Digital energy for impact
Rapid energy transition has begun. We are witnessing the classic S-curve of innovation and disruptive change in the energy space and in the next decade new energy models may replace the incumbent ones, gaining market share of 80% or more.
This will include renewable electricity replacing traditional fossil-based energy, transportation sector switching to autonomous, electric and on-demand transportation services, and energy efficiency through high efficiency devices and processes.
This transition will primarily be driven through rapid and continuing transformation in cost-performance of technologies such as solar PV, wind turbines, energy storage, smart-grids, supported by digital technologies such as computing, data storage, digital imaging, communication networks, internet of things (IoT) and so on. By 2030, therefore, we may witness a world where energy is abundant, skies are clearer, transportation safer and faster, and roads are decongested. The devastating side effects of fossil fuel-based economy such as air pollution, climate change, oil spills, mining deaths, political wars, destruction of biodiversity and so on will be receding quickly.
Energy majors such as BP, Shell, Total or utilities such as NextEra, Enel, EDF, Duke, National Grid, Sempra, American Electric and product companies such as ABB, Schneider, Enel X have been actively working on expanding their footprint in clean energy for last five to 10 years and see the inevitability of the “energy transition” and its rapidly accelerating pace. While these energy companies and their corporate venture capital (CVC) arms are investing in data driven technology startups in their portfolios to accelerate the energy transition, the traditional venture capitalists are applying deeptech to energy to harvest new business models and use cases. This is creating a new asset class, which may be the holy grail of impact investments in the next decade.
Emerging Asia will be a very attractive marketplace for the new energy businesses
Emerging Asia, consisting of South Asia – including India – South East Asia and Australia-New Zealand, will emerge as a very important marketplace for the new energy businesses. The key factors underlying this assessment are a large and growing population base of 2.5 billion people, young demographics which can supply labour to serve global supply chains for next few decades, rapid urbanisation and infrastructure investments (more than 250 smart cities are being developed). The region has $7 trillion of GDP, which is expected to experience the fastest growth globally. The region has large energy imports of $200bn which may grow to US$440bn unless it transitions to new energy systems. The electricity demand in the region may grow at 8-10% driven by electric vehicles and growth of manufacturing, urbanisation and services.
Digital technologies will be critical for this energy transformation. The region has 1.2 billion users of internet and is expected to have extensive 5G rollout in the next two to three years. This will set the foundation for confluence of ‘new energy’ and ‘digital technology’.
Tech innovation in emerging Asia
The region has become a hot bed of startups. India has the third largest ecosystem of startups in the world behind USA and China, with 30 unicorns which is about 6% of global unicorns. This share is set for rapid increase. While India is developing enterprise tech addressing global needs (artificial intelligence, machine learning, microservices integration, API management, cloud networking including intelligent edge and vision computing), Singapore has emerged as the fintech hub for the region, whereas Australia offers unique intellectual property-led innovation in industrial automation, IoT and related areas such as location-based technologies.
New innovation – deeptech meets energy
In Asia, as we speak, AI is beginning to provide the needed capability to forecast energy demand and supply, and requisitioning various grid resources to respond, keeping the grid stable. The payment for the usage of multitude of grid resources, owned by prosumers, is being facilitated by technologies such as blockchain. A dozen-odd industrial IoT startups are using their technology to closely monitor the performance of grid and grid resources, so that billions of grid components can be kept in sync and operations optimised. Cybersecurity is the next big area of focus and an integral part of grid operations to ensure that energy systems are safe and reliable, privacy is assured, while trillions of interactions take place with billions of actors connected to the grid. Early and growth stage startups have begun repurposing their technology for remote operation and management of energy assets, using AI, drones and IoT for predictive maintenance and supported by strong business intelligence and analytics that would assure high levels of efficiency, life, availability, reliability and productivity
of assets.
Asia has been an early adopter of transportation and logistics services on demand using self-managed and self-healing electric vehicles. It is set to transform the shared mobility, micro-mobility and e-logistics segments that are already booming in Asia.
This convergence is enabling new business models and category leaders
A number of new business models are evolving to serve the energy transition.
Energy managers manage the overall energy mix, costs and reliability for customers. They make the necessary investments in smart meters, monitoring and control devices and equipment to meet the overall energy demand of a customer or a portfolio of customers. They improve consumption efficiency, source energy efficiently and manage energy demand profile to optimiae costs based on price signals from the grid. Energy managers can aggregate customers into portfolios and deal with utilities, generators or energy exchanges for optimisation of costs or to provide grid services and generate additional revenue streams.
A number of startups in the US, such as Advanced Microgrid Solutions, Ecobee, Innowatts and Sense, and in Singapore, such as Smarten Spaces, Digital Blanket, Barghest Building Performance, Green Koncepts, Sensor Flow, EverComm, are operating in the energy management space. A Malaysian company Eco2 Green Data Centre is offering efficiency services for data centres, which are very energy intensive.
Transportation as a Service (TaaS) is showing significant potential. TaaS can be offered as taxi services or driverless vehicles for point-to-point personal transportation within a city. The services may also be offered for commercial transportation of goods or last mile deliveries for e-commerce companies.
In India, TaaS using EVs is showing rapid growth. Smart E (three-wheelers), Vogo, Bounce and Yulu (all bikes) have been launched and have raised capital. Ola Electric is a TaaS platform across all types of electric vehicles and is also planning to backward-integrate into production of two-wheelers. Blue Smart offers four-wheeler EVs for personal transportation. Lithium offers corporate transportation and is rapidly shifting to EVs. Fareye, Leap India and Shadowfax are offering last mile delivery services. Infraprime Logistics has launched commercial goods transportation as service using 60 tonne EV trucks developed by them. Ninja Van (Singapore) and Gojek (Indonesia) are also developing large fleets of EVs.
New EV models are being developed by start-ups with no legacy experience. In India examples of such EV startups include Gayam Motor Works, Ather and Okinawa (all two-wheelers), Infraprime Logistics (commercial trucks), Cell Propulsion (buses), Pravaig (cars), and Celestial Technologies (tractors). Innovative battery companies such as Gegadyne Energy and Log 9 Materials have come up with promising technologies for solving key problems such as fast charging and energy density.
A variety of EV charging services are also growing simultaneously. EVgo, EV Box, Chargepoint are fast-growing independent operators, in the western world. Existing energy majors such as Shell, BP and RWE as well as automobile companies such as Tesla, Daimler Benz and Hyundai are setting up charging networks too. In India interesting charging networks are being set up by Sun Mobility, IOCL, EESL, NTPC, Okaya and others.
As renewable energy penetration grows, aggregators are being set up to serve the needs of customers. Aggregators finance renewable assets, manage them and trade surplus energy across customers or on exchanges. SolarCity in USA popularised this model. Sun Electric (Singapore), Cleverheat (Philippines), Cleanmax (India) and Ampsolar (India) are a few examples of such business models.
Pureplay energy trading platforms are being developed to respond to rapidly changing, infirm, decentralised renewable energy sources. Electrify (Singapore) and Power Ledger (Australia) are examples of such businesses using blockchain. Such trading would become essential with growth of renewable penetration, as the experience of India, Singapore and Australia shows. Other counties in the region are also contemplating moving to privately-traded electricity markets.
Remote asset managers are emerging to deal with the complexity of managing distributed energy assets. Envision Digital (Singapore), Bahwan Cyber Tek (India) and Climate Connect (India) are examples of companies which offer Software as a Service (SaaS) for operational management of renewable plants. Globally, companies such as SMA Solar, ABB, Siemens, Advantech and Ameresco offer SaaS for asset management.
Utilities are investing in smart grids and related technologies. The “carrier” (the hardware of distribution and transmission grids), “content” (electricity) and grid management are being separated. Specialised service providers handling asset management, cybersecurity, electricity procurement, demand management, customer relationships, billing, and staffing are emerging. National Grid has supported many startups to support utilities such as Attivo Networks (security), BHI energy (staffing and operational management), eSmart (AI based asset management), OpusOneSolutions (grid management) and so on. In our discussions with utilities in India and South East Asia we find them getting warmed up to the idea of contracting with specialised service providers and fast adoption of smart grids.
Summing up, we believe a confluence of factors such as superior cost performance and economics, continuing improvements in technology, positive policy frameworks, high level of customer interest and a rapidly developing ecosystem of new investors, product developers and service providers is coming together. The energy transition, requiring $2 trillion of capital in the next decade, will open up very attractive technology investment opportunities for digital energy in emerging Asia.