There’s no shortage of new ideas in the world of energy technology. But how many are relevant to the energy industry? Neil Hughes, Head of Technology at National Grid, explains why working with venture capital firms is delivering more focused innovation and, in turn, value for industry, regulators and society.
“Just as we need to understand new technology, our partners need to understand the regulatory climate within which such technology must operate.”
Neil Hughes, National Grid's Head of Technology
The US Venture Capital community invested $5bn in clean energy start-ups in 2012.
Source: 2013 Clean Energy Trends, Clean Edge
For an engineer like myself, there’s never been a more exciting time to work in the field of energy technology. New ideas are cropping up everywhere, many of which can help us solve the enormous carbon reduction challenges we face in the 21st century.
At National Grid, our work encompasses all elements of the energy industry, so tapping into new technology is vital to our future success. Innovation is a very broad concept, of course, and can mean everything from small-scale changes in processes and systems through to larger, ‘game-changing’ technologies.
Both are equally important, but my role is more concerned with the latter – spotting large-scale innovation that’s good for the environment, affordable, commercially viable and improves operational performance.
Positive, fundamental impact
In addition to such technologies, National Grid is very interested in the ‘transformational’ ones, those that will have a positive, fundamental impact on the way we live and work: the Facebooks and Twitters of the energy industry, if you like.
We look for these ground-breaking ideas across a range of different areas and disciplines; from things like smart grids, carbon capture and storage and HVDC (high-voltage direct current) to electric transportation, energy efficiency and distributed generation.
It’s a hugely complex process, which is best dealt with through collaboration; or more specifically, through choosing the right partners to work with in the right way.
For example, over the past four years, we’ve established an early-stage technology network including incubators, accelerators, academics, research agencies and venture capital (VC) companies. Within that, we’ve been working in partnership with a select few VC companies, a community that in the US alone invested $5 billion in 2012 in clean energy start-ups.
Through VC portfolios, we can access a range of emerging technology businesses to see what opportunities there are, and gauge whether they offer clean, reliable, resilient, affordable and safe innovation that will serve a practical purpose for National Grid’s strategy.
Very long timescales
We’ve been very proactive: not many other utilities are as far down the line with this as National Grid. Equally, not many VCs have responded to it either. Many are put off by the pace of our low-risk, highly regulated, fixed-asset business. In the main, VCs are used to investing in sectors such as IT, healthcare and telecoms, which get lucrative results quickly. But our industry can be slower and the timescales very long, despite the huge rewards that can be earned in the long-run.
So we choose to work with partners who share our mindset and who, like us, look to the long term and seize the initiative to understand fully what we do. Mutual education is critical: the more time we spend sharing knowledge with each other, the better choices and decisions we both make, avoiding the ‘disconnects’ of the past where new technology is developed that’s simply not relevant. It’s in our own interests to help the VC community invest in the innovation we are going to need to meet our business challenges; they play a vital part in technology development.
Today, we have a close group of leading VC partners, including Vantage Point and Black Coral Capital in the US. Rather than approaching them with a suggested solution to see if it can be executed, we present them with the challenges we’re facing, and leave it open to the creativity of their portfolio firms to meet them. Success stories such as Next Step Living in Boston, Massachusetts, a Vantage Point and Black Coral Capital portfolio company, show how effective such partnerships can become.
Good corporate citizenship
Essentially, it’s a win-win-win situation. The VC and tech companies receive our support and the insights we give them into end-users and customers, while we tap into their investment expertise and potential for new ideas. National Grid serves as a bridge to the world of regulation and policy-making too. Just as we need to understand new technology, our partners need to understand the regulatory climate within which such technology must operate.
After all, if you can’t get the regulator to accept the new technology, you’ve got a problem. And even if you do get it approved, how long does it take to implement the idea in an industry accustomed to very long asset lifecycles? By working together, we can give transformational technologies a much bigger voice in the world of energy policy.
These are just some of the conversations we are having. It’s difficult at times, but very worthwhile. The insights we gather now can position National Grid for the future ahead of our competitors. But this is about more than business innovation; this is good corporate citizenship.
The ultimate benefits of what we do in these partnerships extend far beyond narrow commercial interest and will serve wider society for future generations. Close collaboration and foresight can make the energy industry better, safer and cleaner – and help National Grid to achieve our vision of ‘connecting you to your energy today, trusted to help you meet your energy needs tomorrow’.
Debate – A capital idea?
Do venture capital firms have a role to play in the world of energy innovation? Lee Burrows from VantagePoint Capital Partners in Silicon firmly believes they do.
In step for tomorrow.
What’s the story behind one of New England’s fastest-growing companies? Geoff Chapin, founder and CEO at Next Step Living ™ explains more.