be able to reduce the amount of energy it would otherwise have to generate or purchase during peak periods.”

The pilot was limited to 2,000 customers under a residential tariff and 1,000 small and midsized commercial customers under two commercial tariffs. Participation required having Advanced Metering Infrastructure (AMI) or Interval Data Recorder (IDR) meters that record energy usage every 30 minutes, thus allowing Dominion to measure consumption with greater precision.

Dominion provides customers at least 280 days a year with low-priced electric rates (“C” days), up to 30 days with high rates (“A” days), and the balance with medium rates (“B” days). Dominion communicates the classification to customers the day before to allow them to plan accordingly. Additionally, the company designates up to 25 five-hour blocks, or critical peak events, per year to commercial customers with two-hour notice. The rate differential for the critical peak hours could be literally dozens of times higher than the lowest rates.

For most customers, the jet savings have been minimal. Between October 2013 and October 2014, residential customers saved an average of $48 annually (3% of their electric bills), small commercial customers saved $92 annually (3%). However, larger customers saved $5,900 annually (14%), according to Dominion’s 2015 annual report on the program filed with the SCC. Continue reading

Building the Ed-Tech Research Network


by James A. Bacon

K-12 schools and higher ed institutions across the United States are expected to spend a combined $11.3 billion on education technology in 2015. So many new products are flooding the educational marketplace that educators are finding it difficult to make informed decisions about which to use. To address this challenge, the Jefferson Education Accelerator (JEA) is partnering with American Institutes for Research (AIR) to expand JEA’s network of experts and researchers.

JEA, an initiative of the University of Virginia’s Curry School of Education, launched in February as an educational accelerator/incubator. Its big value-add is a nationwide network of K-12 schools and colleges that provide efficacy studies of new products and services. Washington, D.C.-based AIR uses social science research to gain insights into education, health and the workforce. Among the issues it has addressed recently: what and how summer schoolers learn, school discipline reform, and early childhood education quality ratings.

“AIR brings a breadth and depth of experience in research, evaluation, and technical assistance that we believe will complement the Curry School expertise and support the objectives of JEA,” said Bart Epstein, founding CEO of the accelerator.

Last month Reston-based Echo 360, developer of a learning platform, joined as JEA’s first customer. For an undisclosed sum, JEA will help the Steve Case-funded technology company conduct research and scale its operations.  “Our review of its internal data shows strong evidence of significant impact on student engagement and outcomes,” Epstein said in a press release.

“We know that traditional lectures present a significant challenge for institutions grappling with completion rates and student engagement. Echo360 already shows strong evidence of supporting faculty and engaging students,” said Robert Pianta, dean of the Curry School. “At UVA, we’re excited to further explore how technology like theirs can help faculty and institutional leaders improve actual student success.”

Bacon’s bottom line: U.S. K-12 education is in a rut. It costs too much and it has failed to move the needle on educational outcomes. Applying technology to revolutionize teaching methods is, in theory, one way to jump-start the industry. But technology is not a magic wand; the effectiveness of the new technology tools is notoriously difficult to evaluate. Implemented carelessly, technology initiatives can squander a lot of money.  Field-testing the tools in real-world conditions and evaluating them with scientifically valid methods should help take the politics and the anecdotal out of decisions on which technologies to deploy.

Energy’s Innovation Race

Rendering of a GE combined-cycle natural gas-burning plant.

Rendering of a GE combined-cycle natural gas-burning plant.

Foes of fossil fuels are wondering if natural gas production in the United States is peaking. While some observers depict the supply  of natural gas as lasting decades, maybe a hundred years, others see signs that gas wells in the Marcellus shale formation are playing out more rapidly than anticipated. As supply becomes constricted, prices will rise, punishing electricity consumers who in Virginia will relying increasingly upon natural gas for electric generation. To protect against inevitably rising gas prices, the argument goes, states should mandate the use of renewable energy sources such as solar and wind power.

Environmentalists aren’t the only ones making the argument that gas production in the Marcellus formation has peaked. Oil and Gas Investments Bulletin Publisher Keith Schaeffer, among others, makes the same case.

But that sentiment is far from universal. “The U.S. may have far more natural gas than anyone imagined, all reachable at a profit even with today’s bargain-basement prices,” states the lead of a Wall Street Journal article today. The article quotes Mark Papa, a partner of Riverstone Holdings LLC, an energy-oriented private equity investor, as saying, “There’s a large likelihood that the United States will be enjoying very low gas prices for a very long time, maybe 20 years.”

Fossil fuel producers are showing remarkable resilience in the face of incredibly low fuel prices. They are embracing new technology, pioneering new drilling methods and figuring out how to slash production costs. Meanwhile, designers of power plants that burn natural gas are developing combustion systems that can extract 50% more energy from a BTU of gas than the previous generation. Traditional gas turbines convert 32% to 38% of the heat content from gas into electricity. The latest gas turbines incorporating advances in materials and aerodynamics and running in combined cycle mode can operate at 60% efficiency under optimal conditions.

The competition between different types of energy source is good news for consumers. The price of solar power and wind power continue to drop as R&D efforts yield technology breakthroughs, as supply chains mature, and as the solar and wind industries move up the learning curve. If the gas production/ generation industry had remained static, solar and wind might well be broadly competitive today. But the gas industry continues to innovate as well. Wind and solar (and coal, too) are chasing a moving target.

There is something to be said for hedging Virginia’s bets by encouraging the diversification of energy sources used in generating electric power, as there is for investing in energy efficiency, another field rife with innovation. But there’s also something to be said for committing to the lowest cost energy source, especially if, like natural gas, it is clean burning and emits significantly less CO2 than coal. Rather than approach energy policy with preconceived ideas that one energy strategy or the other is “the best,” Virginia should aim for an energy strategy that is flexible, adaptable and capable of exploiting opportunities created by an innovative energy economy.


Next Step for Offshore Wind

Alstom wind turbine like that contemplated for installation off Virginia Beach.

Alstom wind turbine like that contemplated for installation off Virginia Beach.

Earlier this year Dominion Virginia Power received a bid for building two experimental offshore wind turbines that exceeded internal cost projections by more than half, making the proposed project unlikely to win State Corporation Commission approval. In a July stakeholder meeting, DVP executives laid out their analysis of what went wrong. Now stakeholders will convene in three “problem solving cohorts” to determine how to bring down the cost of the project.

According to Nancy Lowe, with the Virginia Center for Consensus Building, which Dominion has engaged to lead the process, the groups will be broken down as follows:

  1. “Contract process and logistics – horizontal vs. vertical contracting, how to cut costs and balance risk through implementation and execution strategies, including multiple contracts versus a single contract, etc.
  2. Technology – focus on  balancing the cost issue with the amount of innovative technology to be developed and explore other technology issues.
  3. Policy Issues – determine the laws or regulations that could be changed to improve the chances of success. Determine the likelihood of being successful in achieving the modification noted, identify and quantify benefits to Virginia ratepayers.”

The stakeholders will not address the issue of cost sharing. Finding other groups to help shoulder the cost of funding the project, which would demonstrate the efficacy of new technologies benefiting the wind power industry broadly, would best be pursued by “the facilitator,” i.e. DVP, wrote Lowe in a communication to stakeholders.

Among the critical technologies to be demonstrated in this proposed pilot test are adaptations to the kind of hurricane-force winds that turbines are likely to encounter in the Atlantic Ocean. Without that technology, investing billions of dollars in an offshore wind farm might be too risky to win regulatory approval.


Virginia’s Spaceport: a Century-Long Commitment

Antares rocket blasts off at the Mid-Atlantic Regional Spaceport.

Antares rocket blasts off at the Mid-Atlantic Regional Spaceport.

by James A. Bacon

The McAuliffe administration has settled a dispute with Orbital Science Corp. over insurance of the Mid-Atlantic Regional Spaceport (MARS) at Wallops Island. Orbital, which is in the business of launching payload into orbit, will reimburse the state for one-third of the $15 million in damages incurred by the spaceport when Orbital’s rocket exploded during lift-off in October, and it will cover the cost of insuring future launches, the Richmond Times-Dispatch reports.

Reaching a settlement is critical to the future of the spaceport, to Orbital and to Virginia’s long-term economic future. The Fairfax County-based company is Virginia’s local space champion in a business where high-flying entrepreneurs from California, Texas and Florida predominate. In 2012, when the commonwealth published a strategic plan for the spaceport, Orbital was one of the top ten  largest U.S. space system and launch vehicle manufacturers, with more than $1 billion in annual revenue.

This may sound excessively Buck Rogers, but I regard the spaceport as critical infrastructure for Virginia’s long-term future. One day, the launch facility could well be the nucleus of a massive space-based industrial complex and seen as vital to the state economy as Virginia’s rail or highway system. At least it will if we can nurture it through the embryonic phase of the space industry in the face of stiff competition — MARS was only one of eight FAA-licensed commercial space launch facilities in the country in 2012.

Building a world-class space industry in Virginia will take patience.  The forecast for commercial space launches, though steady, is not exactly booming in the near term:


2012 FAA forecast for all global commercial space transportation launches, 2012 to 2021.

Right now the market is dominated by NASA and the mission of providing logistical support to the International Space Station. But space-based activity is growing. The strategic report notes the need for:

  • Fixed satellite services: high definition television, Internet connectivity and very small aperture terminal satellites (which serve homes and businesses).
  • Direct broadcasting services
  • Broadband services
  • Hosted payloads: experimental payloads, technology demonstrations, scientific missions, remote sensing, weather and climate monitoring and national security.

An important emerging market is space tourism. Longer run, we can expect to see more defense-related applications, not just satellites but weapons systems. Futurist George Friedman envisions “battle stars” in geosynchronous orbit armed with hyper-missiles to rain down  upon our enemies. The potential exists for specialized manufacturing processes using the unique properties of space such as microgravity and perfect vacuum, as well as vast solar arrays that microbeam energy to earth. A step beyond would involve mining the Moon for He-3 isotope in the lunar regolith, a likely fuel for fusion power. All of these activities will require a supporting space-based (or Moon-based) infrastructure for support. Looking even further out, it is not far-fetched to imagine commercial and religious colonies establishing themselves on the Moon to emancipate themselves from oppressive earth-bound political systems, much as 17th-century colonists sought refuge in the New World.

Earth-based spaceports will emerge as critical entrepots for all of this activity. Those that establish themselves early will enjoy a major competitive advantage by attracting corporate investment, evolving business ecosystems and building economies of scale for supporting infrastructure.

It may take another century for the full potential to emerge. But our children’s children will thank us for staying the course.

The Democratization of Data

Map showing green coverage in Tysons. Image credit: UVa Today.

Map showing density of green coverage in Tysons. Image credit: UVa Today.

Andrew Mondschein, an assistant professor at the University of Virginia School of Architecture, is studying how the redevelopment of Tysons affects the pedestrian experience. The first step is collecting data. Accordingly, he is dispatching students equipped with sensors, wearable cameras and smartphone apps to monitor temperature, light levels, green cover, noise pollution and carbon monoxide emissions in ever nook and cranny of the what he calls the “archetypal American edge city.”

The goal of Fairfax County planners is to transform the autocentric mix of offices, shopping malls and plate-of-spaghetti road network from the epitome of suburban sprawl into a smart-growth poster of mixed-use development and pedestrian-friendly streets.


Map showing intensity of illumination.

“Tysons Corner is on the forefront of transforming suburban places into more urban places and all that entails,” says Mondscheinin an article published in UVa Today. “For city and urban planners, it is exciting, because if we densify suburbs we could reduce driving and emissions, provide more housing and make transit, walking and biking easier and more pleasant – hopefully improving public and environmental health. The Tysons Corner project embodies all of these wonderful goals.”

The data collected by students will provide on-the-ground measures of the pedestrian experience as Tysons evolves.

Map showing temperature variations in Tysons.

Map showing temperature variations in Tysons.

Mondschein says other communities can do the same thing. “With devices like these, communities could self-organize and self-initiate studies that can show what they need in an objective manner, with hard data. That can be arguably more persuasive when speaking to policymakers, fundraisers and politicians.”

(Hat tip: John Blair)


Alpha Natural Resources: Running Wrong

Alpha miners in Southwest Virginia (Photo by Scott Elmquist)

Alpha miners in Southwest Virginia
(Photo by Scott Elmquist)

 By Peter Galuszka

Four years ago, coal titan Alpha Natural Resources, one of Virginia’s biggest political donors, was riding high.

It was spending $7.1 billion to buy Massey Energy, a renegade coal firm based in Richmond that had compiled an extraordinary record for safety and environmental violations and fines. Its management practices culminated in a huge mine blast on April 5, 2010 that killed 29 miners in West Virginia, according to three investigations.

Bristol-based Alpha, founded in 2002, had coveted Massey’s rich troves of metallurgical and steam coal as the industry was undergoing a boom phase. It would get about 1,400 Massey workers to add to its workforce of 6,600 but would have to retrain them in safety procedures through Alpha’s “Running Right” program.

Now, four years later, Alpha is in a fight for its life. Its stock – trading at a paltry 55 cents per share — has been delisted by the New York Stock Exchange. After months of layoffs, the firm is preparing for a bankruptcy filing. It is negotiating with its loan holders and senior bondholders to help restructure its debt.

Alpha is the victim of a severe downturn in the coal industry as cheap natural gas from hydraulic fracturing drilling has flooded the market and become a favorite of electric utilities. Alpha had banked on Masset’s huge reserves of met coal to sustain it, but global economic strife, especially in China, has dramatically cut demand for steel. Some claim there is a “War on Coal” in the form of tough new regulations, although others claim the real reason is that coal can’t face competition from other fuel sources.

Alpha’s big fall has big implications for Virginia in several arenas:

(1) Alpha is one of the largest political donors in the state, favoring Republicans. In recent years, it has spent $2,256,617 on GOP politicians and PACS, notably on such influential politicians and Jerry Kilgore and Tommy Norment, according to the Virginia Public Access Project. It also has spent $626,558 on Democrats.

In 2014-2015, it was the ninth largest donor in the state. Dominion was ahead among corporations, but Alpha beat out such top drawer bankrollers as Altria, Comcast and Verizon. The question now is whether a bankruptcy trustee will allow Alpha to continue its funding efforts.

(2) How will Alpha handle its pension and other benefits for its workers? If it goes bankrupt, it will be in the same company as Patriot Coal which is in bankruptcy for the second time in the past several years. Patriot was spun off by Peabody, the nation’s largest coal producer, which wanted to get out of the troubled Central Appalachian market to concentrate on more profitable coalfields in Wyoming’s Powder River Basin and the Midwest.

Critics say that Patriot was a shell firm set up by Peabody so it could skip out of paying health, pension and other benefits to the retired workers it used to employ. The United Mine Workers of America has criticized a Patriot plan to pay its top five executives $6.4 million as it reorganizes its finances.

(3) Coal firms that have large surface mines, as Alpha does, may not be able to meet the financial requirements to clean up the pits as required by law. Alpha has used mountaintop removal practices in the Appalachians in which hundreds of feet of mountains are ripped apart by explosives and huge drag lines to get at coal. They also have mines in Wyoming that also involve removing millions of tons of overburden.

Like many coal firms, Alpha has used “self-bonding” practices to guarantee mine reclamation. In this, the companies use their finances as insurance that they will clean up. If not, they must post cash. Wyoming has given Alpha until Aug. 24 to prove it has $411 million for reclamation.

(4) The health problems of coalfield residents continue unabated. According to a Newsweek report, Kentucky has more cancer rates than any other state. Tobacco smoking as a lot to do with it, but so does exposure to carcinogenic compounds that are released into the environment by mountaintop removal. This also affects people living in Virginia and West Virginia. In 2014, Alpha was fined $27.5 million by federal regulators for illegal discharges of toxic materials into hundreds of streams. It also must pay $200 million to clean up the streams.

The trials of coal companies mean bad news for Virginia and its sister states whose residents living near shut-down mines will still be at risk from them. As more go bust or bankrupt, the bill for their destructive practices will have to borne by someone else.

After digging out the Appalachians for about 150 years, the coal firms have never left coalfield residents well off. Despite its coal riches, Kentucky ranks 45th in the country for wealth. King Coal could have helped alleviate that earlier, but is in a much more difficult position to do much now. Everyday folks with be the ones paying for their legacy.

Renewable Energy: A Tale of Two Virginias

Apologies to Mr. Dickens

Apologies to Mr. Dickens

By Peter Galuszka

Call it a tale of two Virginias – at least when it comes to renewable energy.

One is the state’s traditional political and business elite, including Dominion Resources and large manufacturers, the State Corporation Commission and others.

They insist that the state must stick with big, base-loaded electricity generating plants like nuclear and natural gas – not so much solar and wind –to ensure that prices for business are kept low. Without this, recruiting firms may be difficult.

The other is a collection of huge, Web-based firms that state recruiters would give an eyetooth to snag. They include Amazon, Google, Facebook and others that tend to have roots on the West Coast where thinking about energy is a bit different.

Besides the Internet, what they have in common is that they all vow to use 100 per cent of their electricity from renewable sources. What’s more, to achieve this goal, all are investing millions in their own renewable power plants. They are bypassing traditional utilities like Dominion which have been sluggish in moving to wind and solar.

So, you have a strange dichotomy. Older business groups are saying that the proposed federal Clean Power Plan should be throttled because it would rely on expensive renewables that would drive away new business. Meanwhile, the most successful and younger Web-based firms obviously aren’t buying that argument.

I have a story about this in this week’s Style Weekly.

In Virginia, the trend is evidenced by Amazon Web Services, which sells time on its cloud-computing network to other firms. It is joining a Spanish company, Iberdola Renewables LLC, in building a 208-megawatt wind farm on 22,000 acres in northeastern North Carolina, just as few miles from the Virginia border. Three weeks earlier, on June 18, Amazon announced it plans a 170-megawatt solar farm in Accomack County on the Eastern Shore.

Dominion, which has renewable projects in California, Utah and Indiana and the beginnings of some small ones in Virginia, says it is not part of the projects. It could possibly get electricity indirectly from them. Amazon’s power will be sold on regional power grids to business and utilities.

When they complete such sales, the Net-focused firms will get renewable energy certificates that can be used to show that they have put as much renewable energy into the electricity grid as they have used, says Glen Besa, director of the Virginia chapter of the Sierra Club.

This will be especially important in Northern Virginia where there are masses of computer server farms used by Amazon and others. These centers used 500 megawatts of power in 2012 and demand is expected to double by 2017. Also, for years, the region has hosted such a large Internet infrastructure that at least half, perhaps 70 percent, of the Net’s traffic goes through there.

Part of the back story of this remarkable and utility-free push for renewables is that environmental groups are shaming modern, forward-looking firms like Amazon to do it.

Amazon Web Services was the target of criticism last year when Greenpeace surveyed how firms were embracing renewable energy. The report stated that the firm “provides the infrastructure for much of the Internet” but “remains among the dirtiest and least transparent companies” that is “far behind its major competitors.”

Dominion also got bashed in the report. Greenpeace says, “Unfortunately, Dominion’s generation mix is composed of almost entirely dirty energy sources.” Coal, nuclear and natural gas make up the vast majority of its power sources.

Its efforts to move to renewable sources have been modest at best. In regulatory filings, Dominion officials have complained that renewable energy, especially wind, is costly and unreliable although they include it in their long-term planning.

Dominion has plans for 20-megawatt solar farm near Remington in Fauquier County and is working on a wind farm on 2,600 acres the utility owns in southwestern Virginia. It has renewable projects out-of-state in California, Utah and Indiana. The output is a fraction of what Amazon plans in the region.

In a pilot offshore wind project, Dominion had planned on building two wind turbines capable of producing 12 megawatts of power in the waters of Virginia Beach. It later shut down the project, saying new studies revealed it would cost too much. It says it might continue with a scaled down project if it got extra funding, such as federal subsidies.

The utility says it must build more natural gas plants and perhaps build a third nuclear unit at its North Anna power plant to make sure that affordable electricity is always available for its customers.

As Amazon announced its new renewal projects, Greenpeace has changed its attitude about the company. Now it praises Amazon for its initiatives in Virginia and North Carolina. “I would like to think we have pushed Amazon in the right direction,” says David Pomerantz, a Greenpeace spokesman and analyst. He adds that Amazon has some work to do in making its energy policies “more transparent.”

One unresolved issue is that two neighboring states, North Carolina and Maryland, have “renewable portfolio standards” that require that set percentages of power produced there come from renewables. West Virginia had such a standard but has dropped it. In Virginia, the standard is voluntary, meaning that Dominion is under no legal obligation to move to solar or wind. It also gives the SCC, the power rate regulator, authority to nix new power proposals because they might cost consumers too much, providing Dominion with a handy excuse to move slowly on renewables.

Another matter, says Pomerantz, is whether Virginia’s legislators will enact “renewable energy friendly policies” or watch hundreds of millions of dollars in renewable project investments go to other states, such as North Carolina.

So, you have a separate reality. Traditionalists are saying that expensive renewables are driving away new business, while the most attractive new businesses are so unimpressed with traditionalist thinking that they are making big investments to promote renewable energy independently.

It isn’t the first like this has happened.

Big City Advantage in Innovation Not What It Used to Be


Image credit: “Cities and Ideas,” National Bureau of Economic Research.

by James A. Bacon

Maybe the Internet is allowing innovation and creativity to break free from the confines of geography after all. Economists conventionally argue that large metropolitan areas are better incubators of inventions and innovations than smaller cities and rural areas. However, a new study, “Cities and Ideas,” by Mikko Packalen and Jay Bhattacharya, finds that the relationship between city size and inventiveness is not as strong as it once was.

I partially jest when I refer to the impact of the Internet. In the 1990s, starry-eyed dreamers theorized that the Internet would enable people to plug into global commerce from a mountain cabin or small town coffee shop. As rural America continues to empty out and population migrates to the bigger cities, that promise now seems a cruel joke. But something is changing. As Packalen and Bhattacharya demonstrate, big cities are far less dominant than they were a century ago. Furthermore, the geographic de-concentration of invention long preceded the rise of the Internet. Other trends — the proliferation of telephones, the spread of roads and the automobile, the rise of land-grant universities in out-of-the-way places — may have played equally critical roles in diffusing the capacity for invention.

Scholars first theorized about the correlation between city size and innovation, which they called an “agglomeration effect” in the 1920s. There was a solid basis for the theory then — large cities were the dominant incubators of innovation; rural areas were backwaters. But even as agglomeration-effect theory became more deeply rooted among scholars studying urban geography, the reality upon which the theory was based was steadily eroding.

To measure invention, Packalen and Bhattacharya built a database of U.S. patents between 1836 and 2010, identifying the inputs for each patent from previous patents, how old those inputs were, and where the inventions took place. The study gives great weight to the age of the patents, distinguishing between patented inventions that draw upon new ideas and inventions that draw upon older ideas. The authors explain:

If we find that inventors in large cities build on fresh ideas more often than inventors in smaller  cities, the evidence would quantify a specific benefit to locating inventive ideas in large cities. On the other hand, if we find that inventors in large cities are no more likely to try out new ideas in their work than inventors in smaller cities, the evidence would suggest that location may be largely irrelevant for inventive performance.

The dominant theory in academia today is that size and density matter. The bigger and denser a metropolitan region, the greater the number of people who can interact on a face-to-face basis. Proximity to other people allows innovators to conceive, discuss and test new ideas, and commercialize them in the marketplace. As can be seen in the chart above, which compares idea inputs of patents between cities in the 95th and 50th percentiles (large versus midsized cities) that was certainly true a century ago. But the dominance of big cities has declined, despite a few ups and downs, since then. Today, adjusted for the margin of error, there is very little difference at all.

Bacon’s bottom line: I am not equipped to dissect the statistical methodology employed to reach these conclusions, although I do have a couple of questions. Why the focus on the newness of the ideas behind the patents? Are patents based on newer ideas necessarily more consequential than those based on older inputs? Why not measure the frequency of patents? Surely the number of patents, adjusted for population size, is also an important indicator — perhaps the most important indicator — of inventiveness.

Those questions aside, “Cities and Ideas” would seem to provide hope for America’s small towns and rural regions. In this blog, I have frequently written about the tremendous disadvantages facing smaller communities when competing with big cities for human capital and corporate investment. The odds seem hopelessly stacked against the little guys. But if it turns out that it’s just as easy to keep up with the latest technology in Small Town USA as it is in Big City USA, a lot of people — and that includes me — may have to adjust their thinking.

Is NoVa over the Job Hump?


Annual Job Change, Northern Virginia, 2002-2015. Image credit: Terry Clower.

There has been considerable wailing and gnashing of teeth over the abrupt halt in economic growth in Northern Virginia due to sequestration-mandated cutbacks in defense spending and other federal government programs. My fellow Bacon’s Rebellion bloggers and I have led the wailing chorus. Indeed, Don Rippert engaged in some ferocious teeth gnashing in a post this morning.

There’s no question that the Northern Virginia economy has under-performed the national economy over the past two years. But there is evidence to suggest that Virginia’s economic engine may be over the hump. That chart above comes from Terry L. Clower, director of the Center for Regional Analysis at George Mason University, who presented it during a business round table sponsored by the Thomas Jefferson Institute two days ago.

After shedding thousands of jobs in 2012, 2013 and 2014, the federal government has stabilized employment, actually adding a few in 2015. After declining for three  years straight, federal procurement inched back up in 2014. Perhaps most important, Northern Virginia’s professional & business services occupational category grew by 5% between April 2014 and April 2015. That category is the economic driver of the Northern Virginia economy, and the fact that it is expanding faster than federal employment and federal procurement suggests that maybe, just maybe, Northern Virginia tech sector is diversifying beyond the federal government.

It’s hard to imagine that the federal government, with its severe long-term budget constraints, can resume the spending growth path that propelled the Washington metro economy for so many years. Still, there are signs that Northern Virginia businesses are adapting to the new normal. I’m hopeful that the promising statistics represent more than a dead cat bounce.