How To Spot Early Investment Investment Opportunities in Smart and Digital Energy
Dr Neil Williams says a host of new clean start ups will flourish despite government meddling
The much-needed transformation of energy is described eloquently in books such as Jeremy Rifkin’s “The Third Industrial Revolution” and Amory Lovin’s “Reinventing Fire”. The themes that resonate with me are:
Renewables: We are moving away from fossil fuels towards electricity generated by wind, solar, hydro and other technology
Transportation: Electrification is helping to take dirty and inefficient fossil fuels out of road, rail, sea and air transportation.
Buildings: Digital controls combined with products which leverage technologies such as far field infrared, energy storage and solar PV offer increased efficiency and flexibility.
Grid: Electricity storage, sensors, embedded computing and the internet make the grid more flexible, robust and better equipped to handle distributed renewable generation and flexible loads.
This smart and digital energy system is creating a myriad of early stage investment opportunities. ‘The hierarchy of powers’ model from Geoffrey Moore is a useful tool for investors in this space.
Category power is evidenced by the range of ventures securing finance in distributed generation, smart grids, smart metering, energy storage, demand side management, smart homes and electric vehicles.
The complexities of assessing company power is illustrated by considering Tesla. Who is in the competitive set? Ford and GM? Perhaps it is the gas and electric utilities or the oil majors? Or is it other smart energy players like Sonnen?
Luckily, evaluating the status and prospects of a specific early stage firm relative to its competition is never as difficult as making sense of Tesla. That is unless blockchain is a lynchpin of the business model!
Market power is measured by word-of-mouth reputation within a community of reference and is confirmed by market share specific to that segment.
Solar PV shows how a range of markets can exist within a single sub-category. Bonds from Bristol Energy Coop, Ecotricity, Good Energy and others continue to be attractive propositions even with subsidies being slashed.
Multi-sided platforms like Green Dealflow and Wunder Capital bring together investors, developers, land owners, VCs and family offices to create more value together.
The solar PV markets provide opportunities for risk-taking entrepreneurs in creating innovative business models and for optimisers to maximise returns from proven solar PV technology.
Uniti, the Swedish EV start-up, has worked hard on building offer Power. They position their vehicle both as a second car for families and as a must-have gadget for millennials. This effort and attention to detail is necessary when considering the competition includes well known brands such as Tesla, Nissan and Smart.
Additionally, Uniti also has to consider that many of their target customers are disillusioned by the status quo and may prefer not to own a car at all
Finally, execution power is the ability to outperform a competitive set under conditions that favour no-one in particular. Become Energy is an early stage start-up that is balancing its current book of business with building for the future. They are efficiently delivering bespoke I&C scale battery storage projects whilst pulling together the people, processes and technology needed to turn their business into a volume operation.
The breadth and scale of opportunities I see close up indicates that there is a strong and diverse investment landscape for smart and digital energy in Europe.
As elsewhere in the energy sector, regulation is an important consideration. In the UK, the political class seems to go against the grain of what’s coming down the pike.
Brexit, Hinkley Point and Labour’s promises of public ownership are rooted in command and control politics. I firmly believe that this approach will have no place in the open, widely distributed, loosely coupled and highly cohesive energy system of the future. Luckily, the technology and economics are so powerful that meddling politicians may do little to stem the tide.
Comparisons with the computer industry are self-evident. Investors are betting on who will be the Microsoft, Oracle, Apple or Google of smart and digital energy. They also have an eye on which “main-frame” incumbents will survive and thrive in the brave new world.
About Neil Williams
Williams is the founder of UK-based smart energy professional services provider, Tilix. The firm helps new entrants to the market to meet stringent requirements and deploy smart energy solutions. Williams is also the founder of the Tilix Angel Syndicate, which invests in and advises clean tech start up.