Ideas

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Even before Putin’s invasion of Ukraine and the imposition of sanctions on Russia, Bank of America analysts were predicting that European businesses would see their electricity costs rise by as much as 70% in 2022, and that gas prices would double. In the first quarter of 2022, short-term gas prices on the largest European exchange were five times higher than their 2021 average. And we should not expect relief anytime soon – despite a recent drop in the price of oil from highs of over $139 per barrel in early March, global energy prices are expected to rise 50.5% this year, according to the World Bank.

The need is as acute as ever to accelerate clean energy start-ups. They can help not only respond to the current energy crisis but also catalyze progress toward net-zero carbon emissions targets, which will ultimately create lasting value for the global economy at a time when the world is still bouncing back from the pandemic.

A competitive advantage
Start-ups, by their very nature, are well placed to thrive in a crisis, in the world of energy and beyond; they can be nimbler, and quicker to seize the opportunities presented. One only needs to look as far back as the Covid-19 pandemic to see how start-ups and young companies were quick to adapt. Most are more energy efficient than their more established competitors, some of whom have seen their production profit margins squeezed and bottom lines affected, even more so by the higher energy prices.

McKinsey & Company research found that companies with new approaches to energy procurement and a radical focus on energy efficiency and decarbonization could achieve sustainable margin improvements of up to 10% while simultaneously reducing their carbon footprint by 40% or more. With the link between sustainability and profitability increasingly drawn, incumbents need to move quickly to keep up and stay relevant – or risk being left behind. One way to do so is to tap into the enormous business opportunity presented by the start-ups at the forefront of the energy transition.

Tipping point
We are on the verge of a massive scaling-up and speeding-up of clean energy, as businesses and households seek ways to save energy and reduce bills. Meanwhile, governments are increasingly turning to renewables to end their dependence on Russian fossil fuels and improve energy security as a whole. The quickened pace of progress is evident within our own portfolio – Enervee, the leading provider of marketplaces for energy-efficient products, was recently contracted by the New York State Energy Research & Development Authority to roll out a statewide marketplace targeting disadvantaged communities, launching in July. And many other State Energy Offices have expressed interest too. Meanwhile, in Germany, Thermondo, the country’s largest heating installer, is offering a rental heat pump option with the aim of installing 10,000 energy-efficient pumps for consumers looking for an affordable way to replace their oil or gas boilers.

According to an IEA report, by 2026, global renewable electricity capacity is forecasted to rise more than 60% from 2020 levels to over 4 800 GW – equivalent to the current total global power capacity of fossil fuels and nuclear combined. Going by this trajectory, the continued energy price shock and the rush for ESG-driven investing: the time has never been better to be a clean energy start-up.

More money in the game – better odds for new players?
The urgency to accelerate innovation in cleantech has brought in a flood of new capital available to start-ups to bring them to scale faster. We should expect continued flows of both public and private capital into the development, commercialization and scaling of new technologies. That is in addition to the €1 trillion already committed to sustainable investments by the EU Green Deal.

In theory, this should mean today’s market entrants have a better chance of securing capital. However, although the pie is larger, this is somewhat balanced by the sheer volume of cleantech entrepreneurs popping up all over the world, hungry for a slice. Competition is fierce and the rise of the savvy ESG-conscious investor means more shrewd filtering of start-ups with no proven track record. The very best entrepreneurs and technologies with a fundamental role in a decentralized and decarbonized energy future now need to shout louder to be heard. This is compounded when one considers that some of the solutions to the current energy and climate crises may, when looked at on a standalone basis, are not immediately obvious.  Examples include Buildots, a platform that leverages AI and hardhat-mounted 360-degree cameras to capture images of ongoing construction projects during site inspections and inform decision-making accordingly, making construction more efficient and eco-friendly. This construction tech start-up – propelled by rising demand for commercial and residential projects, increasing complexity of these projects, and a shortage in manpower – has an addressable market of $1.3 trillion in the U.S. alone.

Expand the network, multiply the success
Collaboration is key to increasing the odds of success – a challenge on the scale of the energy transition can’t hope to be addressed individually. Just as established utilities and energy companies need the breakthrough technologies and outside-of-the-box thinking of these agile start-ups, the start-ups need a helping hand from them too.

For example, the high-profile exit in 2021 of gridX, the leading provider of smart grid intelligence in the energy industry, from Future Energy Ventures to E.ON has unlocked opportunities for the start-up to maximize the potential of its platform and access new value chains in this rapidly evolving energy market.

Seasoned yet progressive utilities hold a range of unique resources that these pioneers need for success. They can provide financial and strategic value-add, enabling faster innovation through pilot projects, as well as industry expertise, market understanding, networking opportunities and a pathway to new business and revenue streams. Such industry veterans that then double up as investors provide not just capital, but the right kind of capital for a real shot in this mushrooming space.

 

Jan L

By Jan Lozek, Managing Partner at Future Energy Ventures

 

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