Clean energy startups have to leverage corporate partnerships to grow
Clean energy is in the spotlight. Investment numbers are up. BNEF has just concluded that 2017 annual clean energy investment will probably outpace the 2016 total of $287.5 billion. Renewables have already surpassed other energy sources in capacity additions and it continues to grow. Even oil and gas majors have noticed this trend and are investing in clean energy.
The blossoming clean energy industry is a good place for innovation. New startups are emerging to address the three facets of energy sector transformation: Decarbonisation, decentralisation and digitalisation. Partnerships with strong corporate players can make a tangible difference to startups operating in the energy sector. The networks, expertise and funding allow them to scale faster. In this article we will focus on three aspects of partnership building between startups and corporations:
- Reasons why clean energy startups fail and how partnerships can help them.
- How corporations structure their partnerships with startups?
- Partnership options that startups can explore besides energy corporations.
Who are the potential corporate partners that innovate?
Traditionally, equipment manufacturers have been investing in innovation and continue to do so today. General Electric and Siemens have their own innovation arms and are already reaching out to startups for collaboration opportunities.
Utilities are coming into the innovation ecosystem as incumbent players with a new vision. The future of utility business is in clean, decentralised solutions based on digital technologies and utilities are pursuing this path. For example, annual investment in disruptive energy by utilities in Europe and the US has tripled since 2010 based on GTM Research.
Major Oil companies are increasing their presence in the clean energy sector. The number of acquisitions, project investments and venture capital stakes by oil majors has doubled in this segment between 2015 and 2016.
On the other hand, we have new, non-energy players with a completely new vision for the sector articulated around technology – Microsoft, Facebook, and Tesla. Tech players are making strides in the energy sector of the future. Microgrid Investment Accelerator created by Microsoft and Facebook is one concrete example of how tech companies are getting their feet wet in the energy sector.
Why clean energy startups fail and how partnerships can help
Clean energy startups have their specific needs. An -MIT study looked at the life cycle of cleantech startups which include those operating in the energy space. The study concluded several interesting insights. Launching a clean energy startup can be difficult as compared to other sectors like e-commerce or fintech for the following reasons:
- Timelines for the development of the solutions are longer.
- Solutions are expensive to scale.
- Increasing competition in the sector means decreasing margins and consequently decreasing funds for R&D.
- Incumbents are reluctant to take risks, especially on solutions that lock them in with a specific technology.
Against this background, partnerships with corporations can help startups address these 4 issues:
- Longer timelines are more acceptable for corporates who have their own R&D.
- Corporates offer an opportunity to reduce costs of scale by plugging into an existing network of suppliers and clients.
- Corporates have funding available at hand.
- Risks of scaling can be decreased by learning from an established system for HR/supply chain/distribution
How corporations structure their partnerships with startups
Partnerships work only if there is something to gain for both sides. Corporations can benefit in several ways from engagements with startups. Their learning journey can be adapted to the specific needs corporations are aiming to address. Here are a few areas where energy corporations can learn from startup insights;
- Exposure to innovations and understanding of ongoing transformation in the market.
- Learning about business model innovation. Utilities, in particular, are aware of the shifting business model from large assets locked in customer bases to smaller modular power systems based on the provision of services rather than kWh.
- Innovating customer engagement and reaching out to new customer segments.
- Identifying new technologies, artificial intelligence, big data, predictive analytics, and how they can amplify the already existing business process and create efficiencies.
Corporates have several ways of building a partnership with startups. An INSEAD report outlines how the world’s biggest companies deal with startup revolution. The report identifies eight different ways corporations can build relations with startups ranging from simple events to mergers and acquisitions. Each is different in terms of benefits for startups, level of engagement and resources which are required. How does it translate into practice?
We have already few examples to get inspired by how startups and corporations build partnerships.
- Utility Startup Accelerator: Free Electron. The Accelerator brings together eight utilities from across the world to support shortlisted startups with utility sector relevance. The benefits for startup participants include access to deep industry experience, expertise, and funding. 12 startups participated in the programme which took place in several locations in the US, Europe, and Asia Pacific.
- Oil and gas major transitioning into wider energy space: Techstars Energy Accelerator in partnership with Equinor (ex-Statoil) offers an opportunity to startups across the world to speed up their go to market with a combination of strong partners.
- Clean energy accelerator: The Clean Energy Trust is an accelerator in the Midwest of the US. The Clean Energy Trust specialises in commercialising research from labs and universities into the market. A number of private corporations sponsor the accelerator along with the government, charitable foundations, and research institutions. The fund has a business model based on investment in early-stage technologies.
- Strategic partnerships: Partnerships can be structured as a one-on-one relationship between corporations and startups. A good example would be the partnership between Engie, and a local startup, in this case, a developer of solar PV micro-grids in Indonesia, Electric Vine. This is a joint venture with a specific objective to develop, finance, build, operate and maintain photovoltaic smart micro-grids to serve approximately 2.5 million people across the Province of Papua in Indonesia. The investment is estimated at $240 Million over 5 years.
Few partnership options that startups can explore besides energy corporation
But what if a startup is not ready for a financial commitment or tie-up with a specific corporation? These four allow startups to create leads and explore partnerships with a lesser commitment.
- Joining an industry association, which allows startups to meet with potential suppliers, clients or financiers. For example, The Alliance for Rural Electrification brings together 120 companies across the whole value chain of off-grid renewables sector. The Alliance offers discounted membership fee for startups.
- Another option is to engage with one of the university research programmes that are interested in engaging with startups and allowing them to experiment. An example is the Smart Villages Initiative hosted at the University of Cambridge.
Clean energy startups have to leverage corporate partnerships to grow. They can build fruitful links with corporations if their expectations are set realistically. This entails at least four different issues:
- Partnerships are not a silver bullet that guarantees the success of a startup.
- Partnerships with corporations can help with 4 challenges which are specific for clean energy startups: Long timeline, high initial investment, reduction of costs related to scaling and reduction in associated risks.
- Partnershis can be successful if there is a win-win for both, startup and corporation.
- Corporations benefit in a number of ways from startup engagement and can adapt the scope and depth of the relationship based on their current needs.