We are at the beginning of a new era of innovation in the European energy sector. Energy companies will be opening up to new collaborations, investing in startups, creating new technologies and developing new business models that will be much more service and customer oriented. That’s the conviction of Elena Bou, Innovation Director at KIC InnoEnergy, an EU-wide company investing in renewable energy technology. What worries Bou is the fragmentation of markets and regulatory and support systems in the EU. “If we want our companies to succeed, we need one European market with integrated policies that address the whole value chain.”
When people think of innovation, they usually think of new technologies. That, however, is a mistake, says Elena Bou, the Innovation Director of KIC InnoEnergy, a truly EU-wide company, with offices in eight countries. “The most interesting type of innovation that I see going on in the European energy sector is not in technology, but in business models.”
And we are only at the start of this new trend, she adds. “We haven’t seen real disruptive changes yet in business models, with the exception perhaps of Eon’s split-up. Eon’s example will be closely studied across Europe, although each company will follow its own model, depending on its specific circumstances.”
Bou should know, being in charge of innovation in a company that was set up for the sole purpose of boosting innovation. KIC InnoEnergy was incorporated in 2010 by key players in the energy field with the vision that innovation and entrepreneurship in sustainable energy could become the key enabler of the energy transition. Born under the umbrella of the European Institute of Innovation and Technology (EIT), it was founded by 27 shareholders, including a number of prominent European research institutes and universities as well as large European energy companies, such as Total, Gas Natural Fenosa, EDF, ENBW, Vattenfall and ABB. The company supports entrepreneurs and startups building sustainable businesses that expand and enhance Europe’s ecosystem (133 supported to date).It connects innovators and business partners by investing in commerically viable products and services (71 launched to date) and runs Master’s, PhD and further educational programmes at top European universities.
Transformation
Based upon her knowledge of the market and her many contacts in industry, Bou believes that the European energy sector is about to undergo a radical transformation over the next few years. Up until now, large companies dominated the market, and they kept pretty much to themselves when it came to innovation. They had little need for outside support, since their business model was based on the exclusive possession of huge capital-intensive assets and monopolised markets.
“There is a huge movement in corporate venturing. All the main players in the energy sector now have their own corporate venture arms that invest in startups”
But this comfortable market structure is quickly crumbling. This is perhaps best visible in the German market, where the traditional utility companies are reeling under the onslaught of new market initiatives and alternative forms of energy. Eon has even gone as far as to split up the company into a unit that will continue to run the old business of centralised power production and one that is dedicated to renewable energy, trading and services.
Other companies in other countries are facing similar decisions, although they might not all follow Eon’s model. “They’re all having internal exercises to rethink their business model”, says Bou. “But they will come up with their own solutions. One size does not fit all.”
Corporate venturing
One result that’s already visible is that energy companies are increasingly opening up to outside influences. “Many companies, like EDF and RWE, have set up Open Innovation units”, says Bou, “in which they pursue new technologies and solutions.” In addition, they are increasingly investing in – or collaborating with – startups. “There is a huge movement in corporate venturing. All the main players in the energy sector now have their own corporate venture arms that invest in startups. One of the things we do is trying to find the perfect match between those big players and start-ups.”
To mention just a few examples: ABB has set up a collaboration with Belgian energy software developer Enervalis, which develops operating systems to support smart grid and other services. This collaboration will provide grid infrastructure and supporting software to create complete on-site smart grid solutions for new “zero energy” residential districts in the Benelux. Alliander, the largest distribution system operator (DSO) in the Netherlands, is also working with a KIC Innoenergy startup called Watch-E, which provides end users with an overview of their personal energy consumption and benchmarks this against other consumer groups. REE, the Spanish TSO, has signed an agreement with SteadySun, a start-up supported by KIC InnoEnergy France, which provides solar power forecast services.
“That is the major challenge of utilities today. They need to change their business model from asset-based to service-based”
Another example is Veolia Germany, which has recently entered into an agreement with KIC InnoEnergy to launch a joint programme for startups in the energy sector. The partnership, which focuses on energy efficiency, energy storage and data management, intends to accompany early stage startups towards readiness for market. “They are doing what we have advocated for years”, says Bou, “namely looking for cooperation with startups.”
One of the main challenges for the big companies, says Bou, is “how to relate their new businesses to their existing business. New markets have different characteristics from traditional ones. That’s why some companies, like RWE, have decided to set up innovation units separately from the existing units.”
Subsidies
What types of innovation are most popular at the moment? A lot of effort still goes into trying to reduce the cost of renewables and other forms of energy, says Bou. Another highly popular area is storage. “This is still an unsolved problem. Investors have a huge appetite for storage startups.”
But the most exciting area of innovation, according to Bou, is “everything to do with engaging the customer. Demand response. Distributed generation. Microgrids. Energy efficiency. All these trends are leading to the customer. That is the major challenge of utilities today. They need to change their business model from asset-based to service-based. This requires much more creativity and closer relations with the customer.”
“Consumers need to know more about how energy systems work”
Bou is not worried that there is not enough money to invest in energy innovation, although investment in clean energy has gone down in Europe since the peak years 2011-2012. “There still is money. Those who only invested to get their hands on subsidies, have disappeared. For me that is good news. Businesses can’t exist on the basis of subsidies.”
That does not mean, however, that government should provide no support. The biggest bottleneck, says Bou, is the lack of coherent policies across Europe, and the lack of an integrated market. “If we want our companies to be successful, the best thing we can do for them is provide them with one unified European market. In addition, support policies should be harmonised and designed to offer support across the whole value chain, not limited to generation. European market design will be crucial in the years to come. This is a huge opportunity for European business if we get it right.”
Bou also believes that more effort should be spent on educating consumers. “Consumers need to know more about how energy systems work. For me it was a surprise when I came to KIC InnoEnergy to discover how important energy is to the economy. Energy policy affects everybody’s life, but people don’t understand it enough.”
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Frans Rusting says
“We need one European market”.
Indeed! And the only practical way to achieve this is to have a Supergrid or Overlay Network that connects th existing networks of the TSO’s while accepting the political reality that countries wish to maintain there sovereignty.
For a proven way to do this, see:
https://energypost.eu/exclusive-overlay-network-telecom-experts-present-revolutionary-plan-integrate-eu-power-market
Frans Rusting
Bas Gresnigt says
Adding another layer only implies less adaptability to change.
Worse, as shown by the RTO’s in USA who didn’t deliver substantial improvements, it only adds more costs for high paid employees.
The situation in Germany with 3 separate TSO’s and superior reliability shows that we don’t need such ‘supergrid’ organization.
Guenter Bramboeck says
Interesting, that consumers are asked to enable the Internal Electricity Market by better understanding the energy system.
A common market is characterised by common standards and exchangeable products. 20 years after publishing the first Directive we still have no EU-wide market rules and most of the Network Codes are still pending. TSO’s tend their own garden, mainly concerning the important balancing of the system. A superlayer will not tackle the harmonisation issues.
It cannot be expected that consumers will create products for demand side flexibility to react on fluctuating RES generation. There is lots of money to support RES generation but unfortunately lack of management expertise to cope with the system consequences and the market integration of RES. Not to forget the partially severe social impact due to much higher system costs.
Probably the (well) understanding of the system’s technical, commercial and legal aspects should rather start before issuing new legal provisions.