The nation’s electrical generation and distribution infrastructure — the grid — is under stress. Evidence of that was seen this past year in the wake of catastrophic outages due to record cold and snow in Texas and, earlier, as a result of forest fires in the West. What should be done? Where are the opportunities? To answer these and other questions about the future of the grid, Industrial Exchange recently assembled a group of energy industry executives and investors. Participants at the virtual roundtable, moderated by Industrial Exchange CEO Jon Cooper, were:
- Grant Allen, a General Partner at SE Ventures, a Menlo Park, California-based venture capital fund backed by Schneider Electric.
- Dave Blanchard, Vice President, Orion Energy Partners, a New York-based provider of debt solutions to mid-sized energy companies.
- Ben Conte, Chief Executive Officer, Exergy, a provider of services that access data from distributed energy resources, based in Portland, Oregon.
- Tim Fazio, Managing Director and Co-Founder, Atlas Holdings, a Stamford, Connecticut-based investor.
- Jason Kahan, a Principal at Basalt Infrastructure Partners, a New York-based mid-market infrastructure equity investment firm.
- Lester Krone, Managing Director, Leyline Renewable Capital, a Durham, North Carolina-based energy industry investor.
- Lauren Mulholland, Founding Partner, MiddleGround Capital, a middle-market venture capital and private equity investor based in New York.
- Tyler Schinto, a New York-based Director at Sumitomo Corporation, a Japanese holding company.
- David Smethurst, Partner at Attona Group, a consulting firm based in Calgary, Alberta.
Their comments, edited for clarity and brevity, follow.
Jon Cooper: Let’s start with a bang: Are utility companies, as we know them, dying?
Lauren Mulholland: We focus on manufacturing businesses, and in looking at areas we think are poised for growth, we closed on an investment in Attala Steel Industries at the end of 2020. Attala makes foundational steel I-beams for utility-scale and some commercial and industrial (C&I) solar applications. We think most of its growth will be in the utility area. To be sure, there’s uncertainty around the timing of how the growth may play out, but much of that depends on policies put in place in Washington. We initially thought that Attila’s business would be flat over the next five years, but it’s possible that may not end up being the case and things will turn out more positively, which means the nature of utilities is changing.
Jon Cooper: Jason, your firm recently purchased a company you’ve rebranded as Black Bear Transmission, which serves utilities in the Southeast. You also acquired what’s now known as Habitat Solar, which supports residential solar installations. Could you walk us through your thinking? It seems to support Lauren’s view that utilities aren’t going away, but changing.
Jason Kahan: Black Bear helps utilities meet their gas requirements and helps industrial users get gas for whatever process they’re doing, and neither of those users won’t be moving off gas for at least five years and probably not for 20 years, because gas prices are so low. With Habitat Solar, we’re providing customers with something like energy sovereignty — or at least a cushion —to a certain extent. We can see more people going off the grid if they have the footprint to do so, but not everyone will be able to.
Tim Fazio: That sort of sums up our investment thesis. We’ve been buying old baseload assets that were operating in wholesale energy markets when they were healthier, but no longer could afford to be baseload because they were replaced by renewables or super-efficient gas plants. These older plants, typically owned by utilities, had built up immense cost structures, which we were able to reduce so that we can be profitable running maybe 3% or 4% of the time when natural gas goes to the moon, for instance, or there’s a polar vortex. I don’t see renewables totaling displacing old-economy generation for a while, and with the electrification of cars, buses, industrial equipment and all kinds of other things, we actually may need more of it. Where else are we going to get all the power we need? That why the utility grid is likely remain, even if it becomes more decentralized, which will make the next few years very interesting.
Jon Cooper: That’s probably a good transition to a conversation about how technology is essential in the decentralization of the grid, whether in the form of advances in storage or data usage.
Lester Krone: So true. Most of the solar and wind opportunities that we’re seeing today have some element of storage in their business plan.
Ben Conte: Our focus is on the data silo problem in much of the industry. Today, there is concerted interest among utilities in learning more about how flexibility, and particularly local flexibility, can provide benefits to the grid that aren’t necessarily afforded by large-scale projects.
Grant Allen: We also go after what we call ‘smart structures’ that look at system services and workflows that can go into commercial buildings, data centers and homes. In addition, we’ve invested in new business models including Volta Charging, which provides free electric vehicle (EV) charging stations supported by advertising, and Proterra, which builds electric buses. And we’re very active in new energy management.
Tim Fazio: Grant, we make copper wire for charging stations, so I’m really curious about your group’s view on adoption rates for EVs. Some of the forecasts I see feel kind of conservative to me.
Grant Allen: We’re seeing it really pick up. One of my venture capital friends compares what’s happening to a sneeze: it builds and builds and then just comes out all at once. The EV inflection point may be coming soon. There’s a groundswell of new models coming out that are just wonderful vehicles, have amazing torque curves and are phenomenal to drive. So we’re very bullish. But the EV charging infrastructure has to be in place to support all this customer demand.
Jon Cooper: All that begs the question: Is there enough renewables capacity to meet the coming EV charging demand, or will there be increased reliance on conventional utilities and the grid to make up the difference?
Grant Allen: We think EVs will be driving demand for generation, but at the edge. Most of the charging, and this is the view of ABB, will be in-transit, which is why they did a lot of high-speed infrastructure. At Schneider, the view is that charging that will occur at home and at work. And for that you’d see on-site generation, which is going to drive the need for battery storage and solar and other types of generation.
Jon Cooper: David, before you became a partner at Attona, you were helping utilities at Hitachi, in particular with their Industry 4.0 plans. What’s your perspective on utilities intend on using technology to better protect their position?
David Smethurst: Having looked at oil and gas power utilities, and alternatives and renewables globally, I see some limitations around the technology and the ability to scale. Hitachi sees that as a tremendous opportunity as electrification brings the infrastructure together. On the power utility side, the big issues are automation and energy transition. How much will be oil and gas and how much will be renewables is a question mark.
Jon Cooper: Any comments from the investor groups?
Tyler Schinto: We’re looking both at the incumbents for conventional power generation and newcomers for generation and storage. We made an investment in a hydrogen business last month and investments in battery businesses. We’re also looking at applications for solar generation on top of big box retailers. So we’re placing different bets.
Les Krone: We’re currently looking at some green generation for vehicle charging, but it’s more opportunistic in that we’re looking at the LCF (low-carbon fuel) market, where there are credits.
David Smethurst: I’m curious to hear what Ben is seeing with data, because that seems to be a big topic of conversations with the utilities I talk to.
Ben Conte: It’s been extraordinarily challenging because it’s incredibly hard to get access to data. The only way you can do it is either to have the person who owns the device give you authorization, or have their proxy do it, which in this case would be energy-as-a-service companies. In order for the information to be massively available, there would have to be some regulatory mandate. And that might come because there’s a concern about Google and Amazon — who know exactly what people are doing in the homes — having too much control over the data.
Jon Cooper: We’re getting close to winding up, and I wanted to give Dave and Jason an opportunity to discuss what they’re doing.
Dave Blanchard: We take a pretty broad view of energy. Some of our earliest investments in 2015 2016 were in more traditional energy. Since then, we’ve been doing things that we like to call ‘environmentally innovative.’ Maybe it’s not a solar or wind deal, but something involving steps to get to that future. A good example of that, and maybe it’s controversial, is an investment in a company called Evolution Well Services, which provides power to fracking units in Texas. Recently, we’ve spent more time in EV land. We like the business, but many of the companies are not at the maturation stage to need our senior debt capital. So now we’re providing or generating new strategies, where we take on a little bit more risk, perhaps in the form of equity.
Jason Kahan: As we look ahead, we see optimizing energy usage as an important area. Energy storage providers, for instance, need a layer of software on top of their equipment to maximize their profit, whether that means being able to absorb megawatts and put them back onto the grid, or helping customers deal with their time of usage and their electricity consumption. Unless you do that effectively, your profits may be wiped out. So we see opportunity there.
Jon Cooper: Thanks for that, Jason. We’ll be focusing on the issue of data management as part of the ESG-related energy themes we’ll be discussing at our IndEx 2021 event in Miami in December. Please stay tuned for more announcements about the event, and I hope you all can join us there. In fact, our special early registration [linked here] is available now. I thank our panelists for the lively and informative discussion, and all of you for joining.