NTT DATA has presented its ‘Energy Trends’ report, which has analyzed the investment of corporate venture capital funds in startups in the energy sector. These investments focus the commitment of large companies in the sector to innovative technologies and have represented a total turnover of €5.98 billion from 2018 to 2020.
The purpose of this report is to provide an overview of current trends in the energy macro-sector in terms of venture capital investments in technology startups and new business models, offering the possibility of anticipating potential changes in the sector considering the investments made. To this end, the study takes a deep dive into the analysis of different trends and business cases, providing an in-depth view of what response and solutions are being provided by the open innovation ecosystem.
There has been a change, driven by various initiatives such as the Green New Deal, the European Climate Law, which aims to make the European Union the global leader in the fight against climate change, and the NextGen bonds—in the energy sector. This distribution reflects the strong commitment to the shift in the energy paradigm, since 30% of the total EU funds will be invested in energy and climate plans.
The investments of the 33 largest companies in the energy sector by turnover from 2018 to 2020 (a period in which 317 investments in 258 startups were made) were analyzed for this study.
6 billion euros in investment
Investments have remained on an upward trajectory with growth recorded at annual rates of 17% since 2008. However, the pandemic that hit in March 2020 caused a significant drop in the number of deals and investments. These deals, which the industry estimated could have reached 132 investments, fell to 46 investment events in 2020 for a total of roughly 6 billion euros.
In terms of the maximum amount invested during the span of time analyzed, the average amount of the top five new investments was $200 million.
New for the sector, the report by NTT DATA detects a substantial change in relation to the leadership of electricity companies over oil companies. This is a trend that has been reversed over the past three years, with the latter taking the lead by participating in 20% more investment events than the electric companies.
“This report reveals that, from the start, the energy sector has been committed to innovation as a cornerstone of the industry, impacting the way of life of millions of citizens around the world. As a result, adaptation to these new trends is being experienced as a process of sectoral growth, applying the new energy models of the future, models that have to be both socially and environmentally efficient and responsible,”, said Héctor Pinar, Partner, Head of Gas & Power at NTT DATA Europe & LATAM.
Investment by geographic area
The main investment hubs, based on the headquarters of the startups that have been invested in, are in the U.S. and Europe, with California and Germany leading the way. The U.S. accounts for almost 50% of all investment events, while the Old Continent accounts for almost 40%. However, these main investment locations are making room for emerging markets, the Middle East in particular (8% of total investments made).
LATAM, Asia, the Middle East and Africa are beginning to grow their innovative ecosystems, thanks to the boost their large corporations are giving to startups in their own regions, committing to their own talent, which will lead to the establishment of major hubs in the coming years that will increase the creation of new startups and innovative solutions for the sector, in turn creating increased investor interest in establishing headquarters close to these regions.
Hydrogen, synthetic fuels and energy storage as an alternative to the “classic” models.
Driven by prevailing social factors, the global market climate has brought about the emergence of several alternatives to the more traditional energy generation models such as gas and oil. These alternatives include synthetic fuels and energy storage powered by the ever-growing renewables and digitalization, as well as hydrogen.
Synthetic fuel is poised to make a lot of headway in the next few years. e-Fuels (those produced using hydrogen generated from renewable energy and incorporating either carbon to produce hydrocarbons or methanol or nitrogen to synthesize an alternative fuel such as ammonia) remain relatively unknown, but they are expected to play a major role in complementing electric mobility or being the main alternative when electricity becomes unfeasible. In Europe and other advanced economies, light land transport is moving towards electric vehicles; in the rest of the transport modes (heavy land, marine or aviation) and geographies, decarbonization will require solutions such as e-Fuels.
This field also includes the generation of low-emission hydrogen, one of the most talked-about technologies today. This covers green hydrogen, produced from renewable sources, and blue hydrogen, produced from fossil fuels with CO2 capture and storage.
On the other hand, the rise of renewable energy generation together with the digitalization of the power system is accelerating the deployment of storage, particularly in countries like India, Italy, Australia, the USA, Chile, Germany, Japan and the UK. The national policies of many of these countries are turning to storage to reduce dependence on energy imports, improve the resilience of their electricity grids and push towards the decarbonization goals of their economies.
Industry trends and a vision for 2030
Ultimately, this data (volume by investment, number of events, CVCs, startups invested) is expected to continue to increase year by year, due to the boost offered by government aid and measures launched in favor of these new models. Direct investment in renewable energies through Next Generation funds, or the commitment of the United States and Asia to cleaner production, storage and mobility models, lead us to foresee an exponential growth in innovation in the sector in the coming years, applying disruptive models that increase the value of the energy sector and its possible applications.
This growth will also be driven by the consolidation of new models of collaboration between corporations and startups, models that are highly attractive to both parties, offering reduced risk and greater independence for startups without limiting their growth or agility.