Investing in startups is saving utilities from extinction
How innogy is catching the next wave
Innovate or die. If companies become too comfortable, they face irrelevance in this fast-changing digital world. More than ever, being open and adopting open standards (e.g. -source, -innovation, -finance) is critical. Allowing for new ways of collaboration and interaction is key.
For an energy utility like innogy it’s no different. Decentralization, decarbonization, democratization and digitalization are threatening our existence. We need new ways of thinking and acting for our own survival.
innogy Innovation Hub: a platform that fosters convergence
Thereupon we launched the innogy Innovation Hub in 2016 after the IPO of innogy SE, the subsidiary of RWE. Think of the hub as an open platform that aims to change the status quo. We invest in people and companies that ignite the energy system of the future.
Our innovation structure includes a later stage CVC (Corporate Venture Capital Fund), an early stage investment arm and a substantial global network of strategic partners. We have four centres of gravity (a.k.a lighthouses), each one focusing on a specific topic which we believe will greatly impact the energy system:
- 🤖 Machine Economy = M2M interactions and blockchain/Web3
- 🏢 Smart & Connected = PropTech and digital twins of buildings
- 💡 Disruptive Digital = Energy innovation
- 👾 Cyber Ventures = Cyber security
Since 2016 we scouted more than 2000 startups and invested in 90 early-stage and later stage companies, with 45 people working globally for the entire innogy Innovation Hub. As an international organization, we couple each topic with geographical expertise. Ergo, Machine Economy is focused in Berlin, CyberVentures in Tel-Aviv, etc.
Catching the blockchain wave early
“For utilities, blockchain is a double-edged sword. New challengers can use blockchain to displace incumbents, but incumbents that use blockchain wisely stand to realize substantial benefits” –McKinsey Article
Already in 2015 at RWE, employees at their trading desks understood the correlation between energy consumption, hashing power, and bitcoin mining. What started as a small group of like-minded people who researched business model innovation via blockchain –3D printing, P2P energy trading, digital twins for cars, electric vehicle charging– transformed in late 2016 into the official Machine Economy Lighthouse.
Three years later, we’re one of the largest corporate European early-stage blockchain investment chapters. Since the launch, we have proudly invested in 10 DLT (Distributed Ledger Technology) companies.
To highlight a few:
The EWF is an energy-specific public blockchain which enables the orchestration of various energy related applications like Share & Charge or Proof of Origin using PoA. Main-net launch to be expected Q2 2019.
Fractal provides a global KYC solution for Web 3. The SDK of Fractal can be applied cross-sector to provide a fully compliant onboarding experience for companies doing an ICO, STO or for digital banks offering a seamless and cost-efficient KYC UX. Ultimately, the tokenization of energy-related infrastructure or renewable assets will be possible.
Share&Charge represents a solution, an application. With its blockchain client that acts as gateway between charging pole and electric vehicle –sitting on top of the EWF Chain — authentication, seamless payment and charging of electric vehicles will become possible.
(A few other undergoing investments will be disclosed soon)
Is it the right wave ?
Catching the “wrong” wave of innovation can be as fatal as doing nothing. So we wonder, is blockchain the right technology to remake important aspects of the utility industry? We have thought about this question a lot. Here are some of the reasons why we believe this to be true:
1. High growth market
The total market cap of blockchain in 2019 is 170 billion USD according to CoinMarketCap.
The total market size of blockchain is expected to grow nineteen-fold in the next five years reaching an estimated USD 23b by 2023. The worldwide blockchain in energy market is expected to flourish from an estimated USD 0.4b in 2019 to multiply its size more than 17 times to USD 7 billion by 2023, with Europe constituting the largest share.
Germany is the 3rd country in Europe with the highest number of DLT-based startups and companies. It is estimated that of a total of 130 companies, two-thirds have a physical office in Berlin. Between 2015 and 2018, Berlin’s DLT-based companies, including DLTs that had an ICO, raised over EUR 0,5b.
Furthermore, the total market size of IoT devices will account to EUR 11 trillion by by 2025. If we link the physical and digital world together and turn each machine into a smart agent (example: agents for solar panels, electric vehicles, washing machines) –by means of blockchain– that can interact in realtime with other market participants of the energy system to sell flexibilities/ capacity/energy, we got ourselves the next paradigm in the energy revolution.
2. Multiple applications
Blockchain has a large scope of use, not only in the energy industry, but across several others. Already tested solutions in agro, telco, mobility, health, finance and supply chain industries have shown the versatility and potential of this technology.
When it comes to applications in the energy space on a high level, blockchain can coordinate traditionally centralized data flows throughout the power system. These data flows can be categorized into three levels:
- Commodity trading: a blockchain-powered solution for energy trading can be deployed to produce, refine, distribute, and retail trade information related to pricing, position management, logistics, and risk reporting.
- Decentralized energy supply: with a rising decentralized renewable energy supply, specially designed blockchain solutions can optimize the generation, distribution, and consumption (trade) of electricity.
- Smarter energy demand: IoT devices (e.g. electric vehicles, connected houses, smart meters, sensors, and remote-control devices) are becoming the new users of electricity causing a surge of data. Blockchain can help utilities achieve greater reliability, flexibility and efficiency to preserve the balance.
3. Global corporations are embracing the technology
innogy is not alone in this race. There’s hundreds of incumbent giants testing DLT solutions in their own fields. As Forbes Blockchain’s Billion Dollar Babies report highlights, corporations are adopting the technology to speed up business processes, increase transparency and save billions.
Visa, BP, Siemens, Walmart, SAP, Microsoft, Google and Allianz are some of the companies with ongoing projects that involve blockchain. While they haven’t substantially changed their business focus to a purely blockchain-based one (where it makes sense to do so!) it does show a huge potential for massive adoption.
Also, together with innogy, other utilities like Duke Energy, Engie, E.on, Equinor, Tepco or adjacent companies like Shell and Total have actively expressed their interest in adopting blockchain technology by becoming affiliates of the largest energy-specific public blockchain: the Energy Web Foundation.
The energy companies listed above are not the only ones exploring blockchain use cases. BP, Wien Energie, Energinet, EPM, CoLab, Lo3, Usizo, M-PAYG, Tennet, amongst others are doing it too.
Now enjoy the ride, while it lasts
As a utility from the traditional world, we want to embrace and adopt new technologies that could save us from extinction. To us, the best way to venture into this space is with open innovation. This means sustaining an active collaboration with startups who are ready to test their solutions and work hand-in-hand with us, spreading the word on best practices for other corporates to adopt this and other technologies and keeping our eyes open for the next big wave to come.
In the next article we will cover more specific use cases of blockchain and energy from our own learnings. Special thanks to my co-author and source of inspiration Carolina Soto!
