If one of the world’s largest independent developers of renewable energy, now a venture investor, is bullish on a new technology, industry watchers listen. Invenergy, which develops, owns and operates large-scale renewable energy generation facilities in North America, Latin America, Japan and Europe, explains why it’s betting on businesses that involve energy’s digital applications.
Betting on new technologies that will transform the energy sector is part of Invenergy’s 15-year history as a company. In 2002, we recognized the business potential in wind energy before many others. Today, we’re North America’s largest independent, privately-held renewable energy provider with 103 projects across four technologies (wind, solar, advanced energy storage and natural gas) and more than 800 employees. And now we are bullish on a new and promising investment opportunity in the energy space: the energy application layer.
As with the wireless industry’s deployment of faster networks and more powerful smartphones, the energy application layer refers to how energy infrastructure is incorporating more sophisticated software. It will accelerate digital innovation and energy’s larger economic impact— including more jobs.
Employment growth in the solar and wind industries is helping to elevate the economic importance of renewable energy. In fact, over the past year, the solar, wind and energy efficiency industries added nearly 250,000 new jobs. As more jobs are being created, renewables costs are going down.
Renewable technologies are now beating nuclear and coal power for affordability, and competing head on with combined cycle natural gas. Given the combination of low price and zero emissions, it is not surprising that these methods contributed to more than 116 GW of global installed generation in 2016. Digital innovation will help solve some of the stress on the grid created by adding renewables and optimize performance.
The decline in renewable energy costs is paralleled by lowered cost of sensors, communication, and data storage technologies. Over the past decade, costs of Industrial Internet of Things sensors have declined by 70 percent, data storage has dropped by 90 percent and micro-controller units are down by 55 percent. In line with these cost reductions, the number of Industrial IoT sensors sold annually is expected to increase from 6 billion to 20 billion units by 2020.
A similar trend is underway in the CPU space – known as the brains of computers -- as 50 billionmicro-controller units are expected to be sold annually by 2019, up from 15 billion units in 2012. A major driver of micro-controller growth is in industrial IOT applications. These cost reductions coupled with the proliferation of sensors and computing power yield a powerful ally for a renewable and digital grid: data.
As renewable and distributed generation replace existing fuels-based generation, the future grid will not look like a bigger version of its former self. The variable nature of our renewable assets – because the sun and wind aren’t always predictable -- requires a fundamentally different approach to balancing supply and demand. Businesses and consumers will become more active participants in the networked grid with real-time communication. And the data that drives decision-making comprises the digital application layer – from sharing how much solar energy a factory is using to allowing a plant manager to manage demand in real-time from a tablet.
New business models will emerge -- blending software and services. Companies will thrive in three primary business solution areas:
- Data analytics and cybersecurity
- Operational efficiency
- Controls for distributed energy and storage
Application businesses will scale and perform more like traditional software and capital-light businesses, not like advanced materials and biofuels that comprised the capital-intensive first wave of clean energy ventures. Distributed resources will challenge existing regulations and policies, and nimble entrepreneurs will pounce on new opportunities. The industry leaders and savvy investors who embrace this coming wave of energy innovation will reap the rewards.
Amy Francetic is Managing Director at Invenergy Future Fund.
John Tough is Partner at Invenergy Future Fund.
All views expressed are those of the authors.