Map of opportunities in Energy
Map of opportunities in Energy
Based on the assumption that anything that decreases the cost of electricity at the meter is a potential opportunity in the sector, I've looked at the drivers of electricity costs & outlined them here
Assumptions
This map has been made with the following assumptions:
Anything that decreases the cost of electricity at the meter is a potential opportunity in the sector. It focuses on the drivers of electricity costs, although many of the same drivers also apply to oil and gas, and ways to reduce them.
The TAM of these opportunities will be affected by which type of energy future you believe will be true (e.g. nuclear maxi vs DERs) and which areas you think will have the biggest impact on decreasing at the meter costs. This is mainly driven by which energy source you think will have the lowest plant costs (setup + maintenance + fuel x efficiency) and whether you believe efficiency gains from scale will outweigh costs of delivery. This is discussed here
Just like electricity flows from high voltage to low voltage, opportunity in the sector will flow to the areas with the potential to decrease at the meter costs the most.
Caveats
A few caveats:
Obviously things aren’t as simple as this but I believe it’s directionally correct
There are areas on this map where I know less about the cost drivers; if anyone would like to contribute or has suggestions on drivers and ways to reduce them, please get in touch
There are probably multiple solutions to these cost drivers I haven’t even imagined. I’m sure founders will come up with ever more innovative ways to reduce these costs and will certainly have deeper insights than me.
I am not sure how big some of these drivers are - some may be non-existent - and pass no judgement on the viability of reducing them or the ability of potential solutions to generate returns. This is purely a first-principles approach to identifying cost drivers of electricity and therefore opportunities in the sector based on the above assumptions. The beauty of venture/start-ups is you get to pass your own judgment on the opportunities. May you forever be non-consensus and right.
Link to opportunity map
The public map is available as a FigJam file here. This will have the latest updates
Themes
Labour
Labour is a cost driver that pops up across a variety of installation and setup costs. Reducing labour costs by improving the availability of labour may be a big opportunity theme. This has a few potential solutions to improve things like scheduling and skills levels (both increasing skill levels of workers and reducing the skill levels needed to complete a task); as well as robotics and automation to remove the need for labour entirely; such as with automated manufacture or maintenance.
Project management
Whether it’s building utility-scale generation, installing a residential solar panel or upgrading the grid, reducing electricity costs will involve a number of complex projects on a micro and macro level. Finding solutions to increase efficiency, manage complexity and ensure projects are completed on time and under budget could be an area of opportunity. I expect we will see a number of vertical SaaS offerings popping up across all project types as we go through the energy transition.
Technical advances vs software efficiencies
Will we see bigger decreases in electricity costs from technical breakthroughs or from software efficiencies? For example, with solar costs continuing to come down, will the biggest cost reduction come from continued hardware improvements or efficiency gains from software?
Will we see new technologies undergo R&D and full-scale deployment before it’s too late and the opportunity is no longer there? For example, will the cost of nuclear generation come down before everyone has their own solar & battery system and generates enough energy to meet their own demands? This is linked to this discussion here
Infrastructure upgrades
Whether you believe in a decentralised energy future with colocalised generation and demand, or a centralised future with utility-scale generation, our electricity infrastructure needs upgrading to meet the rising demand for electricity. This could be at the home level, such as replacing a meter panel to enable solar installation; at the local level, such as upgrading a substation; or at the regional level, such as building a new power line.
Avoiding these costs will become the core value proposition of many of these technologies. For example, virtual power plants enable a reduction in peak load, potentially preventing or delaying the need for a substation upgrade. Or adding a battery to electrical devices (like Impulse Labs have done with an induction stove) preventing the need to upgrade the meter panel when moving from gas to induction cooking.
Opportunities I’m excited by
DERs & Storage
I believe these will have the biggest impact on decreasing electricity costs in the near future due to:
Managing grid/energy use and decreasing peak loads
Avoiding grid upgrade costs
Co-location behind-the-meter to reduce delivery costs
Smoothing fuel costs/time-of-day usage
Slow build out of utility-scale generation due to interconnection and infrastructure upgrade delays
Colocation
I refer to colocation as any behind-the-meter combination of energy generation and demand. This can be at the residential level with the installation of a solar panel or at the commercial & industrial level where entire micro-grids are built out at hospitals or where energy-intensive industries site themselves next to a powerplant and purchase power directly from them.
This is driven by the demand side wanting to avoid delivery fees, as well as both utility-level generation and energy-intensive demand wanting to avoid interconnection fees. In more developing locations, this could even be driven by a lack of grid to connect to.
There are a few sub-opportunities here that may have some potential:
Energy management software (see below): manage usage behind-the-meter to match supply and demand, choose which resources to utilise, and reduce the amount of electricity imported from the grid (and therefore facing delivery fees)
Micro-grid design software: An important feature of co-location is designing the mix and location of resources to maximise the impact they have. Software to aid this process and model the benefits of co-location could have a big market. This may be particularly big in the developing world where grid build out is lower.
Energy Management/Operating Systems
As the prevalence of DERs and co-location increases, managing and coordinating energy use across a number of assets will be key to unlocking cheaper electricity. Whether it’s avoiding infrastructure upgrade costs by reducing peak loads, or selecting the cheapest source and best use of electricity at any time (e.g. from the grid or from the battery, should I sell my solar to the grid or use it to charge my batteries), each level of the grid will need to manage its usage and coordinate across a range of assets and resources.
Given the fractal nature of the grid, I think we will see a world where each level manages and resolves its energy needs before drawing power from the layer above. For example, a home will manage its needs within its own set of resources and only draw power from the substation when needed; a substation will manage power drawn by these homes within its distribution network and only draw power from the transmission network once it has resolved supply and demand at this level; and so on.
I am not sure whether we will see one or two major operating systems emerge (like Windows and MacOS) or whether each developer and OEM will produce their own operating system. If it’s the latter, they may be an opportunity for an OS-in-a-box or a product that reduces some of the schlep work of building your own OS (e.g. APIs to connect devices, like Enode and Texture, or out-of-the-box algorithms to calculate backup power needs)
Synthetic fuels
An interesting aspect of the cost of solar falling is, in the not so distant future, it could become cheaper to synthesise carbon-neutral oil and gas from air and water, than extract it from the ground. This is what Terraform Industries are doing, and Valar Atomics are exploring with nuclear rather than solar power.
Due to conversion efficiencies, it won’t be a cheaper way to generate electricity compared to direct conversion from solar panels/nuclear. Still, the ready-made nature of oil and gas distribution and the high energy density of the fuels could lead it to be a cheaper source of energy for some industrial applications, or to be used as a battery if coupled with a conventional power plant. I could see this becoming the go-to source of energy in hard to electrify industries such as aviation, shipping and certain industrial applications.
Wireless transmission
Probably the panacea of electricity opportunities and, in my opinion, potentially more impactful than fusion. If we can wirelessly transmit electricity, the implications are huge. Decoupling ourselves from wires could:
Enabling generation to be sourced at the cheapest or least impactful locations with no consideration for the ease of interconnecting it to the grid
Everyone globally could connect to the energy grid; as they can connect to the mobile networks. We could even have the ability for an individual to put a solar in their garden and sell power to the global markets
No more worrying about charging devices, cord lengths or plug locations as every device is constantly connected to the wireless grid
This is very much a pipedream as far as I can tell and may not even be possible given the laws of physics.
Further research
There are a few areas where I have less knowledge of the cost drivers. As I explore this sector more, I will be updating the map. This is mainly focused on identifying the specific challenges driving up the cost of:
Interconnection fees
Building new grid
Upgrading existing grid
Deploying storage
Deploying DERs to manage energy use in co-location settings
Site selection
Permitting & Legal Fees
If anyone would like to contribute or has suggestions on drivers and ways to reduce them, please get in touch