Meeting carbon neutral goals in the next 30 years is an enormous task, but human ingenuity is responding with an explosion of innovative solutions. Utilities have recognised that they cannot solve the problem with old world thinking and technology, and many are collaborating with start-ups in order to bring new digital skills into their business models.
But working in silos on technological advancement will not go far enough. A coordinated approach to identify policy and market design gaps will be required in order to push these technologies out of the lab and into the mainstream energy industry and people’s homes.
InnoEnergy, a sustainable investment group supported by the European Institute of Innovation and Technology (EIT), identifies innovators who can make an impact in sustainable energy, then provides support and in turn gets an equity position in the company.
EIT InnoEnergy showcased some of the innovative solutions it supports at The Business Booster in Paris last week and facilitated meetings with potential financial partners.
Key Performance Indicators:
440 minutes of pitching
EIT InnoEnergy CEO Diego Pavia, who has experience of setting up businesses himself, has some tips for hopeful entrepreneurs. “It’s not only about finance, it’s about the team, the supply chain, the off-takers, the growth in other markets…” He says there are three keys to success:
- Surround yourself with passionate guys
- Be ready to work like hell
- Be in a trusted ecosystem. The ecosystem will be the winner not the technology itself
Keynote speeches and panel discussions were given by high profile speakers including the CEO and President of EDF Energy Jean-Bernard Lévy, Former President of Ireland and UN Special Envoy on Climate Change Mary Robinson, Former US Secretary of Energy Dr Steven Chu, and CEO of Schneider Electric France Christel Heydemann.
“It is a sizeable challenge, and the unprecedented speed at which it must take place adds to the challenge,” EDF’s Lévy said in his keynote on Day 1. EDF has embarked on an ambitious plan to install 35 million smart meters, of which 21 million have already been fitted, and to add 1.5 million charging points, 30GW of PV power and 10GW of storage in the next 10-15 years. This is part of an evolution from a process to an innovative and customer focussed company which will include a €500 million/year research and development budget.
For some, a 2050 carbon neutral target seems a long way off. But the scale of the challenge is so huge that it will take at least that long to transform an energy industry built on fossil fuels into a system reliant on primarily clean sources.
Digitalising at breakneck speed
“Thirty years may seem like a long time but in industry terms it’s pretty short,” said CEO of Schneider Electric France Christel Heydemann. Having said that, digitalisation is driving at “breakneck speed,” and with the second wave connecting people to machines, the possibilities are endless. Sustainability is becoming mainstream and many companies are making brave climate commitments, which will require a cultural shift and a new spirit of cooperation. Schneider’s Electric Exchange will seek to spread innovation and good practices around the world, Heydemann said.
Large corporations are waking up to growing public pressure that they need to take responsibility for greening the supply chain. A coalition of 87 major international companies with a combined market capitalisation of $2.3 trillion and direct emissions equivalent to 73 coal-fired power plants has joined a coalition under the UN Global Compact aiming to keep temperature rise to 1.5 degrees centigrade. Amazon has made a bold statement that it aims to become net carbon neutral by 2040, which is "100% courageous leadership” for such a big company, said Dr Cyrus Wadia, Former Vice President- Sustainable Business and Innovation, Nike.
A consumer led movement is creating market pull for a different way of doing things, and businesses are more transparent in the digital age. “It’s really hard to escape the truth and that’s a good thing,” Wadia said.
Even small innovations at scale can make a huge impact, he added, outlining one Nike initiative to use scraps of leather to make a synthetic material that is less energy intensive.
But climate targets will not be reached without innovation, said Dr Chu. He devotes his time now to developing the next generation of lithium-sulfur batteries, which are safer and easier to procure the raw materials for than the compounds required for currently commercial lithium-ion batteries. Lithium-ion batteries have plummeted in price but may be pushing the boundaries of technological capabilities.
“Ultimately you need to go to a different design after you’ve engineered it to death,” he said.
One of the battery start-ups germinated by EIT InnoEnergy and exhibiting at the event was Northvolt, a Swedish company that with investment from Volkswagen Group, Goldman Sachs, the European Investment Bank and others is building 16GWh lithium-ion gigafactories in Sweden and Germany. More than $13 billion of orders have already been secured through 2030.
Another battery company exhibiting at the event was Elestor, which has designed a flow battery with hydrogen and bromine as active materials. A wide range of energy storage solutions was on display, including Skeleton’s ultracapacitor technology, and Ecovat’s underground heat storage systems. EIT InnoEnergy launched a Business Investment Platform for batteries at the European Battery Alliance’s stakeholder meeting in September to accelerate transactions between investee and investor.
But while costs for energy storage systems are coming down, they are still expensive and should be considered a ‘last resort’ option to drive decarbonisation. Two major obstacles to ensuring the most cost-effective energy transition are a distorted incentive framework for utility cost recovery and the fact there is no global price on carbon emissions. A marginal carbon price of at least $60-70/ton to drive emission reductions, or $100/ton for CO2 capture, will be required for the tax or trading scheme to have teeth.
“If you’re going to pollute there has to be a price on it and it has to be a substantial price,” Chu said.
Avoiding the utility death spiral
Even oil companies such as Total Energy Ventures represented at the event said they supported some form of carbon tax, although they did not specify at what level. And the laggards are playing catch-up. Polish energy supplier Tauron, currently running 90% on coal, has plans to develop a virtual power plant, microgrids and energy islands so it can integrate renewables, said Paweł Poneta, Tauron’s director for research and innovation. Utilities are moving from a having a hard asset base to a service model, but it remains to be seen how many will succumb to the ‘utility death spiral’- where more nimble players enter the market with digital tools that take market share, leaving the utility forced to increase prices on its existing customer base to survive, only to drive customers away faster.
But while utilities have recognised the benefits of working with start-ups to drive innovation and thrust themselves into the digital age, there is a growing problem in terms of skills, says InnoEnergy’s innovation director Elena Bou. “If we really want the energy transition this dimension is central to the equation,” she says. In the global talent energy index – 40% of oil and gas and 32% of electricity leaders think they are facing a skills crisis. Partly driven by retirements, new digital skills emerging, but also young people simply not being interested in working in energy, the bottleneck is not raw materials - it’s skills, she says. With the global battery market projected to be worth $250 billion/year by 2025, there will be a sharp rise in demand for chemical engineers.
The idea of the classroom is changing, says Alliander’s technical business school manager Rolf Deen in a session on the skills gap. Training is now undertaken in a more collaborative approach with hands-on learning, rather than passively watching a teacher present a lesson. “We are bringing the workplace into the classroom, and the classroom into the workplace,” he says. IT applications such as virtual reality and learning tracking systems are being used, and the HR community will be upskilled to use data in the recruitment and training process.
There is a clear business case behind InnoEnergy’s focus on the human side of the energy transition. Success metrics for start-ups are defined incoherently, says Luis Sperr, business creation manager at EIT InnoEnergy. Many investors will say the team is what is most important in a start-up, but when they do their due diligence they still look at the technology and the financing. While those are both important factors, it is often the people who mean the difference between success and failure, Sperr says.
Just as important as within the industry is the behaviour of the consumer at home. Consumers are said to be at the heart of the transformation of the energy industry, but if they do not accept a new technology it will stall. Product developers should think about the consumer readiness level as well as the technology maturity at the same time, Bou says.
“We have to change from thinking we have to educate, to we have to listen,” she cautions.
The good news for anyone working in the electricity industry is that the electrification of energy will accelerate as climate targets get tougher. Further, digitalisation is an essential enabler to facilitate the low carbon transition.
EIT InnoEnergy will continue to bring together investors and start-ups to boost business in innovation. “We want transactions and we want action,” Bou says.
The next The Business Booster will be in Berlin in 2020.
EDF Energy and the Electric Power Research Institute will gather high level industry executives at the inaugural Electrification Europe Summit in Paris on 16-17th October.