Across many industries, the pandemic whisked the world along in an upheaval of transition. Ready or not, digital transformation pointed the way to survive, if not excel, in a suddenly virtual world.
The energy industry, on the other hand, stalled. With the absence of commuting and travel, global energy consumption reversed its steady climb and dropped to 2016 levels. Global emissions temporarily plummeted 5%. It was in that moment of pause that we realized how much we need to change.
In most industries, consumer requirements for customization, speed, and a seamless experience combined with the advancement of digital technologies are pushing the production and provision of goods and services closer to the point of demand in time and space. What would such proximity look like in the energy industry? Imagine every household producing its own supply of energy via solar panels, wind power, and home battery charging. The predictive power of artificial intelligence (AI) would turn off your AC when it sensed a cloud arriving overhead. Excess energy could be stored and delivered to a neighbor in need.
I interviewed Geert van de Wouw, managing director for Shell Ventures, the corporate venture capital arm of Shell Group, who agreed that in many ways, particularly in relation to home energy consumption, the industry is headed toward proximity. In other ways, such as generation and distribution, we still have a long way to go. He shared the top trends in energy today, followed by the questions that call for innovation in the future, and two companies that are innovating on the edge.
Three trends in energy
Interviewing an oil company executive on innovation? It might sound surprising. But Shell Ventures invests in early and later stage startups and scaleups focused on new technologies and business models.
With a portfolio of more than 100 companies and $600M currently invested, the majority of their new investments are in renewable energy and new mobility and transportation concepts. Their work covers the full energy domain, from renewable energy generation like solar, wind and hydrogen—all the way to customer-facing smart home solutions. These are the trends that Geert and Shell are following across domains:
1. Lines between industries are blurring
Sectors are working together to combat large-scale challenges. For example, both the agriculture and energy industries are focused on the biosphere and soil to capture carbon at scale as a way to combat climate change.
Changing how we produce and consume food and energy is critical to meeting climate objectives. Shell Ventures is co-investing with Merck Animal Health (a pharma and agriculture company with whom they never would have crossed paths in the past) in Vence, a US startup that offers “virtual fencing” for ranchers using regenerative agricultural practices. Shell also invests in agricultural companies that measure real-time carbon capture in soil or satellite imagery of growing plants and forestry that capture carbon emissions.
2. Customization and self-sufficiency deepen relationships with energy providers
Growing consumer interest in renewable energy is leading to new business models and relationships in energy retail. Before, consumers would receive a bill from their utility company, skim it, and pay. That was the extent of the relationship.
However, with solar panels on their rooftop and possibly an electric vehicle in their driveway, or a sonnen battery in their garage, traditional consumers have turned into “prosumers”: they generate and consume (renewable) power. Excess power generated during a sunny day is stored in their home battery or in their electric vehicle, or is fed back to the grid.
Therefore, the relationship with their energy supplier is changing. Consumer homes may now include rooftop solar, home batteries, electric vehicles, trading energy, smart home appliances, burglary insurance and energy efficiency measures. To help maximize their savings from solar generation or optimize the time it takes to charge their electric car, these prosumers need a more intimate relationship with their electricity provider.
Proximity technologies including the internet of things (IoT) and energy analytics will help determine your personal energy and carbon footprint, suggest efficiency improvements, and allow you to trade energy with your neighbors. The Reynolds Landing smart neighborhood is an example of one such community in Alabama.
In the future, your utility company might notify you that your dishwasher needs replacing and offer a new, energy-efficient version. This new relationship will be much more two-sided and interactive.
3. Energy-driven conflicts are already happening
We often speak of climate and energy migration crises as a dark cloud looming on the horizon, but they have already begun. In Syria and Latin America, farmers who have run out of fertile land are moving to cities to learn new trades. The World Bank links 10% of global migration to water shortages. Energy is being used as a political tool to influence and gain concessions.
I spoke to Geert not long before Russia launched its brutal attack on Ukraine. We discussed how energy has added to the growing tensions. Russia accounted for more than 40% of natural gas and 30% of crude oil imported by the European Union (EU) before the war. This makes the bloc vulnerable should Russia decide to retaliate for EU policies by curbing exports. Western Europe is producing less of its own oil and gas and importing more from Russia. This gives Russia the power to squeeze supply and increase energy prices to gain more influence in Europe.
But, regardless of the atrocities of war in the Ukraine, the conflict will likely accelerate the energy transition in the EU, not only driven by climate ambitions but also motivated by reducing the EU’s reliance on Russia. For some communities, the ability to produce and consume energy at the point of demand could mean the difference between war and peace.
Problems we still need to solve
Shell, still primarily a fossil fuel energy company, strives to become a net-zero carbon company by 2050. This will require a transformation in the entire business model. As a society, we’ve built our lives around fossil fuels. We use fossil energy all day and at every level of our daily life—to charge our phones, heat our homes, and drive our cars. Even while we sleep, we use energy. Geert acknowledges that this will be the biggest transition that humans have ever had to face—one that will require trillions of dollars of investments until 2050.
We’ve talked about how retail energy is moving toward proximity. Energy generation and distribution on a broad scale prove more difficult to tackle. Here are two of the problems we will need to confront:
1. Renewable energy is not evenly distributed
By 2050, Geert predicts the core of renewable energy we produce will be wind and solar, but regional differences are material: The east coast of the United States will rely on wind, the west coast on solar. Hourly and daily intermittencies will be covered by improved grid management, decentralized generation of power, and energy storage (in the form of batteries, hydrogen or hydro).
Not every community has access to strong winds or weeks of sunshine. We will need ways to store energy across weeks, months, and seasons. Longer-term storage at scale will likely happen through ammonia or hydrogen, but these are volatile, flammable molecules that must be compressed or cooled.
2. Offsetting our footprint during the transition
Geert explained that, as the population and demand for energy keep growing and the new energy system still needs to be built, which historically has taken decades, there will be a need for using some oil and gas for a couple more decades. Some of the renewable energy solutions we need don’t exist yet, like green hydrogen, and it will simply take time to build them at scale.
During the transition, we will also need investments to store and sequester carbon at a very large scale, either through nature-based solutions, carbon capture and storage or (longer term) direct air capture. We will need verifiable methodologies to calculate our carbon footprint and enable offsetting against certified carbon sinks.
Norwegian company CHOOOSE has a platform to help organizations determine their climate impact and direct funds to nature-based projects that offset their carbon footprint and are certified by independent agencies.
Proximity companies that are innovating around challenges
Many companies in the energy sector are developing applications to measure demand and deliver energy where it is needed. Two such companies that Shell has invested in are:
- Innowatts: This Software as a Service (SaaS) platform uses AI to help electricity providers precisely predict demand based on weather, time of day, and industries operating in the city. As the system of traditional energy production becomes more complex, AI will help optimize decentralized generators and consumers of energy.
- AutoGrid: AutoGrid is another AI- and machine-learning-driven platform that enables energy providers to balance energy supply and demand in real time. Its flexibility management services allow for the trading and flow of energy between local generators or neighbors who may not yet have rooftop solar panels.
Around the globe, we’ve finally come to a consensus that our behaviors need to change, and we hope this realization won’t be too late. The biggest shifts toward energy proximity are happening in the retail segment, shifting more of us to become energy suppliers at home, and in Europe, to reduce dependency on Russia and accelerate the energy transition.
Innovation opportunities remain upstream, at the generation site. We’ll still need new ways of generating energy far from the consumer and methods to bring it closer, via storage and distribution, to the point of demand. Using proximity technologies to optimize and support our energy usage will increase of chances of coexisting peacefully.