The energy transition – A balancing act

The energy sector is responsible for 75% of GHG emissions in the EU. To combat this issue, the EU is working to transform the energy sector by increasing the share of renewables in the energy mix from 22% in 2022 to 45% by 2030. Studies forecast a share of renewable energy in the energy mix of 80-90% on a global scale by 2050, and the United Nations estimates a minimum of $4 trillion in annual investment in the expansion of renewables to meet net zero by 2050. This rapid scaling-up of renewables and decarbonization of the electricity sector also means that by 2050 70% of energy production will be intermittent and somewhat unpredictable. This leads to risks relating to power supply and demand imbalances, voltage instability, congestion and high volatility of electricity prices. 

At the same time, as it goes hand in hand with decarbonization, the electrification of everything (e.g. vehicles, heating systems and housing) will drastically increase demand for electricity and put additional strain on the electricity grid: the global EV fleet is estimated to grow to 350m EVs and to demand 950 TWh - 1150 TWh of electricity by 2030. The intermittent nature of renewable energy, coupled with the demand changes introduced by widespread electrification, creates a complex problem of matching energy supply with demand. These changes will put huge tension on our energy system.

The future is smart and flexible

Our electricity system and grid as a whole needs to evolve and transform into a smart grid, an intelligent, interactive, and adaptable system that can meet the evolving needs of a modern, sustainable energy landscape. A smart grid is an advanced electrical grid system that integrates various distributed flexibility resources, digital technologies, communication networks and automation to coordinate electricity generation, distribution and consumption. With that, smart grids play a crucial role in achieving effective grid balancing by utilizing advanced technologies and capabilities. 

What is hiding behind the curtain?

There are several components that help to turn a traditional grid into a smart grid. 

• Advanced metering

Smart meters enable two-way communication between consumers and utilities, providing real-time data on energy usage, allowing consumers, utilities and third parties to monitor and manage energy consumption more efficiently.

• Demand response

Shifting electricity usage patterns during periods of supply and demand imbalances or managing electric capacity bi-directionally, including feed ins. Its primary goal is to help balance the supply and demand of electricity in real time, optimize grid operations, and avoid grid instability or blackouts. Demand response often comes with aggregating the electric/flexible capacity of multiple individual consumers or DERs (see below) into a larger, coordinated entity. Often, usage patterns are managed on the basis of price signals and incentives for the consumer. 

• Distributed Energy Resources (DERs) 

Decentralized or small-scale energy generation, storage (e.g. batteries in EVs), and consumption systems that are located close to the point of use. This incorporates solar panels, energy storage systems, EVs, heating systems and microgrids. DERs play a vital role in transitioning towards a more decentralized and sustainable energy system, but at the same time increase the complexity of the electricity systems and data flows.  

• Advanced analytics

Advanced analytics and control systems analyze large volumes of data and optimize grid operations. By leveraging artificial intelligence, machine learning, and predictive algorithms, a smart grid can forecast electricity demand, identify potential imbalances, and proactively take corrective actions to maintain grid stability.

Billion Euro opportunity while reducing GHG emissions

As the market is still nascent, very fragmented and ever-evolving, it is difficult to draw a clear and absolute picture of the market size potential of smart grids. However, there are ways to estimate the dimensions of the smart grid market size: 

DERs ready to be integrated into the smart grid:

In 2030, it is estimated that there will be 40 million EVs driving on European roads and 60 million heat pumps heating European buildings. Together with 680 GW installed grid scale battery storage on a global level, this represents massive storage capacity available to be used for grid balancing. 

Revenue potential in the billions:

External sources value the European smart grid market with $3.5 billion in 2025 and estimate that demand side flexibility, a benefit of the smart grid, can lead to cost savings of over €100 billion in Europe in 2030. Accordingly, commercializing these savings at a 10% margin, would open up a €10 billion revenue potential. 

Impactful transformation:

Smart grids on the one hand actively facilitate the clean energy transition by enabling a higher renewable energy penetration through a more flexible energy system. By 2035, the global EV fleet’s batteries will have the capacity of two to three nuclear power plants and will help to meet the more than doubling flexibility demand (in Europe). On the other hand smart grids directly help to reduce GHG emissions by preventing the activation of highly pollutive gas peaker plants during peak hours (demand flexibility could avoid installing 60 GW of additional peak capacity). A review research has shown that smart grids can reduce GHG emissions in the energy mix by up to 180g CO2/kWh. 

Companies to watch

The fragmented and complex composition of smart grids open up opportunities for many different innovative solutions, including the following software startups which have caught our attention:

Advanced analytics:

• Envelio: German startup providing grid intelligence services.
• Skyqraft: Stockholm-based grid data analytics startup. 
• Fsight: A data platform for coordinating smart meter data. 

Load forecasting:

• Dexter Energy: AI-driven load forecasting and trading optimization startup.
• Whiffle: Precision RE load forecasting on hyper-local scale.
• Enercast: Germany-based company for precision RE generation forecasts.

Trading:

• Enspired: Trading integration of assets on wholesale and ancillary markets. 
• Suena: Trading as a service of battery storage capacity on all markets.
• Powerbot: Algo trading platform for short term electricity markets. 

Asset integration:

• Enode: Startup providing asset integration APIs, venturing into aggregation. 
• Smartcar: California-based startup focusing on EV charging APIs.
• GridX: APIs and backend software for asset integration and optimization. 

Demand response and Virtual Power Plant:

• Emulate: Behind and front the meter optimization of assets with virtual batteries.
• Encentive: German startup managing flexible assets for industrial customers. 
• Flower: Holistic asset connection, optimization and integration startup. 

Energy retailers with demand response programs:

• Rabot.charge: Utility with time of use tariffs and EV and heat pump optimization.
• Tibber: Pioneer-utility with dynamic pricing models and consumption optimization.
• Greenely: Utility with dynamic pricing models and smart charging and heating. 

Each of these market segments has its own distinctive characteristics. For instance, in demand response, startups can be categorized by customer type (residential, commercial or industrial customers), whether or not they make their solution available to others via white labeling, and which assets they integrate (e.g. EVs, heat pumps, batteries). However, the determinants of success are also different in each segment and no general statement can be made.

Demand response as a golden treasure chest?

There is an unmistakable need for the transformation of our electricity grids into smart grids. Innovative solutions can bring assets' and DERs' flexible capacity to the market, exploiting a huge revenue and impact potential.

Our research and conversations with experts has identified the following points that are particular points to be considered by startups in the demand response space. 

• ICP: Attention must be paid to which customer groups and end users the startup is targeting. Industrial and commercial use cases often have greater individual impact and revenue potential, but may not be standardizable and less scalable than solutions for private end users. 
• Data: As complexity increases with the number of DERs and participants in the energy market, and it becomes increasingly important to obtain data on consumer usage patterns, solutions that eliminate complexity and provide incumbents with usable data and insights about their customers are highly valuable. 
• CAC: Customer acquisition is expensive and time consuming and existing companies have difficulties adapting to new technologies. Therefore, a clear strategy on how the company attracts customers will be critical..

For the smart grid in general, there is a wide range of solutions in the market addressing the grid-balancing challenges from a variety of angles. Fortunately the problem is also complex and as such,we believe that this is unlikely to be a “winner takes it all” market, and that there will be many more opportunities for impactful and rewarding investments. We look forward to participating!