Energy firms swoop on startups in new tech race

They spend $1.4 billion on innovative edge

Europe’s biggest energy companies have plowed more than one billion euros ($ 1.4 billion) into startups, with several deals announced in the past month as they accelerate a quest for new technologies to outpace rivals.

Taking a leaf out of Silicon Valley’s playbook, companies such as Germany’s Innogy, France’s EDF and Dutch Eneco, as well as oil majors such as Total, have set up their own venture capital funds to scour the globe for potentially disruptive technologies.

The race is being driven by the fast- changing nature of an industry that has seen traditional energy providers scrambling to keep up with renewable power and seeking any edge over competitors in an increasingly fierce and fragmented market.

Investment targets range from startups developing batteries to store solar power in massive amounts to those creating systems to better manage the use of household appliances like washing machines and thermostats.

Companies are casting their nets wide and their funds each typically scan around a thousand pitches from startups a year, but invest in only one to two per cent of them. The relatively s mall i nvestment s i zes, typically a few million dollars, allow corporations to build up a varied portfolio of speculative investments.

Among deals announced in the past month, Norwegian power firm Statkraft’s fund, Statkraft Ventures, has invested in smart-meter software company Greenbird, while French utility Engie’s fund has bet on U. S. home services startup Serviz and Canadian smart grid management platform Opus One Solutions.

“Nobody knows where it’s (the industry) heading, that’s what’s exciting about it. Corporations do not know, startups don’t know but everyone is trying to own this game,” said Petr Mikovec, managing director of Inven, a venture capital fund set up in 2014 by Czech utility CEZ .

The new industry landscape, partly driven by an explosive growth of renewable energy over the past decade fuelled by government subsidies, saw energy firms take 26 billion euros worth of impairments on unprofitable power plants, according to consultancy Capgemini.

It has also changed the way some large corporates view venture capital. In the past, venture capital funds were often regarded as luxuries and were among the first spending areas to be scrapped when finances were squeezed. In the past five years, however, they have become a central part of business models as companies are forced to innovate to defend their market share and survive.

Investing in startups, especially at an early stage, is relatively cheap, compared with other i nvestments energy companies make on a daily basis — such as infrastructure upgrades — allowing them to cover a large part of the startup scene.

Analysts at investment bank Macquarie said inflexible utilities would be the losers of the radical transf ormation happening in the sector. “Investors will increasingly favour European utilities which have an exposure to the technologies that will reshape the utilities sector,” they said.