Energy Markets 101
Sharing Thomas Bajas's show notes
👋 Hey everyone, I’m Hugo, the founder of VCo2, the media platform that makes you a better impact investor and climate tech entrepreneur.
Today I’m sharing the show notes prepared by Thomas Bajas when he came on the podcast. If you want to understand the energy markets? This is your 101 course.
Listen to the podcast on Apple Podcast, Spotify, or Substack
Or watch it on YouTube.
Why energy is central to combating climate change.
The economic system is essentially a system for extracting, processing, and transforming energy into products and services (Robert Ayres, physicist).
Energy is a universal currency.
A linear relationship between GDP and energy consumption seems well confirmed by aggregated global data.
We use +20k kWh per person per year in the world vs around 12kWh in 1965.
One of the largest and most complex markets ever.
According to the IPCC, electricity, and heat account for 23% of the 59 GtCO2 eq. emitted in the world in 2019, the largest sub-sector.
Upstream, we need to produce more and more renewable and nuclear energy to decarbonize our energy mix.
We need to be able to store this energy efficiently and distribute it whenever there is demand for it.
The challenge is about how to transform intermittent renewable energy into reliable, on-demand power.
Downstream, electricity needs to power more things
We need to optimize the grid and the consumption in order to reduce the maintenance/upgrade costs and enable decentralized power production.
There is also a political momentum. For example, the EU has an ambitious renewable target of 42.5% by 2030.
Historical players in the energy space
Energy providers like EDF, TotalEnergies, Engie, Octopus, BP, Vattenfall..
DSO / TSO (transmission system operator and distribution system operator) are building and operating the grid between producers and consumers.
OEMs like Siemens, Schneider Electric, Legrand, ABB, Wallbox, and Tesla are manufacturing consuming assets.
Power plant developers and funders like Meridiam, DIF, Infravia, Ardian, Crédit Agricole, Akuo, Orsted, Fortum, and Amarenco.
End-consumers: households and companies.
The value chain also includes: mining companies like BHP or Imerys, oil & gas exploration companies and subcontractors, nuclear subcontractors like Orano, battery cell manufacturers like Verkor, battery cell up cyclers and recyclers,
Current State of Energy in Climate Tech
Key energy technologies transforming the sector:
Green technologies (energy and mobility) have been developed for decades now and are mature enough to be competitive compared to fossil counterparts.
The “new three” - EVs, photovoltaic cells, and lithium-ion batteries, are flooding into Europe.
Solutions for production, installation, maintenance, renovation, financing, and optimization of assets in energy & mobility are surfing the electrification wave and should drive enormous returns (both in € and CO2 as the most impactful short-term mitigation tool) in the decades to come.
Behind-the-meter (residential & commercial consumption) - better monitored, and optimized energy consumption, and also service to the grid and connection to the markets. A lot of those new tools are powered by AI.
Front-of-the-meter (utility-scale production, wholesale trading, transmission, and distribution) - Aggregators, traders, or asset monitoring tools are also becoming better thanks to AI. Market data + asset data = better algorithms.
Examples of successful energy-climate tech VC investments.
Octopus Energy (founded and funded by Octopus Ventures).
Direct Energie in France (funded by Omnes Capital), acquired by Total
Neoen (funded by Bpi and Omnes, IPOed in 2018 and bought out by Temasek and Brookfield)
Amarenco (IDIA (CA), Eiffel, with PE like Tikehau coming after)
Voltalia (Creadev and then IPOed) for renewables
Allego for charging stations (Meridiam then IPOed)
Energy management like Efficia (Aster and Alter Equity, bought by Hager groupe), SMS (bought by KKR)
Aggregators like Limejump (SET Ventures from Amsterdam) and Nextkraftwerke (Eneco ventures also from the Netherlands) - both bought by Shell respectively in 2019 and 2021.
H2GreenSteel, Verkor, Electra, Newcleo, 1komma5, Enpal, but we’ll have to wait a little more to find out because for now, it’s on paper.
Challenges and Opportunities
Major challenges:
People: How to keep the best minds in Europe? How to remain competitive (incentives, salaries, perspectives, and ambition)?
Money: we need to bridge two major valleys of death: pre-seed from the lab, and Series A/B to build the first-of-a-kind assembly line
Regulation: How to accelerate the entrepreneurial engine (less paperwork, more support, and long-term perspectives/incentives). How to create a real European market?
Competition: How do we get rid of the green premium? Particularly the case for energy: can we make solar+battery, hydrogen, ammonia, SAF, or e-methanol competitive with oil & gas? When? At what cost? Do you need a carbon price? Which one?
Opportunities:
The market is wide/enormous/deep/diverse
Demand is up and supply needs to move
Many challenges to tackle with the need for decarbonization and many ways to do it (deep tech with chemistry and physics fundamentals, AI, hardware, infrastructures, robotics, crypto - all the tech buzzwords are here).
Great way to have a major impact on society
Advice for Founders and Investors
Tips for Energy Founders
Building scalable solutions
Pitching to climate-focused VCs
Forming strategic partnerships.
Team: network & previous successes, diversity & balance, confidence to humility ratio & growth mindset + are you obsessed?
Partners: early adopters/POC clients, corporates, BAs, and all kinds of knowledgeable supporters
Time to market - competitiveness of your product - growth strategy
Guidance for investors
Work on having a conviction about a market and find the best team you can
Get out of your office and meet with PE and infrastructure funds, corporates (large and small), potential partners, customers, competition, and service providers for startups.
Read the international press, read books, read McKinsey reports, and read utility shareholders reports.
You will never be the most knowledgeable person in the room, make bets, and trust your guts, your role is to be right BEFORE the others, if you do early-stage investing don't focus on traction.
Travel in your country, in your continent, be visible, and chase the best teams.
Outlook for Energy in Climate Tech
Electrification seems to be on its way and we can only hope for an acceleration
Will the oil & gas majors succeed in becoming electricity majors/utilities?
Will the OEMs be more and more electricity players too (following Tesla, Schneider, and Siemens for instance)?
Will we see startups able to compete with those giants?
According to me, the most valuable assets in the energy market are the relation to the end customer and the ownership of production technologies. Any company enabling more competitiveness on those ends should be a good bet.
Resources for diving deeper into energy-climate tech.
Possible by Chris Goodall
Climate Capitalism by Akshat Rathi
Not the end of the world by Hannah Ritchie
The Future of Energy by Richard Black
More and More and More: An All-Consuming History of Energy by Jean-Baptiste Fressoz
That’s it for today! I hope you enjoyed this new concept.
Cheers,
👋 Hugo.
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Thanks for those insights!!
If you are willing to do a more detailed version, would love to have you as a guest writer for my newsletter.