The existential threat of covid-19 to humankind has set forth enormous transformation on a global scale. Much of the infrastructure sector is also undergoing an existential change, most notably in transportation and energy. The immediate impacts to both have been unprecedented and while the medium term remains uncertain, unequivocally they will face some demand destruction for some time to their conventional businesses.
New business models are, however, already challenging conventional infrastructure. For example, few could have imagined Zoom or Microsoft Teams evolving to become the biggest competitors to the transportation sector. Yet, the sector already undergoing profound transformation is energy.
The four Ds
The four themes that are transforming the energy sector are: digitalisation; displacement; decarbonisation; and disruption. Both digitalisation and displacement are being driven by technological innovation. Decarbonisation is being driven by both social empowerment – in terms of voting and choice of prosumers’ use of types of energy generation and usage – and technological innovation. Disruption is a by-product of one or a combination of all three and creates new entrants to existing business models and new business models.
No other infrastructure sector, other than telecoms, is being as enormously transformed by digitalisation than power. Digitalisation is the key technology enabling the transition to a net zero-carbon world by transforming every portion of the energy value.
As the sector rapidly moves to (intermittent) renewable energy, enormous amounts of data are and will be required to produce, transport, store, sell, procure and use energy, and to balance and operate the grid, on a real-time basis. The large-scale implementation of decentralised energy storage will not be possible without digitalisation.
Immense cost savings have been widely reported where digitalisation has been used. In addition, large emissions reductions have been reported. Anecdotally, in a report published in 2019 by Advanced Grid Research, Voices of Experience: AMI Networks and Data, the US utility Oncor reported a number of benefits by using advanced metering infrastructure. Per the report: “From March 2009 through December 2018, Oncor completed almost 31.4 million service orders remotely instead of having to dispatch personnel and vehicles to perform these tasks. This translated into: 157 million fewer miles driven; 13.1 million gallons of fuel saved; and 127,725 tons of CO2 not released into the environment”.
Covid-19 highlights the requirements for digital solutions, and related monitoring devices, to remotely operate and monitor assets across the value chain. Moreover, with large drops in demand and revenues, and a corresponding drop in power prices, energy companies will be even more incentivised to cut costs through digitalisation.
Technological innovation is also creating new business models that are displacing conventional structures and creating new sources of value and revenues, which are in many cases detrimental to traditional investments.
For example, residential/SME energy storage units are now being used to create a virtual utility. Specifically, companies such as Shell (via Sonnen) or Tesla can take their clients’ power, produced from their rooftop solar panels or procured from the grid, and sell it in swarms with other users at a profit while providing their clients a (lower) flat rate for energy.
“Covid-19 highlights the requirements for digital solutions, and related monitoring devices, to remotely operate and monitor assets across the entire value chain”
Another displacement technology is electric vehicle charging stations, which are being built in petrol stations, urban streets and within residences. The battery charge can be used to sell power back into the grid or power a home.
Finally, other energytech companies are creating new innovative technologies and applications. Heliatek, a manufacturer of organic thin film PV membranes, produces flexible and lightweight PV panels that adhere to infrastructure, buildings and windows. Depending on the size of the host, Heliatek can make the asset energy independent (with storage), so the owner is not relying on a distributed energy provider or use of the grid.
The greatest impact of covid on infrastructure is the acknowledgement of the vulnerability of humanity and the necessity to decarbonise the globe. Governments, particularly those in Europe, are utilising this economic downturn to reset their economies and focus on decarbonisation. Europe, the only region in the world looking to be carbon-neutral by 2050, has created an $824 billion economic recovery package to support those companies aligned with the EU’s €1 trillion Green Deal.
The magnitude of investment required to decarbonise is immense. Every existing and new commitment in infrastructure will have to take into consideration its carbon footprint, mitigation and/or reclamation (carbon dioxide removal) strategies. Energytech will provide critical solutions in measuring, monitoring, reporting and, where appropriate, mitigating, capturing and/or reclaiming carbon footprints.
In June, a Swiss carbon capture start-up company raised $76 million to develop its first large-scale units. More companies providing similar or other solutions are gearing up to supply enabling and economic solutions. A number of these technologies are out of the laboratory and are now being funded to be deployed and scaled up.
Collectively, these themes and related factors equate to disruption to the power sector. The entire energy value chain is completely transforming itself and every corporate entity and individual will be reliant on energytech. In addition to traditional investors, we are now seeing enormous amounts of capital being deployed into the sustainable energy sector by new types of owners such as asset managers and indirect corporates (oil, digital, automotive, etc). These entities will reshape the power sector as we know it and permanently change value propositions. For example, in the medium term, I envisage the likelihood where data will have equal or greater value than the sheer supply of electrons in certain regions.
Energytech will provide enabling solutions that will assist in the transition to a carbon-neutral world. Some investments will have infrastructure-like revenue profiles while others will display venture capital, private equity or hybrid risk/return profiles. Either way, this emerging sector holds tremendous opportunities for sustainable investors either seeking a stable flow of revenues or the potential for high growth and high returns.