With a string of new investments and acquisitions in the past year (you can find a unique overview further on in this article!), Shell has quietly stepped up the pace of its transition from an oil and gas company into an energy company. “We are further along than people realize”, says Mark Gainsborough, Executive Vice-President of Shell New Energies, in an exclusive interview with Energy Post. According to Gainsborough, there is a “shift in thinking” within the company that is now irreversible. “People in Shell see a lot riding on the success of New Energies. And we are considered one of the most attractive units to work in. Anyone under the age of 35 wants to work for New Energies.”
“Last year has been the busiest year in the history of Shell Ventures”. Mark Gainsborough, head of Shell New Energies since its inception in mid-2016, is a little bit awed himself looking back on the activities of his group as a whole over the past twelve months.
New Energies, which includes the venture capital arm Shell Ventures (SV, formerly known as Shell Technology Ventures, STV) is set up to look for commercial opportunities and help Shell transition from a fossil fuel company to an “energy” company fit for the future low-carbon world. It has a budget of $1 billion to $2 billion a year on average up to 2020 to develop new activities in renewable energy, cleantech, digitalization and alternative transport fuels.
The division has been “superbusy”, says Gainsborough. “In May, we were elected European Cleantech Corporation of the Year by the Cleantech Group, at a prime gathering of the cleantech venture capital community. They had made a list of all our investments and acquisitions and decided that we had been the most active company in this space. We had not expected that.”
In the last two months alone, Shell New Energies made four investments – in Sonnen, the German home storage developer, HyET, a Dutch hydrogen compression specialist, Axiom Exergy, a thermal storage specialist from the U.S., and in GI Energy, a U.S.-based developer of microgrids and distributed energy services.
That’s on top of other recent acquisitions, such as First Utility, an electricity retail supplier in the UK, NewMotion, a leading European supplier of EV charging systems based in The Netherlands, and MP2 Energy, a provider of demand response solutions based in Texas, as well as a host of smaller investments. (See box.)
What is all this leading up to? “We have a long-term objective to create a material position for Shell in the power value chain”, says Gainsborough.
He explains the thinking behind this strategy: “Low-carbon electricity is the fastest-growing part of the energy system. Historically, electricity has been a relatively small part of energy, even in the 2010s it’s just under 20%. But we see it surpassing 50% of end-use energy consumption by the 2070s. So if you want to stay relevant as an energy company, this is where you have to grow.”
Some critics claim that Shell is only putting a green gloss on its activities, pointing out that $1 billion to $2 billion is less than 10% of Shell’s annual investment portfolio, but Gainsborough says Shell has definitely undergone a shift in thinking. “We are the only oil company that has an ambition to reduce the net carbon footprint of our products 20% by 2035, and by 2050 to be in line with society. That’s a pretty important statement. And it’s one of the reasons why you will see us continue growing in new energies.”
Gainsborough, who describes himself as a “commercial guy” (“getting technologies to work in sync with commercial realities and in line with environmental challenges is the sweet spot of what I do”), concedes that Shell is still “exploring” which market opportunities look the most promising. And he stresses that it is going to be “a journey of decades”. “Our LNG business took us 45 years to build up to where it is now. You need a consistent vision applied over a very long period of time.”
However, he dismisses the idea that Shell does not have the skills or mindset to succeed in the power sector. “Don’t forget: we are not just an upstream company. We are the largest oil marketing company in the world. We know quite a lot about providing energy for customers on the road. We don’t see why we can’t be successful providing energy to customers at home.”
What is more: New Energies turns out to be very hot within Shell, says Gainsborough. “People see a lot riding on the success of New Energies in the long run.”
How would you describe the standing of New Energies within Shell?
“Ours is one of the most closely watched units. It attracts tremendous interest, from the board, from investors, and also from employees. It is one of the most attractive units to work in. Anyone under the age of 35 wants to work in New Energies!”
What about people higher up in the organization?
“I know that in a skeptical world people sometimes doubt that an oil and gas company wants to grow in alternative energies, but I can assure you that everyone in the company wants us to succeed. We see our future as an energy company. We are aware that we need to change as the energy system is changing.”
Do you have specific targets that you have to meet?
“We do have some financial metrics for the next decade about what we would like to deliver. If we find opportunities that are commercially viable, we could spend $1 billion to $2 billion a year over the next few years on average. If we are successful in what we do, we can scale up spending, so we can grow the new businesses into material assets. In the long run this should lead to significant cash flows.”
Will you ever be able to make the same kind of return on investment in alternative energies than as in oil and gas?
“For new fuels we expect Downstream-like returns, in the high teens. For power, we believe we can achieve 8-12% equity returns with stable and rateable cash flows. Many alternative energies are still nascent with business models still being proven at a material scale. It can take a long time and a lot of active investors before you move into profit mode.”
New Energy Challenge – startups can still join!
For the third time, Shell is partnering with startup “incubators” Rockstart and Yes!Delft in the Netherlands to organize the New Energy Challenge.
This is a competition for European startups offering innovative, low-carbon energy solutions. The winner will receive a €100,000 grant and warrant from Shell and will be able to work with Shell Technology Ventures for a year to develop its business.
Two other winners will be able to enter the accelerator programs of Rockstart and Yes!Delft.
Attention: the competition has just opened! Deadline for entries is 23 July, so there is still time for startups to join.
The top-10 finalists will be invited to join the finals week from 14-18 October in Amsterdam.
At the final event on 18 October the finalists will make their final pitches and the three winners will be selected.
“The New Energy Challenge is a great way of bringing very early stage companies together”, says Mark Gainsborough, Executive Vice-President of Shell New Energies.
For Shell, notes Gainsborough, “it is a chance to see some of these innovative companies at first hand. It is part of creating an ecosystem of companies and people in the venture capital space.”
The startups that take part in the New Energy Challenge are usually at a slightly earlier stage than the companies Shell New Energies invests in, says Gainsborough. “We are talking about early seed funding rather than commercial investment. But one of the secrets of success in venture capital investing is the ability to spot opportunities at an early stage. New Energy Challenge helps us with that.”
What are the qualities that Shell looks for in startups? Gainsborough: “They have to be distinctive, to have a unique differentiator. Their business potential has to be scalable. The business model has to be able to be revenue-generating. And good management is also key. Sometimes you buy into a management team as much as a technology.”
The competition is tough, notes Gainsborough. “For every company we invest in, there are a couple of hundred we turn down.”
But does Shell have the right skill sets and strengths to be successful in the electricity sector?
“I think people underestimate our strengths and heritage in this space. We don’t start from scratch. We have been the second biggest wholesale power trader in the U.S. for twenty years. We market power to quite a few customers around the world, we supply fuel to power generators, we have had renewable assets in the past. We have a lot of experience in solar power, in wind power. In offshore wind a lot of our experience is directly applicable. And we have a lot of experience with retail customers. We have more customers and more retail sites than any other oil company. We are further along than most people realize.”
Do you see New Energies staying an integrated part of Shell? Or do you think it could grow into a standalone business?
“Shell clearly wants renewable energy to become a central part of what we do. So we don’t see that we will spin this off as a standalone business. That’s partly because a lot of value for us comes from our ability to leverage the wider capacities of Shell. We can call on Shell’s resources, skills, knowledge. In some cases we also actually deploy renewable energy within Shell facilities, e.g. solar power panels in chemical facilities. That’s very useful for us to develop our know-how.”
What do you look for in startups? Sometimes you invest in them, sometimes you buy them. What is the thinking behind that?
“There are a lot of different motivations to buy or invest in startups. A lot of innovation comes from them. So they give insight into what is happening in new technologies and business models. Sometimes they help us get into different technologies or to create new value propositions. Sometimes we combine investment with a joint development agreement that lets us harness their skills. We can also be early customers sometimes. From a venture capital perspective it can be interesting if a company grows in value. I suspect that we will end up acquiring some companies we are investing in.”
Is it clear to you where the best opportunities lie? Or are you still in an exploratory phase?
“I think it is fair to say we are still exploring, learning through doing. We see a number of markets providing good opportunities and we are starting to develop those. But it is not easy to play in every market in the world. So we will make some choices about where we want to play in a more material way. In power we see Europe as an important market, and North America. In some markets we will deploy an integrated model – renewable energy, with trading and marketing to end customers. In markets that are less liberalized, like India and China, we may stick with power generation.”
Where does an initiative like Shell’s New Energy Challenge (see box above) come in?
“For us the New Energy Challenge is a great way of bringing real, very early stage companies together and it gives us a chance to see some of those very early stage companies at first hand. For them it it’s also a huge step to get coaching from the people in Shell or from the people running the accelerator programs. That’s tremendously beneficial to them in addition to the sort of convertible loan that they get that helps them with their early stage funding.”
Do you see synergies between the new companies you are investing in?
“Yes, absolutely. Think of how First Utility, NewMotion and Sonnen could work together. NewMotion puts EV charging points in homes. If you have that, there is potential to combine that with battery storage. Sonnen is one of the leaders in residential battery storage – they are better than some other names in that space. You can then create a network of virtual power plants, let people sell power back to the grid, or even do peer-to-peer trading. Or they can be part of demand response schemes. This is where First Utility can make a difference. We are talking about the cutting edge of how energy will get used in the future. This is very different from the centralized model of the past. We are also very interested in the combination of distributed energy resources with mini-grids and storage. The whole storage space is super-interesting. And it’s not just about batteries. For example, we invested in Axiom Energy in the U.S., which uses refrigeration systems as storage with the help of smart software.”
Shell’s activities in New Energies: an overview
- First Utility, UK, power retailer (Dec 2017)
- NewMotion, Netherlands, EV charging systems (Oct 2017)
- MP2 Energy, Texas, US, demand response solutions (Sep 2017)
- SunFunder, Kenya, financing for weak and off-grid solar (June 2018)
- Sonnen, Germany, home storage systems (May 2018)
- GI Energy, US, microgrids, distributed energy development (May 2018)
- Axiom Energy, US, thermal energy storage (May 2018)
- HyET (High-Yield Energy Technologies), Netherlands, hydrogen compression (April 2018)
- Silicon Ranch Corporation, US, solar developer (Jan 2018)
- Husk Power, India, mini-grids off-grid systems, Africa, Asia (2018)
- Solar Now, offgrid solar in Uganda and Kenya (Dec 2017)
- Sunseap, Singapore, solar power developer (August 2017)
- Steamaco, UK, distributed energy systems Africa (2017)
Other activities in cleantech and alternative energies in the last few years:
- The company has six onshore joint venture wind farms in North America, one offshore wind farm in the North Sea, and it is part of a consortium developing a new 680 MW offshore wind farm (Borssele) off the Dutch coast.
- Shell has also invested in UK startup Kite Power Systems, which uses kites to generate electricity.
- Shell is an investor in Glasspoint, which is building a solar thermal plant in Oman. The company is also building solar power systems for its own use at facilities in California and The Netherlands.
- Shell is building one of the Netherlands’ largest fields of solar panels – with some 55,000 solar panels — at its chemicals plant in Moerdijk, the Netherlands.
- In Germany, Shell is part of a consortium installing a network of 400 hydrogen fueling stations (230 Shell branded). Shell Recharge offers fast-charging services for EVs at Shell petrol stations. Shell also has an agreement with Ionity, which offers fast-charging in 10 European countries.
- In the digitalization area, Shell has invested in German startup Tiramizoo, in home energy monitor Sense, in knowledge platform Manaa, and in two apps for drivers, Farepilot in the UK and Fitcar in the US.
- Shell is also a large power trader in the US and increasingly in the UK and Europe.
- Shell has a biofuels joint-venture in Brazil, Raizen. In Bangalore, India, the company is active in advanced biofuels Shell also offers GTL gas-to-liquids and liquefied natural gas (LNG) in the transport sector.
So how long do you think it will take before New Energies becomes as big as existing divisions in Shell, such as refining or exploration and production?
“This will be a journey of several decades, to be sure. I know that there are some people who want us to go faster. But there are also investors who want us to go slower. We have to take a judgment about the right rate to invest. Shell has to remain a world-class investment opportunity. So I have to find world-class investment opportunities. If I do, I will get the money to grow further. That’s the reality of a commercial company.”
But you have no doubt you will stay on this course?
“We went through a big transition from being a predominantly oil company to now having a balance of oil and gas in our portfolio. The next step is to go to gas-and-renewables. We are up to that challenge. We want to be relevant as an energy company to the end of the century and beyond.”