The energy sector has been transforming into the dynamic, tech-forward ecosystem that we need to increase clean energy production in the US from 40% today to 80% by 2030. Climate tech VC activity has also been skyrocketing, with investments growing 80% to $56b and exits growing 70% to $114b in 2021. With so much hype, we’ve authored the following white paper to distill four emerging trends to watch out for in 2022.
Energy Sector Market Map
*Market map shows some key players in different sectors and is not an exhaustive list
2030 Market Breakdown by Trend Discussed
*These energy market predictions are comparative and not exhaustive
Efficient and connected home
Rule-following smart homes will lead to habit-observing, energy-integrated, knowledgeable systems that leverage AI, ML, and edge computing to transform our lives at home
When we turn on our air conditioning or plug in an electric vehicle, or EV, we expect them just to work. But at a grid system level, we’re contributing to the problematic duck curve where the load ramps up just as solar production stops. Artificial Intelligence, or AI, is now producing invaluable insights from troves of data from increasingly IoT-connected homes to solve these issues. Buildings consume 60% of global energy production and produce 38% of emissions (10% from air conditioning). In this new paradigm, air conditioning, combined with better sealed and insulated homes, can be used during peak solar times to essentially consume free energy. Consumers increasingly cede control of their homes to Google Nest’s AI-driven products like “Rush Hour Rewards” to automatically receive incentives from utilities to shift heavy loads to off-peak hours.
Sense and Bridgely are some other leading examples that afford consumers energy savings by sensing the electrical signature of individual appliances in the home from the main breaker. Soon, “active” smart homes will track the behavior of individuals, learn habits, infer preferences, and automatically adjust settings such as the lighting and water temperature in the shower for individual family members. This is made possible by AI and ML and edge computing, where vast amounts of data processing happen in the home rather than on the cloud.
Depending on the season, heat pumps either cool or heat your home. They exchange heat with the air or ground outside and are an impressive 50% more efficient than electric heaters. The annual sale of 4m heat pumps (compared to 6m air conditioners) in the US is helping move heat pump technologies down their cost curve, something that will enable the likes of Gradient Comfort to reduce the $1999 price of their slick window-mount unit.
Dandelion Energy’s leading geothermal heat pumps boast just 25% of GHG emissions compared to fossil counterparts, which will only improve with increased renewables penetration as we electrify everything. Dandelion’s CEO, Kathy Hunnan, and other great female energy leaders like the CEO of Sunrun, Lynn Jurish, should have us all reckoning with the sector’s poor diversity statistics, where women hold just 14% of senior management and less than 5% of CEO roles. Just like climate change, we can do better.
Customer focused, Uplight, an AES company, and European competitor, eliq, bundle energy efficiency products and demand-side response, or DSR, program enrollment easily for domestic customers. This means that energy providers can capture additional value while reducing costs for their customers. Considering energy systems with a more macro lens, like Uplight and Google Nest, leads us to our next trend: Decentralization & Digital Twins.
Decentralization and digital twins
Retiring coal power plants will be replaced with a web of intelligently aggregated and optimized energy resources - EVs, batteries, home solar - while entire cities will enter the metaverse using the same technology: digital twins
A coal-fired power plant connected with 140 kV transmission and 20 kV distribution to your kettle is simple, static, and predictable. Largely unchanged for a century, the energy system is rapidly being overhauled to be dynamic, distributed, and bidirectional. Consumers are becoming prosumers that produce electricity from their rooftop solar panels and only consume the balance from the grid. When considering a map of commercial wind and solar energy production, you’ll notice it shows the inverse of population density. Transmission infrastructure must grow 60% by 2030, but development is encumbered by years of interconnection queues and Not in My Back Yard (NIMBYism) sentiments. Significant challenges exist, yet opportunity shines through.
Decentralization presents the opportunity for an increasingly digitized energy system to dispatch local resources, a market of $68b by 2030. For example, flexible, local, and resilient Virtual Power Plants aggregate Distributed Energy Resources, or DERs, and allow grid operators to control them. Australian startup, Evergen’s platform enables the fleet management of a range of batteries, solar plants, and many other energy-generating assets.
In the UK, Evergreen Smart Power, enables the control of a range of demand-side response energy assets like EVs - a $24.7b global market in 2022. This dynamic interplay between aggregated DERs and end users who now participate in capacity, DSR, and other markets is the focus of PlexiGrid, a company that was part of Plug and Play Energy’s Batch 9. Their platform builds digital twins of the grid starting from the previously-opaque low-voltage distribution system. Using Plexigrid products, grid operators can optimize operations and defer costly upgrades while retailers and aggregators can monetize and manage DERs.
So, what is a digital twin? They’re models that leverage AI and ML to make sense of complex energy systems, including cities. These models are being used to cheaply, non-invasively optimize smart city design and operation - see our blog on the subject.
Are you considering your first trip into the metaverse? The entire city of Orlando, Florida might beat you there with the help of Unity, a leading gaming company that has partnered with the city to create its digital twin. Singapore’s real-time 3D twin, already fully live, was created with 3m street images and 160k drone images. New York, Las Vegas, Phoenix and many more are joining this trend. Digital twins can model traffic flows (Lightcrossing Technologies), building energy use (DataFlux), pedestrian movements (CrowdScan) and much more, saving cities $280b by 2030 while drastically improving the 60% of GHG emissions and 78% of energy used by cities. If you grimace at the thought of traffic, our next trend, Electrification and Future of Transport, will mitigate the emissions from your tailpipe and might have you beating traffic.
Electrification and future of transport
Rather than a panacea for the electrification of transport, there will be a mix of solutions: Li-ion for EVs and short-haul air travel; alternative fuels for shipping and lang-haul air travel; and some entirely new modes like autonomous VTOL
EVs make up 8.6% of total global car sales, however a whopping 92% of cars sold in Norway are electric due to ground-breaking policy starting as early as the 90s. With gas prices in California reaching nearly $7/gallon and energy for electric cars often being free, the tide is starting to turn in the US as well. While some criticize EVs as a bourgeois luxury, the reality is that there's only a few thousand dollars difference between the cost of a low end EV and its gasoline-fueled counterpart. Add in generous $7.5k tax credits, financing, and 40% lower maintenance costs, and you’ll find the lifetime cost of ownership of an EV often beats gas vehicles.
Tesla deserves significant credit for drastically accelerating this transition and forcing major car companies to develop EV strategies. China sells 5 times more EVs than the US and state-owned SAIC now controls 11% of the global market and outsells Tesla in China. Following this trend, Mobility and Transport captures two thirds of climate tech VC funding - recently Bia Power for fleet management and VoltPost for its novel lamppost charging tech. And when the sun sets, Ford’s F-150 and many other EVs can now power your home, having charged at work for example, and save $3.5b in grid reinforcements. Most exciting of all, for those that live in San Fransisco, commercial Cruise and Waymo autonomous vehicles may open their doors as soon as this year. And all too soon, the Mobility as a Service (MaaS) model will mark the end of the personal car ownership paradigm.
With easy-win, personal transport well underway, inventors and investors can shift their attention to more challenging tasks. Ammonia technologies like that of Amogy are positioned to mitigate shipping’s 2% - 3% contribution to GHG emissions. For air travel, you'll be able to take short haul electric flights of up to 250 miles on Heart Aerospace’s ES-19 by 2026, but for longer trips, Sustainable Aviation Fuels like that made from agricultural waste by Aemetis can easily substitute for jet fuel.
Those wanting to avoid traffic might consider Vertical Take-off and Landing, or VTOL, personal taxis which might be commercially available as early as 2023. Plug and Play has hosted a number of these companies (most recently Ampaire & Jump Aero) at its Friday Pitch Sessions and University Pitch Sessions in recent months and investors, increasingly more flexible to longer capital cycles, are allowing these technologies to take off. All of this electrification is creating huge demand for batteries and a new paradigm for energy, which is the subject of our next trend: Dispatchable Energy Storage.
Dispatchable energy and storage
Following Li-ion fervor, focus now shifts to novel long-duration, bulk-energy storage technologies as well as novel energy generation innovations for the resilient grid of the future
Lithium-ion batteries’ extensive press has catapulted them into the mainstream, but the battery chemistry used in your phone shouldn't be the same as that of the grid. While standardization and scale have led to Li-ion prices dropping 97% since commercialization in 1991, commodity crunches are expected to cause battery pack prices to increase for the first time to $135/kWh. While lithium is abundant in the earth’s crust, the raw material increased 438% last year. Scaling mining operations can take 5-10 years, and in the medium term, supply will not meet the demand of EV manufacturers’ commitments. Complicating things further is the poor security of supply of minerals like cobalt, another key material, as production is dominated by China and the politically-unstable DRC.
With the Li-ion industry mature and demand outstripping supply, the energy sector has shifted focus to long-duration energy storage like Form Energy’s iron-air battery and Antora Energy’s thermal energy storage. Hydrogen is a really valuable energy vector which can be stored and transported using existing natural gas infrastructure. It's already used extensively, for example in fertilizer production, although about 31 PWh of renewable energy (more than all global production today) will be required annually to limit global warming to 1.5℃. While Ecolectro’s membrane technologies and H2GO’s innovative solid state hydrogen storage can help us get there, these are just two examples of a very exciting industry that's just warming up.
Novel forms of energy production can help increase the resiliency of a future grid dominated by wind and solar. Quaise is developing superhot rock geothermal energy, and while geothermal is not new, their millimeter wave-drilling technology goes deeper and hotter than ever before. At 10 - 20 km deep and temperatures of 1000°F, cost-competitive, essentially limitless baseload energy exists everywhere in the world. Another alternative, Advanced Nuclear and startups like TerraPower will leverage highly standardized designs to reinvigorate an industry plagued by massive cost overruns. This will ultimately contribute a significant portion of carbon-free energy to help us fully decarbonize the grid.
Not the end, but the beginning
Grid digitization, IoT devices, empowered consumers, and a host of other factors are driving the energy sector, teaching an old dog to learn new tricks. Substitute the X in XaaS with Energy, Mobility, or Charging. Apply ML and AI to visualize, interpret, optimize, and overhaul seriously complex energy systems. We’re just beginning the energy transition, but the future is bright and Plug and Play is proud to be part of it.