Why do we need smart grids?
In contrast with what Donald Trump wants us to believe – that global warming is a concept created by the Chinese to make U.S. manufacturing non-competitive – global warming is in fact real. According to NASA, the average global temperature has risen 1.7 degrees since 1880 and the volume of arctic ice decreases with 13.3% every decade. These alarming facts are the result of our ever-increasing consumption of fossil fuels, which doesn’t seem to flatten out in the near future. Between 2008 and 2035 the global energy demand is estimated to increase by 53%. Since fossil fuels are running out we need to find ways to reduce our fossil fuel needs.

The solution is twofold; on the one hand we should find alternative sources of energy and on the other hand we should use our energy more efficiently. In this blogpost we focus on the latter part of the solution. To increase energy efficiency on a large scale, the application of technology is necessary to improve the way we generate, distribute and consume energy. Allover the world smart grids consisting of sensors, metering solutions and energy management systems are being deployed. These smart grids generate a huge variety of data sets that, when analyzed, allows for better management and efficient use of precious natural resources as well as capital assets. This is where big data comes into play.

What is big data?
Big data is a term for data sets that are so large or complex that traditional data processing applications are inadequate to deal with them. According to McAfee (2012) big data analysis differs from the traditional analysis in three ways. Firstly, the volume of big data sets is several orders of magnitude higher. Walmart, for example collects 2.5 petabytes (that is 2,5 million gigabytes) of customer data every hour. Secondly, the velocity or speed of information creation and processing is increased. Big data analysis systems are often analyzing real-time data and producing direct results. Rapid insights as these can provide competitive advantages. Thirdly, the variety of the data sources is increased, for example sensor-data, messages from social networks, GPS-signals from cellphones. These three differences make big data a very successful and powerful tool to gain insights into consumer and system behavior.

How does big data help to increase grid efficiency?
The application of big data in smart grids increase the efficient use of energy in two ways.

The first way relates to the behavior of the system as a whole. By closely monitoring the energy production, distribution and usage of the entire grid, the energy companies can manage their grid in near real-time. This improves the forecasts for the future and the responsiveness of the system to real time changes in energy needs. Therefore, the system will behave more efficiently.

The second way relates to the behavior of individual consumers. By tracking individual energy usage, companies gain insight in the way energy is consumed. Companies can offer tariffs tailored to specific customers at a large scale to incentivize them to use less energy or use energy at a different time. The influencing of customer behavior to promote stable energy usage increases the efficiency of the system.

By applying big data to energy grids, efficiency is improved and the overall energy usage is reduced. This helps us as humanity to face the challenges posed by our increasing energy need and the effects of global warming.

Sources:
McAfee, A., and Brynjolfsson, E. 2012. Big Data: The Management Revolution. Harvard
Business Review 90(10) 60-68.
NASA: Climate Change and Global Warming. (n.d.). Retrieved October 23, 2016, from http://climate.nasa.gov/
Rose, A. (2014, August 08). How big data is about to ignite smart grids worldwide … Retrieved October 23, 2016, from https://www.greenbiz.com/blog/2014/08/08/big-data-transform-smart-grids-worldwide
Trump, D. J. (n.d.). Donald J. Trump on Twitter: “The concept of global warming … Retrieved October 23, 2016, from https://twitter.com/realdonaldtrump/status/265895292191248385

What are MOOC’s?
MOOC stands for Massive Online Open Courses. They are aimed at unlimited participation and open access via the web. Introduced in 2008 by Canadian academics, they have already changed the way knowledge is distributed and learning takes place. Although they pay close resemblance to traditional lectures, offered by universities around the globe, they have one major benefit: most of them are offered for free or at a rate that is just a fraction of what universities charge their students. How can this be?

The pricing structure of MOOC’s
In order to understand how these courses can be offered at such a low price, we need to understand more about the type of good and how they are priced. MOOC’s are so called ‘information goods’, a type commodity whose main market value is derived from the information it contains. According to Shapiro (1998), the pricing of information goods has several characteristics. In contrast to regular goods, the cost of information goods is not constant for every product. Even before the first copy of the good is produced, the majority of the costs have already been made, these are called sunk costs. For MOOC’s these costs consists of the salary of the lecturer, the cost of the course material, the costs of the website and platform and the cost of recording the lectures. After these costs have been made, the costs of producing a second copy, the so called variable costs, are very low. Allowing an additional student access to the information only consists of the additional server capacity needed. This is summarized by Shapiro (1998) as: “Information is costly to produce, but cheap to reproduce.”

The pricing structure of University Courses
If we compare the cost structure of MOOC’s with courses of regular universities, we can understand why MOOC’s are relatively cheap. Regular courses are not only information goods, additionally many services are offered to the students. Therefore, the principles of information goods pricing do not apply to them. The fixed costs of universities are somewhat similar to MOOC’s, however the variable costs of an additional student are relatively high. This is because the lecture halls and study facilities need to be bigger to accommodate for an increased amount of students. Also, extra personnel should be hired, since the students require personal attention. Since the variable costs are so high, students pay very high fees to participate in regular classes.

To answer the question in the title: No, regular universities are not a rip-off. They really do cost a lot. Due to the pricing principles of information goods, MOOC’s can be offered at a much lower price to a lot more students at once.

Sources:
Information good – Wikipedia. (n.d.). Retrieved October 23, 2016, from https://en.wikipedia.org/wiki/Information_good
Shapiro, C., and Varian, H. 1998. Pricing Information. In Information Rules: A Strategic Guide to the Network Economy. Cambridge, MA: Harvard Business School Press.