How do you bet on the next big thing when your job is to keep the lights on no matter what?
Utility business models are changing after a century of general continuity, and some companies are looking beyond the already well-proven technologies. Enter the investment firm Energy Impact Partners, a group of 16 global energy companies, including major utilities such as Southern Company, National Grid and Xcel Energy, that represent a cumulative $263 billion in market value.
For the past two years, the group has sought out companies and entrepreneurs looking for an infusion of capital and large-scale energy expertise. In exchange, EIP’s companies get a direct line to cutting-edge technology that could pose threats -- or opportunities -- to their business.
“Quite frankly, for up to 100 years, it has not changed all that much. The basic fundamentals of the utility power generation have remained fairly stable,” said Hans Kobler, EIP’s CEO. “That is about to change dramatically.”
Kobler calls EIP “a hybrid between a corporate and a financial investment arm.” The fund grew out of a similar concept of strategic technology investment pioneered by some members of the team while at General Electric -- and, like many venture funds, EIP is looking for a special sauce.
But its goals differ from the flashy, next-big-thing tendencies of Silicon Valley investors. Because the partnership is pioneered for and by utilities, a notoriously traditional and risk-averse group, EIP is more cautious in its investments.
“We’d like to find companies ready for prime time,” said Kobler. “We are conservative investors.”
They’ve selected businesses such as energystoragecompany Advanced Microgrid Solutions and smart energy monitor company Sense. And in July, they offered a “significant investment” to charging company Greenlots, EIP’s first step into the electric-vehicle sector.
So far, the rigorous bottom-up and top-down process EIP uses has yielded investments in just 12 companies.
First, researchers devise a long list of companies making a name in the sectors that utility partners want to pursue. Next, the partners weigh in on any individual experience they’ve had with the companies. Then comes a round-robin-style pitch session, where companies meet with a group of representatives from the utilities.
They’re then ranked and stacked against each other. Those that rise to the top get the money.
The process may sound similar to what many venture funds go through, but Kobler insists there are added barriers -- physics, for one.
Rather than considering a product’s viral potential alongside its high risk of failure, utilities also have to weigh the distribution of electricity because they have to keep the lights on -- not a simple task -- and, as Kobler says, “You cannot FedEx electrons.” Then there’s the constantly shifting regulatory landscape (take Rick Perry’s recent request for rules to buoy nuclear and coal, for example) to contend with.
Still, much like their counterparts at Google and Facebook, EIP’s investors do have a penchant for tech trends. When asked what sectors of the clean energy industry will be of particular focus for the fund in the next year, Kobler rattles off a list of sensible choices including electric vehicles, distributed energy resource management systems (DERMS), storage, and then one area that has the Valley atwitter as well: artificial intelligence.
EIP’s interest in hot areas like AI may seem a bit trendy for an investment fund that prides itself on its cautious choices, but wading into less-traversed territory also makes sense in an industry that’s notoriously difficult to invest in. Right now, the winners in renewables are still being decided and the contest could go any way. Utilities know the ball is still in the air.
And though Kobler says EIP will maintain its conservative strategy, he also says it’s not all about the financials.
Of course, utilities buying into a venture fund want to see a return on their investment. But utilities also want to get closer to the customer experience, and learn strategies for hardening their systems and changing infrastructure as the energy industry moves to its next chapter. By investing now, they hope they’ll continue to lead the tide instead of getting left behind.
“They all know their culture has to change,” said Kobler, adding that the fund’s innovation working group, which focuses on groundbreaking technology, has the broadest attendance of any.
“They know something is coming; they know they have to change,” said Kobler. “They are very, very eager and active to learn.”