Investing in Transitions: Electric Harleys and the Journey of Renewables in 2020

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John Tincoff | September 23, 2020

I recently previewed a new travel documentary about a pair of best friends traveling 10,000 miles from Patagonia to LA…entirely on all-electric Harley motorcycles. Hard to imagine, and it seems that they are the first do it — recharging the whole way! That such a journey is even possible reminds us just how far energy hardware has come in the last decade. 

The next decade of our Renewables journey, however, has the potential to be much more software-led than the last. Ever more tech startups are breaking new ground by applying approaches like machine learning or sensor-enabled software to create gains that hardware alone can no longer attain.

Another new first?

Renewable power is set to outstrip coal in its share of US electricity production in 2020. Such a dramatic energy transition would have seemed unthinkable in the dark days of our last energy crisis, in 2008. It’s hard to fathom, but at the time coal powered nearly half of the US energy grid! As the stakes grow higher for Renewables, so too does the potential for software-led technology to accelerate its productivity gains.

So how exactly did this shift even happen, and what new tech is coming down the line ?

How did we get here?

Back in ’08, when oil prices surged to an all-time high of $147.30, a friend asked me if Peak Oil was arriving. I shared that the energy industry has historically innovated its way out of shortfalls—and it was often entrepreneurs and engineers who made that innovation possible. Each time, new technology bent the cost curve down. Yesterday’s uneconomic resource becomes today’s new supply.

And so it did again! But not entirely how we expected…

While natural gas from shale discoveries pushed coal to the non-economic brink, the true tipping point has come from solar and wind. The transition to Renewables in the US has been building for a decade: in 2008, R&D and tax incentives sowed the seeds for lower costs in solar, wind, and battery hardware. For example, since 2010, solar alone has seen costs decline by more than 80%. 

Energy in a time of COVID

In the first half of this year — even as COVID unfolded — solar made up a wild 40% of all new US grid capacity. While Renewables’ growth will sustain to likely 3X over the next decade, it has seen some headwinds. Just as COVID has been the shock that’s finally accelerated many industrial transformations, its effects have cascaded across the entire Energy sector.

Many of the adaptations COVID has prompted in the energy sector, whether for its constrained workers (see DTE & other utilities’ NBA-bubble approach) or its heightened need to control costs, have involved cloud-based solutions that are poised to become long-term features of the energy industry. In the end, it is coal’s expensiveness in uncertain times that has it set for retirement.

At the same time, forecasters are also asking how long Renewables’ cost reductions will be sustained. As experience gains and lower capital costs (e.g., ever-cheaper solar panels) begin to taper, what new technology will keep advancing the state of the art in Renewables?

What’s coming?

Part of what drives the rise of Renewables is love from institutional investors like Goldman and Brookfield Asset Management. But this comes with real expectations for predictable returns. If we think about capital costs as having been the first part of the Renewables journey, then this next leg may be much more about operational costs — where software can play more of a leading role.

From what I’ve seen and heard in talking to many utility companies, service providers, and startups, the Renewables industry — not unlike its energy sector siblings—will have some pressing needs in the coming years:

Greater need for remote monitoring & operations

Technicians and other staff can’t operate — in offices or in the field — the way they did before. What’s more, inspections of assets in-person to is both time consuming and often not without some safety risks. 

There are companies like Tagup and Raptor Maps (both out of MIT, I might add) that use cloud-based analytics for power generation and the grid infrastructure, respectively, to ensure maximum up-time and productivity. COVID is accelerating the vision of a more efficient, and remote, future. 

Increasing demands for grid flexibility

Today’s grid can still have issues. With a lot of Renewables, the system can seem more fragile — we can take California’s electricity shortages as an example now. Today, network and system operators need more visibility into energy assets to efficiently coordinate across an ever more complex web of Renewables, “baseload” power, and energy storage.

One company working on these issues is Electron, started out of London, which is building a market platform to enable better coordination. Form Energy, out of San Francisco, is focusing it efforts on battery tech to drive unprecedentedly long-duration energy storage. More agility could make our future grid more resilient and efficient than ever.

Other services

Access to capital is also one of the long-running issues that renewables have increasingly overcome. A good friend of mine, Rich Matsui, who helped found McKinsey’s solar practice, has long highlighted the imperative of bringing down the cost of capital for Renewables to feed such growth in utility-scale projects.

In his case, he started KwH Analytics to provide an insurtech solution to this problem: creating more transparency in the chain of custody from investors to assets, increasing predictability of returns, and thereby lower insurance risk on those power projects. 

In summary, it’s clear to me that there will be many layers and corners for software and connected hardware to drive further productivity gains and accelerate the energy transition. What’s more, the combination of innovations like these will make our grid look dramatically different from today’s in another decade.

Across all of these opportunities the theme is relatively clear: controlling costs and building in more agility. While it remains scrappier than its big Utility and O&G cousins, the Renewables industry is coming along well and is poised to move from more pen and paper operations toward a more digital future.

At least twice, when I’ve asked customers what a system of record might mean for them in managing their business I’ve heard, “Well, that’s the dream!” It’s not enough to try to adapt clunkier last-age software, either. What’s more, folks inside these companies—experienced operators and engineers—know such advances should be possible … though they’ll never claim it’ll be easy! 

That is, such advances are possible as long as we have enough grit and engineering, as well as empathy for what’s truly grinding customers’ gears. At REMUS, this sort of vertical software is exactly the kind of thing that excites us. If you’re a founder (or the friend of one!) working on attacking these big problems, I’d love to hear about what you’re doing. Reach out to [email protected].

If the Renewable industry is able to tap into just a fraction of tech’s potential to improve its operations, they will combine with other hard work in energy hardware like battery storage to reshape the face of our grid for the better.

Plus, given what we thought in ’08, who knows what else is around the corner! 

Also: If you’d like to take a peek at some of the latest in what’s next, this week’s Energy Venture Forum at Rice just wrapped up last week! Go check it out.