<aside> 💡 After a first general deep dive on Climate Tech trends and a deep dive on renewable energies last week, we’re now focusing on how we can address the challenges of integrating intermittent energy sources into the grid by making it smarter.
Wishing you an insightful reading,
Raphaël Cattan, Alexandre Dewez, Maryam Mahla, Charlotte Pratt & Henri Courdent.
PS: You are a climate company at Seed or Series A, operating in Europe and curious about how Eurazeo can help you ? Please reach out on Linkedin or drop us an email ar [email protected], [email protected] or [email protected]
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Energy takes the pride of place in greenhouse gas emission.
The energy sector is responsible for around three quarters of greenhouse gas emissions today and holds the key to avoiding the worst effects of climate change and reducing global carbon dioxide (CO2) emissions. Hence the key goal to achieve an energy sector that is both decarbonized and able to support a global economy twice the size of today’s in 2050 and a global population of nearly 3 billion people higher.
Graph 1 - Global greenhouse gas emission by sector, ClimateWatch, WorldinData, published in 2020 edition on 2016 gas emission.
Achieving net-zero means moving to a climate friendly energy mix by 2050. The solution in the race to Net zero, is to change the energy mix (i.e the energy primary sources and their contribution to the total energy production) between now and 2050 by considerably reducing the use of fossil fuels, which are responsible for the highest part of CO2 emission (15.27 Gt CO2 eq, 10.69 and 7.49 for respectively coal, oil and gas in 2021).
How does a decarbonized energy mix look like ? Recently, the IEA (International Energy Agency) developed a scenario with a roadmap to achieve global CO2 neutrality from the energy system by 2050. This decarbonized scenario shows the two simultaneous actions to be taken:
Finally, in this scenario, nuclear power would play a marginal yet existent role accounting for 10% of the electrical mix in 2050 and a small part of the electricity production would come from fossil fuel but with CO2 emission offset through CCUS (Carbon capture utilization and storage).
Graph 2 - Energy mix in the Net Zero scenario, IEA- Net Zero by 2050 Report, Oct. 2021.
However the use of renewable for electricity production comes with limits: weather uncertainty leads to supply shortage risk and price volatility.
The transition towards renewable energy require the development of intelligence and infrastructure that efficiently manages energy requirements throughout the electrical grid due to the growing demand for electricity, as well as a growing contribution of electricity from intermittent energy sources like solar and wind. Intermittent resources are unpredictable and difficult to forecast, leading to supply shortages and price volatility. This volatility becomes more significant as the country relies more on intermittent energy production.
Graph 5 - Energy price volatility, BCG- “Will Electricity be free ?” Report, Apr. 2022.
Correlation between variable renewable energy (VRE) penetration and energy price volatility.
NB - Understanding difference between Australia SA and Denmark: The volatility in price increases with the country’s exposure to intermittent energy production but can be offset if the country is strongly interconnected to its neighbors able to provide energy and balance the intermittent renewable supply when needed (as it is the case for Denmark but not the isolated South Australia). The day when all countries, will move to fully renewable sources for energy production, it will be harder to rely on neighbor countries to balance the supply.
Hence, there is an urgent need for a smarter grid, able to insure balance of supply and demand in the grid.
The energy grid was designed for constant, centralized power production, but it is definitely not “smart enough” to face the variability of solar and wind power. Hence, for electricity supply to become predominantly or entirely renewable, the grid needs to become more flexible and adaptable than it is today. Technologies such as demand response, ability to manage DER and offer grid services as well as use of batteries storage (including EV batteries) are booming solutions toward a smarter grid.
Example of recently founded or funded companies.
Demand response and Distributed Energy Resources (DER) management
Distributed energy resources (DER) are anything that stores, consumes, or generates electricity, that’s located in the distribution grid and be can respond to a signal to reduce or shift energy usage when the grid is strained. By lowering demand for electricity in response to the real-time needs of the grid, cost savings are made and even black out avoided. If you own a DER (Distributed Energy Resources), like having solar panels on your roof for instance, you can play a role in balancing the grid during peaks by 1/ consuming your self-produced energy instead of consuming the energy from the grid 2/ provide energy to the grid by selling back the unused energy coming from your DER. Many of them also add “demand response features” to the DER management one in a way that you can adjust your consumption based on your self-produced energy.
In the B2C/residential sector, players are connecting electric appliances such as solar panels, EV charging and batteries to generate savings for the consumer and provide energy flexibility to the grid. Several go-to-market ways are possible :
It is important to note however that to work, solution offering grid services based on Demand Response and DER management, the quality of the data is key. It requires great equipments like smart meters as widely used in the Nordics or additional piece of hardware when smart meters are not available or very strong API connections with electric hardware providers.
In the B2B space, flexibility is not something new as utilities have been doing load balancing with large industrial customers for many years. But new players are expanding the range of assets and the flexibility capabilities of this model.
In Europe, people like Sympower are targeting more energy intensive industry from steel smelting to paper production and data centers and unlocks the flexibility of the electric assets by adjusting the power of machines in an automated way. Another similar company working on intraday markets for industrial customers is Esforin while Tilt is working with utilities on B2B2C customers as well as with commercial customers.
In North America, companies like Voltus focus on aggregated demand response of retail businesses. Voltus’ integration into all nine US and Canadian wholesale markets, allows the platform to earn revenues from both SaaS fees and market transactions. Another company in the space is GridPoint, an Intelligent energy network provider which, thanks to a piece of hardware, allow business to automate and control energy assets such as lighting, heating, cooling, and ventilation systems.
What will be key for theses actors is to remain tech-savvy and build strong differentiation to face competition coming from utilities used to perform industrial load management and that we see moving to smaller capacities (example with EDF’s subsidiary Aggregio or the recent acquisition of Next Kraftwerke by Shell).
Storage as a-(grid)-service
Battery storage is one of several technology options that can enhance power system flexibility and enable high levels of renewable energy integration. Battery energy storage systems can be used for multiple applications in the power system, such as storing an excess of renewable generated energy for later consumption to provide grid services when needed.
Batteries can be developed in two ways: behind the meter for consumers and C&I customers or front-of-the-meter and directly injecting energy into the grid.
For consumers, batteries make sense when you have installed solar panels and starts to have many electric appliances such as EV charging and heat pumps. However, the high cost of batteries is still a strong barrier to entry and the profitability of this battery is dependent on national regulations and prices. Today, batteries are a good investment with or without subsidies in Germany for instance, a good investment with subsidies in Spain and probably still not a good investment in France considering differences in energy prices and regulations. In this space, all solar installers such as 1KOMMA5 or SunHero are trying to increase basket size by offering batteries but not all have developed the tech to aggregate DER and offer services such as demand response.
Other companies have specialized in the space such as Social Energy offering low-cost energy to residential customers. It sells solar and Duracell home battery systems, and then aggregates their output to offer services such as demand response and frequency response to U.K. electricity system operator and distributor. In the U.K., Social Energy claims it can help residential customers save an average of £226 a year.
Finally, we see players betting B2B on large scale battery projects for grid services. This is the case of Field Energy which is partnering with land owners and renewable energy project developers to build and optimise a network of big batteries supplying the grid. For such actors, performance of batteries, real time reactivity and smooth integration with grid operators will be key to reach profitability. There are also many projects working on long-duration energy storage such as Energy Dome which are particularly relevant for countries where locations of energy consumption and production are decoupled, such as Italy or Chile.
V2X management
Electric vehicles are equipped with a sizable battery, with several times the storage capacity of a home battery and constitute a storage system that do no require additional investment in hardware. The potential for EVs to contribute to a flexible energy system goes beyond shifting when they charge. While the smart charging (unidirectional, also called “V1G”) only allows the charging power to be increased and decreased or paused when needed, V2X that stands for “Vehicle-to-Everything” goes one step further. We can now discharge the battery and export electricity back to a system, be that a building such as a home (V2H) or a building (V2B) such as a business or back to the national electricity grid (V2G), in response to signals. EVs can then be charged up during off-peak hours when it is cheaper and greener to do so and discharge to balance the grid when demand is at its highest. By harnessing the collective power of lots of V2G-enabled EVs, the transition to a smarter, more sustainable electricity system can be accelerated.
One example of a company making waves in this space is Fermata Energy, which recently raised $40M in Series A funding in January 2022. Fermata Energy's bidirectional EV chargers and proprietary software enable power to be dispatched from stored energy in EV batteries back into the grid or buildings, generating revenues for vehicle and fleet owners.
Other companies develop innovative ways of engineering and designing bi-directionnal chargers like Witricity, which recently secured $63M in August 2022. Leveraging the use of magnetic resonance, Witricity is developing full wireless charging solutions that enable bidirectional wireless power transmission over distance. This technology enables EVs parked at a charger to be made available to the grid for V2G power on demand. EV fleet operators can make real-time decisions about selling power back to the utility or providing rides.
Some actors also see value in leveraging aggregation of EV batteries to offer flexibility. this is the case of Bia Power, a recently Station-F incubated company in Paris (Total Energy On incubator), provides flexibility services for fleets of EVs through a data management platform that monitors and optimizes charging using AI forecasting tools. Bia Power aims to enhance grid integration by leveraging V2X technology based on grid energy cost and peak demand.
EV batteries are poised to be a key player in the development of a more intelligent and adaptable grid. However, those involved in this industry will have to navigate the challenge of gaining convenient access to the vehicle's battery, given that automakers are hesitant to offer open control of batteries and warranties on batteries’ lifetime that could be reduced by using the batteries for grid flexibility instead of driving.
Enablers
Marketplaces and energy trading optimization solutions
The evolving landscape for demand-side resources creates more and more opportunities for customers to use their distributed energy resources (DERs) to participate in wholesale markets in ways that benefit the grid and deliver financial benefits to asset owners and managers. In this context, more and more actors focus on providing liquidity to energy asset owners for them trade through their marketplace or by helping them optimizing the trading performance of their DER portfolio.
There are several companies making significant strides in the energy sector, utilizing innovative strategies to improve grid flexibility and balance. For instance, Leap is a marketplace that aggregates energy assets from partners and offers energy on the wholesale market, compensating partners for their contribution. This approach has already delivered significant value back to the grid, as seen during the June 2021 heat wave in California, when Leap dispatched energy from over 10,000 sites, representing over 375 MWh of electricity to support the grid and avoid blackouts. As of October 2021, the energy generated by Leap's network had already replaced the equivalent of two gas peaker plants.
On the other hand, some actors are focusing on acting locally, such as Piclo, which uses a platform to balance the grid through local and flexible energy markets. Acting as an independent flexibility marketplace, Piclo connects flex asset service providers and utilities, charging a fixed monthly fee for utilities to use the platform and place bids.
Energy portfolio optimization is also a key focus for some companies, such as Origami. They help asset owners and energy service companies optimize the trading of their energy sources by accessing market and real-time pricing data.
However, two challenges need to be addressed when acting as a liquidity provider in the energy market. Firstly, companies must be able to instantly connect and control users' energy devices with performing APIs. Secondly, being well-integrated with actors like TSO and DSOs is essential for smooth operation in local markets where liquidity is offered.
Billing and pricing management
As demand response behaviors are adopted, there is a need for reflecting and incentivizing in pricing and billing the flexibility effort made in the energy consumption.
For example, GridX is an enterprise rate platform for utilities to help them design and implement new rates, match customers with those optimized for them, and accurately calculate the impact of energy-related actions on bills.
Another example is WeaveGrid whose software helps utilities plan for when and where EV load will occur so utilities can optimize the location of chargers, deploy advanced metering proactively (allows variable electricity rates based on time of charging) and develop differential pricing based on location (incentivize charging in some locations, discourage in others).
For these players, acquisition and probably first mover advantage will be key differentiators in the strategy: as there are not a huge number of utilities, winning most of them is essential to secure a large part of the market share, especially as exit with a buyback by the utility are also likely scenarios.
Enablers for green, local and/or affordable energy procurement
Moving to a decarbonized mix supposed to provide access to renewable energy production to a wider population as well as helping securing affordable price to green production. In this context, we see emergence of actors offering new way to procure energy that we can split in two categories: those focused on procuring stable energy prices and those focused on procuring green energy supply. by betting on the move from annually to hourly matching of renewable energy certificates between production and consumption.
Players willing to procure stable energy prices (and when possible green sources).
This is the case of Urban Chain in the UK and Trawa in Germany which helps small actors accessing Power purchase agreements (PPA) by aggregating demand.
So far, PPA’s are mainly accessible to large companies only as only large company 1/ have the capacity to consume most of amount the energy produced by the renewable project for several years 2/ are considered as financially solid enough clients for the project developper’s financing partner by committing to buy energy produced for a long period (5-10 years).
Players willing to help providing green energy, especially by betting on the move from annually to hourly matching of renewable energy certificate between production and consumption.
Today, the use of certificate to perform annual matching allow customers to claim that they have a 100% green energy during the year by matching their night and winter energy consumption with solar energy that was produced at noon in summer. One MWh is valued the same no matter what time of day or month of the year it is produced. Moving to an hourly matching would provide a better reflection of physics and economics of the grid and will be key to reach a decarbonized energy production for corporates.
This the market adressed by Granular Energy which developed a SaaS allowing customers to verify where and when their energy is coming from renewable sources thanks to time-stamped hourly energy certificate. It provides a transparent tool for corporate and utility buyers to manage and hourly energy certificate portfolios, as well as a trading platform to create a fully liquid marketplace. Another actor in the space is Flexidao which built a software platform using blockchain technology to certify and trace electricity from production to consumption, enabling their customers to accurately know how green is the energy they consumed and measure their their energy-related carbon footprint, every hour of the day. They have signed a partnership with Google to help the company reach 24/7 carbon free energy.
A key challenge for both Granular and Flexidao will be to educate the market on the hourly certificate including regulators who could be game changer in the pace of adoption of this new timeframe for renewable certificate matching.
Penetrating the market with one energy asset...until controlling the whole assets of the client.
The more energy assets you can control, the higher the impact on your client energy savings and revenues. Hence many actors tend to enter the market with one solution (e.g. installation of solar panel or smart meter or bidirectional charger) before expanding to other clients' loads. Done with a large group of customers, such players can play an important role in balancing the grid. The wording virtual power plants (VPP) is even used for such actors to reflect their powerful capacity of controlling lots of distributed generation resources, storage systems and flexible loads in ways that mimic how power plants work, i.e. with the ability to ramp up and down to balance the grid.
The importance of working with (and not against) historical actors.
No matter the solution you provide to the grid, you need to be perfectly able to plug in to or integrate with historical energy actors (energy utilities, grid operators) which have the full control of the physical transportation or distribution of the energy – would they be your clients, suppliers, intermediary or partners.
Expect regional differences in the decarbonization paths of the energy mix.
Country-specific characteristics can increase or reduce the pace at which renewables will be adopted in a country's energy mix . Countries ready to invest the most and the fastest in renewables are the ones where: