There is only one future of energy and it will be sustainable.
Almost 60% of the civil wars fought in the last sixty years have been triggered, funded or sustained by natural resources. There is no denying that energy is a prime resource for any country in the world. It runs your mobile phones, data centers and if you can afford it, you are new Tesla. I studied in Slovakia and France and as a student of political science, I was fascinated by the role of energy in the countries’ politics and economy. It piqued my interest in the relationship between public policy and energy and the role of the industry and the private sector in changing the structure of energy systems.
We are now in an era where climate change has become mainstream in policy discussions propelling energy into the forefront of policy debates. Energy is responsible for up to 90% of CO2 emissions globally and unless we change the way we produce and use energy, we don’t stand a chance to alter the climate change pathway. The dilemma that the energy industry faces today is how to shift a sector with billions of dollars’ worth of assets invested in fossil fuel based technology into a new constellation which uses clean, decentralised and digital energy. This is the dilemma of big energy corporation and their innovation journey. It is a dilemma they need to solve because there is only one future for energy and it will be sustainable.
This dilemma is at the core of the work of Enrupt, a startup I created in December 2017. Our vision is to build energy companies of future based on clean, decentralized and digital energy. Our mission is to do that by creating structured partnerships where startups and corporations in energy build new solutions together. Our work stems from the result of an internal analysis - talking to both startups and corporations about what is currently missing in the ecosystem. It is also based on the results of research by some of the world’s leading universities, including the Massachusetts Institute of Technology.
This article is based on a talk I gave last week at Echelon Summit Asia, one of Singapore’s leading tech conferences.
I will write about:
How we, as an industry, will build a new type of energy system for the future based on sustainability - with clean and decentralised technologies.
The role of new tech - AI, Blockchain, Data Analytics tools - new tech as a distinction from energy technology that has always been part of the energy industry.
The place of startups in this new galaxy of energy sector transformation.
So what will the future of energy look like?
We are already acquainted with the big trends in the industry. We know that the future energy systems will be based on clean energy, they will be decentralised and they will have digital capabilities. Here is what decentralizing in the energy industry will look like.
What decentralisation means is that we are moving away from the large-scale infrastructure for power generation towards smaller systems. Today it costs 20,000 USD to build a 1 km. of transmission lines in a developing country, while it costs 700 USD to buy a solar home system. The solar home system is a good start, though it doesn’t yet cater to the growing electricity consumption the purchasing power of customers increases. It is like giving a thirsty person a small spoon of water instead of access to everyday water supply.
Today there are effective solutions that can present people living in remote areas (either villages or industrial or agricultural sites - mines or plantations) reliable electricity at a quality of supply that was reserved in the past only to large-scale infrastructure. These smaller systems are called microgrids and are already being build and delivering electricity in Sub-Saharan Africa, South and South East Asia or Latin America.
We are now witnessing ambitious experiments where developers are creating replicable microgrid models. Mlinda in Jharkhand, in Eastern India, is one of these experiments. Mlinda is on track to build 50 microgrid systems each of 40 to 60 kW and each serving a village of 200 households, activated within a few years. Mlinda works with the villagers to switch from diesel (high pollution driver) to solar energy and build local economic activities with women groups in the village.
Another example is RVE Sol which is building microgrid systems combined with local revenue generation opportunities. The system is called Kudura and in addition to renewable electricity, it offers water purification services. Kudura works in Kenya and can supply anywhere between 50 to 1200 customers with one scalable microgrid system.
Decentralised systems are not limited to those that are limited by location. With the development of battery solutions, we are witnessing the emergence of electric mobility solutions. The first thing that comes to mind is cars. Electric vehicles need to be charged, of course. However, in some European countries, pilot projects are underway which are exploring the use of electric vehicles as storage systems that can be charged and then discharged into the grid when there is a need. The car owners are incentivised to discharge with dynamic pricing. The interface between the grid and these individual, autonomous systems is managed by artificial intelligence. In this way, the owner knows when is the best time, financially speaking - to charge or discharge.
Decentralised energy works really well in tandem with clean energy. Today we have clean energy solutions at our disposal that lower the carbon footprint of energy production. Solar and wind energy are the most popular given their low technology cost and ease of deployment. However, there is a much wider choice available. Technology suppliers and developers on the ground are exploring varied options: biomass to energy applications using agricultural waste or wooden residues, geothermal energy which takes heat from the earth, and marine energy which takes advantage of sea currents and tides. Renewable energy is today on par - in many places around the world - with fossil fuels based electricity and heat production. Two developments make renewable energy affordable: a decrease in costs of technology, in particular, solar panels, components for wind and other installations, and a decrease in the cost of batteries that are used in combination with renewable technologies. The International Renewable Energy Agency predicts that this trend will continue. The levelized cost of electricity for solar and wind is projected to go down between now and 2025 - by 40 to 60% for solar and around 30% solar for wind.
New tech: The new way for energy sector transformation
Decentralised and clean energy and enabled by changes in energy technologies. What makes the energy sector transformation different today from past changes in the structure of the energy systems, are the applications of new technologies: Artificial intelligence, Blockchain, and Internet of Things. It is the combination of these technologies and clean energy which is changing business models in energy, particularly the utility sector.
The energy industry has today four opportunities which are being tackled by new technologies.
The first one is how to manage and leverage the huge amount of data that energy companies collect - we are talking about data from machines and processes and more importantly data about customers. Your energy provider knows when you change your phone at home or when you shower. Better technologies for the management of data could allow energy companies to do 3 things:
Improve management of their processes and hence enable better efficiency and more energy savings,
Ensure better management of customer relations and delivery of services that respond more closely to customers’ needs,
New tech capabilities around data and consequently creation of new services. The electricity company of the future will not deliver kWh, it will deliver a service, a home or office with 24/7 uninterrupted power supply.
The second opportunity is designing new, digital platforms connecting company assets from inside and its different stakeholders outside. The energy industry is still old school in terms of digital platforms for energy companies. We are trying to replace the classical structure of transmission grids with new digital concepts. We are designing a new way to build digital connections mimicking the old structure of the industry. Another way to conceive digital platforms is to design them as marketplaces where different players trade the value they build for the energy industry. Equipment manufacturers such as Schneider Electric and Siemens both have platforms that fit this concept. Finally, digital platforms are designed as a backbone for energy companies. Often, blockchain is mentioned as the most promising technology given its ability to be the carrier of energy and monetary value. SP Group announced its blockchain experimentation pilot a few months back which works along these lines and is directed at tradable renewable energy certificates.
The third opportunity lies in wireless energy transfer. Once we master the technology, new opportunities open. The immediate option is wireless charging and discharging of any type of device ranging from phones to electric vehicles. Though if we look at the bigger picture, the possibilities in the future are endless. We could be producing energy in space and transporting it wirelessly where it is needed. This could be a gamechanger for the energy of the future. We already think about space mining, so why not producing energy in the space?
The fourth opportunity is the emergence of prosumers or customers that are capable of producing their own energy with solar or other locally available energy sources. Moreover, producers have the ability to control their own energy use. Both local generation and energy management put energy companies in a tricky situation of decreasing revenue from their traditional customer base.
What about startups?
Startups play a crucial role in the energy sector transformation based on clean, decentralised and digital energy.
For the first time startups are on par with large corporations - meaning they can deliver the same innovations - fast and of the same quality. This has been done before in the energy sphere. The emergence of fracking, the process of injecting liquid at high pressure into subterranean rocks, to extract oil or natural gas is, in fact, an example of startup innovation. Fracking companies changed the history of energy in the United States, making it a net producer, they also change the geopolitics of energy shifting the centre of gravity away from the Middle East. Though, it took fracking companies several decades to develop and deploy their technology. Today, energy startups may take as little as five to ten years to bring about their own energy revolution.
Another characteristic of energy startups is that they are nimble and early adopters of innovative technologies. Microgrid developers for example and using today smart meters in their projects while we are still working on smart meters rolls out in developed economies.
What energy startups do particularly well is the combinatorial innovation. Energy startups combine new hardware, innovative software, and business model innovation to build a new type of energy services.
Still, energy startups face a number of difficulties - based the finding from our work as Enrupt and confirmed by a study conducted by a team from the Massachusetts Institute of Technology. Lead times for energy startups are longer. Customer acquisition can take anywhere between 12 months to two years. The initial investment required is considerably higher for energy startups than, for example, software startups given the costs of the actual physical assets and hardware. Deployment is consequently more difficult at the proof of concept and or pilot stage and this is where many energy startups get stuck. This is also where corporations can come in to support the startups.
Corporations are not staying idle in the energy transformation game. It has become more commonplace for energy corporations to work with startups. The attention is definitely focused on mature startups with an established track record. Corporations want to invest and have created VC arms to channel their investments. There is also a possibility to co-research - given the multi-billion R&D budgets of energy companies.
What is missing is a place where corporations and startups can run pilot projects and experiment together.
It is not surprising - new startups are risky and risk is what energy industry has learnt to avoid all cost. Electricity outages are measured by second. Safety and security of supply are the main KPI’s for oil & gas companies.
Still, the issue of risk is what we will need to deal with so that we can deliver the energy future we want - energy future which is sustainable. This is the value proposition of Enrupt. We focus on 3Ts: Transformation, Trust, and Transparency.
Since December last year, we have been creating an energy innovation ecosystem in Singapore and growing our presence in South East Asia, Middle East, and Europe. During this time we have run 7 innovation talks, 2 innovation arenas in the Philippines and in Europe and overall, we were present at almost 10 different industry events. All the activity has a specific goal: We want to bring corporations and startups together to speed up the deployment of new innovative solutions that make new energy future possible.
What we have confirmed is that demand is there - from corporate and startup side. We know that this is the energy sector and long lead times apply to us the same way as to everyone else. However - we as Enrupt , we are in it for the long run.
This is how we will build the future of energy which will be sustainable. What about you?