This article was contributed by Pradeep Tagare, Head of Corporate Venture Capital at National Grid Partners.
Net Zero has become the worldwide rallying cry to attack climate change. We see companies of all sizes announcing aggressive targets to become carbon neutral – some by 2030, most others (like my employer, National Grid) by 2050. In fact, so many companies are taking the plunge that corporate investors (including Amazon and Microsoft) and major financial institutions (such as Blackrock and Wellington) have announced multi-billion-dollar funds to invest in startups enabling Net Zero.
Others, such as Bill Gates’ Breakthrough Energy Ventures, are focused on encouraging and supporting fundamental technology shifts that promise to save our planet from ourselves. The number of venture capital funds focused on clean energy and the energy transition is growing exponentially. The broader investment community is also facilitating the flow of capital into renewable energy through green-branded ETFs and other mutualized securities. The recent spate of clean energy SPACs and the valuations they command are testament to the pent-up demand for commercially viable “green companies.”
Does this frenzy remind you of the Cleantech 1.0 days? The billions of dollars that were invested across all kinds of cleantech companies a decade ago ultimately failed to deliver an attractive financial return. While one could argue that those investments built the fundamental building blocks (solar, biofuels, etc.) that are so critical to making progress in this space, they couldn’t maintain the momentum on an exponential curve.
Unfortunately, capital alone is insufficient to address our climate crisis. That’s because successful decarbonization will require more than some technological innovation here and a new business model there. Successful transformation of the global energy market will ultimately require formation of a highly complex, highly adaptable energy supply-chain and-market-management infrastructure. This not only will make decarbonization technically feasible but also will ensure it is macro- and micro-economically viable.
And hopefully, this time around, the ecosystem has matured enough to tackle this “Green Complexity,” as I like to call it. Cleantech 2.0 is here, alive and kicking, driven primarily by Net Zero!
Hardware, Software, and Markets
Energy supply chains and markets as they exist today are already complex. But the future we must build together will be even more so. The emerging phenomenon of Green Complexity can be understood in three dimensions:
Hardware (Physical infrastructure): Renewable energy production is inherently more complex than the pumping, transport, and burning of fossil fuels. Solar panel technology is a prime example – as is the fact that solar panels will be distributed across more locations and a more diverse set of owners than electric wires and gas pipelines. The variability of solar and wind production also adds complexity to sourcing, distribution, and delivery; since the sun doesn’t always shine, storage and scheduling are critical. Deploying Carbon Capture technologies at scale is a challenge, as they’re still nascent. Hydrogen, while clearly the superior and cleaner
solution to natural gas, presents huge obstacles of manufacturing, transporting, safety and usage.
Software (Digital infrastructure): Most companies today are struggling to understand their baseline in terms of carbon footprint and therefore are struggling to develop mitigation plans. Effective, hyper-efficient management of more complex and physically distributed physical infrastructure requires more sophisticated digital infrastructure. This includes remote control and monitoring of assets in the field (IoT); intelligent optimization of transmission and distribution networks (AI); and data-enabled carbon monitoring and reduction strategies (Analytics). Pervasive digital infrastructure also requires its own increasingly complex management, security, and compliance capabilities.
Markets (Market infrastructure): All the physical and digital infrastructure in the world won’t help us if pricing doesn’t make sense and markets don’t function. So in addition to the right technology, we need business models that provide the stability, predictability, and cost/benefit ratios that support energy transition in our march to Net Zero. These problem-solving models include initiatives such as Virtual Power Plants, Blockchain-enabled “green commodity exchanges,” financialized life-of-asset production assurance, and bespoke accounting-and-billing systems for tomorrow’s highly complex sourcing, delivery and capture ecosystems.
Again, this is a lot of complexity. But there’s no denying it if we want Cleantech 2.0 and Net Zero to be successful. All our technical innovation will be for naught unless we successfully situate that innovation in the context of this increasingly multi-dimensional Green Complexity.
The investor as orchestrator
Green Complexity presents a once-in-a-lifetime investment opportunity, as traditional energy companies get disrupted and companies in other large verticals such as manufacturing get penalized by shareholders for not delivering on their Net Zero pledges. Both strategic and financial investors are gearing up to place bets in this space, and we expect hundreds of billions to be invested in the next 10 years – especially with the much-anticipated rollout of the Biden Administration’s energy policy. National Grid is leading the way as a strategic investor through the $400M, Silicon Valley-based corporate venture fund we manage at National Grid Partners (NGP).
Having a corporate parent such as National Grid is a huge advantage in this evolving space. For example, National Grid was one of the early companies to pledge to Net Zero and is a proud Principal Partner of COP26 (the 26th UN Climate Change Conference). Understanding the “3D” strategy (Digitalization, Decentralization, and Decarbonization) of a thought leader in the energy industry gives NGP a vantage point to evaluate opportunities in Hardware, Software, and Markets. We also have partnered with more than 60 other like-minded utilities to form the NextGrid Alliance, an industry coalition for senior executives to share best practices and ensure a coordinated effort towards Net Zero.
We welcome the opportunity to work with entrepreneurs, co-investors, and other fellow travelers as we all come to terms with Green Complexity in our quest for Net Zero. If you’re working to solve one of the many challenges in this space – regardless of the stage of your company – and want to engage with one of the world’s largest investor-owned energy companies, please contact us.