The energy sector used to be clear-cut and well defined, but that has changed in many dimensions. From the upstream-midstream-downstream order to distributed energy, from regulated profits to low entry-barriers, from fossil to renewable, there’s barely an area of the energy world that hasn’t changed significantly in recent years.
A lot of the changes in the energy sector are caused by players that aren’t traditional power companies. Daimler is selling domestic batteries, Oracle is focusing on servicing the energy sector and Google has entered home energy management by acquiring Nest for more than $3 billion.
But not only large new players are changing the energy sector: more and more startups are entering the scene and a lot of those firms have been growing rapidly. Just look at companies like Next Kraftwerke, Limejump, Tado, Milkthesun, Thermondo, Greenergetic, Qinous, Sonnen, or Lichtblick to name some established startups from Germany and the UK — they all developed dominant roles in just a few years.
From a technology perspective, the borders within the energy sector are becoming increasingly fuzzy. No longer is it just about the best, cleanest, or cheapest power generation technology. Instead, enabling technologies are forming the energy sector: IoT is enabling smart metering, e-commerce players are bypassing the traditional value-chain and are going directly to consumers, data integration becomes crucial to handle the ever-growing complexity of sensor data and software systems. “Our data integration product has been used in many industries for years, but demand from the energy sector has been strongest. So we are focusing on this sector now, enabling smart-metering and smart-grid solutions internationally” says Thorsten Heller, CEO of Oslo-based Greenbird Integration Technology.
The change in the energy sector is picking up speed and is becoming ever more complex. For start-ups it is comparably easy to navigate through this evolving landscape, they just find and define new segments and adapt along the way. But for incumbent players like the large utilities, it needs more tools than just a strategy department. This is why many utilities have started new Venture Capital funds or partnered with existing ones.
More than just strategy department
Such (Corporate) Venture Capital funds by their nature can (and should) take a much broader view on what will define the energy sector in the future. Through backing smart entrepreneurs with money and know-how, they are building a large ecosystem of new players. These new players can develop into either a threat or an opportunity for the incumbent energy players. Looking at how startups are shaping other sectors (like the media industry) it becomes clear that the effects on the traditional players can vary a lot and can be influenced by them. While some incumbents have been driven out of business by former start-ups, others have partnered with or acquired startups. And acquiring a few startups might be the better alternative to acquiring a competing incumbent. The funds behind the startups will be happy to hand over their shares for a nice profit.
That’s why my personal prediction is we’re going to see increased M&A activity from incumbents as a result of this defining challenge in the coming years.
This article is by our VC contributor Matthias Dill, Managing Director, Venture Capital at Statkraft Ventures. He is a mechanical engineer at heart and enthusiastic about making the world a better place by partnering with smart entrepreneurs. Matthias is an experienced venture investor, prior to starting Statkraft Ventures he was with High-Tech Gründerfonds, Europe’s largest seed-fund.
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