When it comes to European utilities, their corporate venturing activities can be divided into two generations. The first generation was driven by the technology boom end of the 1990s with a wide technology focus and in many cases passive investments managed by non-corporate venture capital (VC) partners.
The second generation of utility investments in corporate venture vehicles started four years ago with focused investment strategies and very strong links to the corporate strategy officers and experts. The second-generation teams are grown in the corporations themselves and enriched by hiring external VC know-how.
Both generations had to deal with the fact that utilities are cyclical.
However, the clean-tech-focused activities of the second generation are benefiting from the lessons of the first generation. In addition, utilities have the following very strong needs in clean-tech that override considerations of cyclicality.
l The push for renewable generation is putting traditional generation technologies under pressure, especially as regulation leads to indirect competition in separated generation markets.
l Smaller, decentralised power generation structures start to compete with what has been the core of the success of the utility sector in the last century – the large, centralised, power generation units.
l Converging telecommunications and energy markets lead to product innovation speed unseen in the industry so far.
l Continuous electrification of non-energy sectors, such as transport, enable new business models that go far beyond the traditional role of utilities.
All these trends lead to pressure on the existing utility business model as they very quickly undermine the traditional and simple energy resale and distribution margins.
Four years ago the second-generation funds were started with the view to enable insights into the viability of new technologies, to be prepared once commercialisation happened. There are opportunities connected to these four trends and this leads to corporate venture capital being used to facilitate the understanding of key innovators in these trends, to bridge size gaps and build new alliances.
In the past few months, despite debt challenges, the trends continue and are further fuelled by the catastrophic events in Japan, which have called into question the use of nuclear power as a renewable power source.
Those of us in the industry see now as being about delivering growth for the utilities and no longer just "nice to have" options about how to be innovative in the future.
In order to deliver on this innovation need, the corporate venture funds and the utility sponsors have to step from "sensing and sourcing" to "adapting and integrating" – to make a reference to the innovation analysis provided by Peter Bryant in the May issue of Global Corporate Venturing – and to engage with the full weight of the corporate.
In order to provide the right answers, the corporate venturing fund manager will need to break out of the traditional corporate venture fund structure and strengthen alliances beyond its home sector.
Innogy Venture Capital invests for RWE Innogy in carbon neutral, central and decentralised renewable energy generation and storage technologies in Europe through Innogy Renewables Technology Fund I. Crispin Leick can be contacted at crispin.leick@innogy-ventures.com