Key trends to watch out for in 2019
Globally, the annual investment in the energy sector is valued at almost 2 trillion USD. This investment has been spent more or less the same way over the past century. We have been building multi-billion production facilities for oil, gas and coal and power generation assets. We have been building transmission grids, oil and gas pipelines and tankers to carry energy products in their many forms to the consumption centers across the world. And then, we have been building power distribution infrastructure and petrol stations to get the energy to its final consumers.
Times are changing though. Over the past 3 years, renewables have dominated the additions in power generation capacity over traditional fuels. Consumers are building their own on-site generation capacities. With digital tools, consumers can understand and control what they consume. This shift from centralised, analogue and traditional fuels based system to decentralised, digital and clean energy will continue this year, albeit at a different pace in each geography of the world.
The following are top 5 trends for 2019 that Enrupt will be looking out for because they will reinforce the energy sector’s transition path:
We will see more practical examples of blockchain deployment in combination with more mature technologies such as IoT and AI. This year, there was a lot of talk about blockchain, though very little action took place on-ground other than a few corporate projects. Singapore Power is trading renewable certificates with blockchain. Vakt Global, an oil trading platform, co-developed by Shell and BP and consortium of other companies interested in oil trading went live at the end of 2018.
Undoubtedly, companies such as Power Ledger and LO3 Energy are bringing blockchain to the hands of the end consumers to trade their renewable energy production on peer to peer basis using blockchain applications. We need more projects though that go deeper into the operations of companies and diversify benefits of blockchain at scale across wider consumer base. 2019 will be a year when we will see more diverse applications of blockchain with companies such as Verv that combines blockchain with AI and IoT capabilities to source smart home data faster and at scale. The combination of blockchain with more mainstream technologies and applications that target final customers is what will help us to deploy it at scale.
We will witness the acceleration of sectoral convergence between oil & gas and utility companies reinforcing the concept of an energy company of the future. In 2018, we have seen considerable investment from major oil and gas players into renewable energy and utility sector as a whole. Shell has an annual investment target in clean energy of 1 to 2 Billion USD in total. On the other hand, Total made several renewable energy investments such as in solar power manufacturer SunPower and energy storage provider Saft. This trend will continue and diversify into other segments, including mobility and logistics as oil and gas players are preparing for the low carbon energy future. The surprises could come from a combination of technology (hardware) investment in startups with digital and business model innovation at scale. The intersection of mobility and logistics could be one of the segments prone to to the attention of large majors especially with the growth of e-commerce in Asia. Given that clean and digital energy still represents only fraction of investments by oil and gas companies, less than 3% of total capital spend since 2010, we are up for some surprises.
The shift away from oil, gas and coal investment into new energy will continue and offer new opportunities in more diverse market segments. Investors from US and Europe are already screening their investments portfolios for carbon related exposure. This means
1) Progressive disinvestment from selected oil, gas and coal assets. For example, power generation using traditional energy has already been labelled as high risk in a number of markets, especially with liberalised regulatory regimes (e.g. Philippines).
2) Renewables are not sufficient anymore in terms of opportunities and we see investors that are eyeing more unconventional energy options. These includes microgrids, digital solutions and more generally startups that offer solutions for clean and decentralized energy transition.
One of the winners of this trend could be innovative startups with solutions for the energy sector. Energy players who have been so far investing in more mature solutions are looking upstream into young, innovative solutions as an investment target. We will see corporate investors and funds with energy interests looking at startup equity opportunities, first on an ad-hoc basis.
Governments will attempt to catch up with the pace of change of energy transition. Innovative investment approaches will be explored in the public space in addition to policies and regulations that foster innovation.
A combination of decreasing technology costs and digital solutions has had tangible impact on public infrastructure planning in energy sector. Investors have traditionally recuperated their RoI based on cost of energy unit sold / transported. Innovative business models and decentralisation of market players that work in a dynamic environment makes it more challenging to anticipate and regulate energy volumes sold over the main grid.
The government’s are having hard time impacting energy transition through regulation. Their action is slow and mostly reactive. Their potential lies is in contribution to energy transition through investment. Government backed entities, for example, play a major role in financing renewable energy and energy efficiency investment. This year has seen some creative attempts. The Breakthrough Energy Europe, a 100 Million EUR fund, was created as a public-private partnership between Breakthrough Energy, investment initiative led by Bill Gates and the European Investment Bank. The Fund was designed to help Europe hit climate goals with more radical energy technologies.
We will see more collaborations between governments and private investors to target a combination of long-term nature of energy assets and new innovative technologies.
Customers will continue to take the driving seat of the energy transition in the commercial and residential segment supported by innovative digital solutions. Corporate procurement of renewable energy is progressively changing how power is supplied to corporate buyers across the world. While the movement started in the US and Europe, we can see that Asia and Sub-Saharan Africa are catching up.
Residential customers have more choices at their disposal, for example, to choose renewable power supply..
Sourcing of power and to some extent, heat supply is where customers demand to be in the driving seat. They are more conservative when it comes to their energy management and energy efficiency. Digital solutions offer today new options with low upfront investment that deliver tangible savings on energy bills over time. In 2019 we will see more customers, in the commercial, industrial and residential segments experimenting with their energy management options. Innovations will be pushed into the market by young startups employing IoT and AI yo deliver more efficiency at lower cost. BeeBryte is a great example of a startup that combines new technology and market pricing to deliver value to its customers, heavy electricity users.
Looking at the global map of energy transition, we will see an interesting mix in 2019. Innovative solutions, especially in terms of business models are not limited anymore to developed markets. India as much as Australia will be the world’s laboratory of clean, decentralised and digital energy. The US and Europe will produce more startups centered toward energy consumers. China will continue to bulldoze its way into the technology future of energy. Proof of concept at scale is what China does best. We will be watching out for its ability to export its business model and digital innovation outside of its borders..
What do these trends mean for the energy innovation industry? The good news is that we will see more space for experimentation - from oil and gas majors and utilities with an open culture. There is a gap though, which we still need to fill which is opportunities for proof of concept at scale with the world leading energy players and seed to A-series investment in new energy innovators. This leaves us with homework for 2019 and exciting avenues to explore.