The 2022 energy crisis marked the dawn of a new era for renewable energy sources in most parts of Europe. As Europe was cut out of gas due to the war in Ukraine and France struggled to produce nuclear power and became a net importer of electricity, grid prices skyrocketed, giving a boon to renewables. In Germany, the number of solar or storage installations in the residential sector grew by 52% in 2022 (German Solar Solar Association BSW, March 2023). Storing electricty produced-but-not-consumed became key to insure a minimum supply at national level. Grid-scale battery storage has taken off in some European countries and managed to obtain record level of profitability thanks to the 2022 volatility.
As Europe has found solutions to secure its energy supply, grid prices are now going back close to their pre-crisis level, reducing the sense of urgency and the competitiveness of renewable energy sources. More worrying, the spike in interest rates which are now reaching 5% is increasing the cost of capital for homeowners and renewable energy developers, reducing the affordability of renewables as a mass product. Does this mean we’re witnessing another boom and burst in renewables? We don’t think so and the fundamentals of the market remain attractive,
The growth of renewables is here to stay for the following reasons:
📌 Driven by Paris Agreements objectives, regulatory incentives and subsidies remain strong, reducing costs and constrains, improving paybacks and profitability. According to all forecasts, price levels in the medium-term should remain above pre-crisis levels.
📌 The current slowdown observed in the market is healthy: all renewable businesses — well managed or not — have seen strong growth in 2022. The end of the boom should separate the wheat from the chaff and offer to the best-performing players opportunities to consolidate the market.
📌 How to perform well in this market? Optimizing margins and operations of course, but also mastering customer acquisition costs, building a differentiated value proposition while perfectly integrating with the customer’s energy systems to offer a smooth experience.
This is where we think tech has a key role to play. By using software to manage flexibility on the demand and supply sides, tech companies can make renewables competitive whatever the evolution of grid price levels and contribute to balancing the grid which will become increasingly challenging.
We see three kinds of players addressing this market:
➡ Software companies with a go-to-market going through utilities, OEMs (Original Equipment manufacturers) or project developers: these companies are developing the building blocks required to control devices and generate revenues from flexibility on the network. Companies like Enode are developing API to connect to home devices; EV Energy builds the demand side flexibility by managing smart charging while Tilt Energy is offering demand response to commercial real estate landlords real estate buildings; others, like Enspired and Esforin are optimizing renewable energy assets and storage by maximizing revenues of flexibility by automating trading on wholesale markets.
➡ Digital energy retailers like Greenely, Ostrom, Tibber, Motkraft and Rabot Charge have a B2C go-to-market, offering dynamic energy tariffs to acquire consumers and then building the software stack to manage the loads and maximize flexibility revenues. These companies can however only do that on customers who have loads that can be controlled i.e. only those who have a heat pump and an electric car. These providers are also dependent on smart meters installation, which is not a problem in Sweden but can be a headache in Germany.
➡ Full-stack installers like 1KOMMA5 (in which we invested in April 2022 by leading the Series A) and Enpal on the B2C side are entering the customer with solar systems installation and aim therefore to monetize the flexibility of their asset. 1KOMMA5 has for instance just launched its new offer combining smart meters, dynamic electricity tariffs and a device to control the assets in the home to maximize self-consumption and flexibility revenues. On the B2B side, players like Voltaro or Kerith want to become the partner to help business transition to green energy supply.
Against the backdrop of high energy prices, other companies have focused their development around making renewables profitable on different segments of the prices and providing stable prices to consumers and off takers. For instance, Einhundert is focused on developing a profitable model for solar on multi-tenant housing, maximizing self-consumption to each tenant in the building. On the C&I space, InRange maximizes the use of solar rooftop for tenants’ self-consumption and selling the excess electricity through PPA to offtakers looking to secure stable prices. UrbanChain, Reel Energy and Trawa acts as a platform between developers striving for stable revenue streams to improve the bankability of their projects and consumers looking for stable electricity prices. UrbanChain (in which we invested in seed early 2023), matches demand and supply through flexible PPA contracts, building in fine an alternative to wholesale electricity market.
At the grid scale level, the high volatility in electricity prices linked to the intermittent nature of renewables and the growing electrification of the economy has led to the creation of several grid-scale battery companies such as TerraLayr, Terra One and Field among the VC backed companies. These companies are betting growing instability on the grid will offer opportunities to trade battery flexibility not just on ancillary services, which are on the verge of saturation, but on wholesale markets (day ahead, intra-day markets). Using tech developed by Enspired, Esforin or Elum energy or NextKraftwerke, they want to scale the development, build and operate grid-scale storage that could then become investable by large infrastructure player looking to build a platform, in a development similar to fast-charging stations in Europe.
While different models are adopted, from B2C to B2B, software-centric to asset-heavy ones, and marketplace to brokerage, the common thread among emerging startups is the focus on enhancing grid flexibility and intelligence. These companies are developing technologies that are geared toward bringing optimization both to the supply and consumption sides of the energy equation. Given the macroeconomic trends and the push toward green energy, VC money is likely to significantly influencing the future of renewables in Europe, ensuring not just a boom but sustained growth in the medium to long term.
🤝 If you’re building a company in the space, we would be keen to meet, please reach out to Raphael Cattan (rcattan@eurazeo.com) and Maryam Mahla (mmahla@eurazeo.com)
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