Investors from ABB, BP, ArcelorMittal, Baker Hughes and Engie on how their strategy of building renewables portfolios is evolving.
SETsquared innovation director Simon Bond introduced a discussion at the GCV Symposium moderated by GCV senior editor Maija Palmer covering the ongoing transition to more renewable sources of energy and the ways in which corporate venturers can assist in the process.
The panel began with the viability of traditional renewables like solar and wind, with Irina Gorbounova, head of steel producer ArcelorMittal’s XCarb Innovation Fund, talking about how the company’s need for very large amounts of renewable energy meant they were having to also look for breakthrough technologies such as cost-effective energy storage solutions.
Claudio Jordan, a principal at power and automation technology manufacturer ABB’s corporate venturing unit, ABB Technology Ventures, agreed new forms are complementary to renewables. Alfonso Sessa, finance manager for Engie New Ventures, the strategic investment arm of energy utility Engie, said his company focuses more on solar, especially software and digital technologies capable of optimising solar power production, while naming storage as another key area.
Luca Maria Rossi, vice-president of new frontiers at oilfield services provider Baker Hughes, said the company is looking at early-stage technologies like carbon capture and storage (CCS) and hydrogen as part of its investment thesis, as technologies in traditional renewables have now been largely commoditised.
Johnathan Stone, a principal at BP Ventures, the corporate venturing vehicle for petroleum supplier BP, sees continued space for innovation in renewables, though it is less obvious, but mentioned green hydrogen as an interesting area, adding that the key will be lowering production costs, a process which will hopefully be led by falling solar and wind power generation prices.
Rossi said he expects metal-air batteries to change the energy storage space, though Baker Hughes is not especially active in the space due to it being relatively crowded. That shifted the conversation to greater investment volumes and an increase in valuations over the past two years. How can you ensure you get value in that kind of environment?
Stone said that although series A and B rounds effectively doubled in size in 2021 compared to the previous year, he estimates share prices have fallen some 20% to 30% since the start of 2022 and he believes that trend will eventually impact the VC space.
There is still hope of getting outsized returns, he said, if you can get in early in areas such as building new energy infrastructure. Stone added that while BP Ventures does the maths when it comes to expected returns, it is also important to take note of strategic returns.
Rossi agreed a high valuation can make sense for a corporate venturer if there is the right strategic return, and that can be achieved through synergies between a corporate and its portfolio companies as well as potential commercial improvements to its business.
Many investors are leaning on other corporate innovation instruments such as accelerators to get in on earlier-stage deals.
Gorbounova said ArcelorMittal is set to launch an accelerator next week due to the number of niche technologies it aims to explore. ABB meanwhile runs the SynerLeap scale-up scheme in Sweden, while Rossi said Baker Hughes is looking to set up its own as part of a joint investment and development model, a model he said was useful because of the inherent risk with nascent technologies.
Discussing possible bottlenecks in the space, the panel all named the potential culture clash between corporate and startup, though Jordan said there were a range of things that could go wrong with early-stage technology, adding that this was good because it could present a clearer idea of which path you do not want to go down.
Stone said BP Ventures looks for opportunities to help startups where possible, in some cases carving out capacity in large energy infrastructure projects where their technology could be piloted. Gorbounova cited the traditional issue of large corporations moving more slowly than newer, leaner startups, while Rossi mentioned the difference between a quarter-by-quarter view of commercial returns held by many corporations and the way some deep tech startups may not have an eye on commercialisation at all.
Rounding off the talk by each naming one energy technology they were excited about, Rossi identified direct air capture while Gorbounova spoke about circularity and how waste and carbon can get recycled into products such as packaging.
Stone identified geothermal energy and the potential for new technologies to make it a baseload energy source on a global scale. Jordan also named baseload technologies in addition to nuclear transmutation where nuclear waste can be utilised, while Sessa talked about energy storage and possible increases in capacity.
The panel was followed by a keynote speech from King Lee, director of the Harmony programme at industry body World Nuclear Association, illustrating nuclear energy’s importance as part of the energy transition.
Clean energy is crucial in the energy needs of developing nations, and World Nuclear Association expects demand for nuclear to increase six times by 2050, at which point it would increase from just over 10% of global electricity to 25%.
Lee claimed nuclear has the lowest greenhouse emissions of any energy source, including other renewables and CCS, and its use in district heating in the Nordics region shows its potential as a way to decarbonise heating and industry through microreactors and smaller modular reactors.
Energy security could also be a sizeable factor in the growth of nuclear power, especially in the wake of Russia’s invasion of Ukraine and the recent rise in gas prices. There are some 70 different types of new reactors being tested according to Lee, including a floating reactor which has been built in Russia, marine propulsion systems in ships and the generation of hydrogen through a more efficient method than electrolysis.