Why Tech Startups Are Essential To Bridge The Energy Innovation Gap

Steve Smith, President of National Grid Partners and Chief Strategy and Regulation Officer at National Grid.

At what point do companies grow so large that it becomes too hard for them to innovate? Corporate structure and protocols can create enough red tape that it’s easy for the largest companies to stall out on innovation. This is especially true in highly regulated industries, where implementing new technologies often requires painstaking review—and sometimes can take years to move forward.

Take the energy sector, where innovations frequently get stuck in pilot purgatory. According to a survey of more than 200 utility innovation leaders across the U.S., just 24% of the industry’s innovation projects ever get off the ground. It’s of course important to be deliberate about new technology, as the main responsibility of utilities is to provide reliable, affordable power for billions of people every day. But the energy grid has grown far more complex in recent years—asked to accommodate huge increases in electricity demand as consumers and companies adopt artificial intelligence (AI), electric vehicles and electric heat. And utilities must meet that swelling demand while also incorporating renewable energy sources like wind and solar, which are often intermittent. Add it all up, and utilities must do more today than simply keep the lights on; they have to plan and build the grid of the future.

We Need More (Clean) Power

Just how much power AI, EVs and the like will require is a matter of some debate. The International Energy Agency estimates a 4.4% global electricity demand. No matter the final number, it’s clear the energy sector will need to expand supply rapidly after years of incremental growth.

We also need better processes to bring that new energy supply to end users. Storage, solar and wind projects face a permitting backlog of years to connect to the grid—during which time these valuable assets are sitting on the sidelines.

To make clean energy work, we’ll need solutions that create a more dynamic grid—one that can toggle effectively between power sources depending on weather conditions, demand and supply. We’ll also need smarter and more powerful transmission lines that can route this increased energy to where it’s needed.

We have our work cut out for us. So what’s holding us back?

The Utility Innovation Gap

To meet this moment, it’s time to flip the figurative switch on how the energy sector approaches innovation. And that starts with the ones controlling the switch: utilities.

Government priorities will play a pivotal role in accelerating the transition; 72% of survey respondents said innovation at their companies is driven by regulation and compliance. Yet no matter the regulatory environment, utilities can’t afford to wait when it comes to providing the service levels customers require. With 45% of surveyed leaders calling improved customer experience a top measure of success, it’s imperative to innovate.

Faced with the need to change more rapidly than ever, utilities need to partner with more nimble companies to develop and deploy technologies for tomorrow’s grid. Yet just 26% of utility innovation leaders surveyed said they identify fresh ways of thinking and operating from startups—which routinely drive the most disruptive new ideas and aren’t bound by existing ways of doing business.

Instead, those leaders said 82% of new ideas come from their own employees. To be sure, ideating internally is valuable; but outside perspectives are even more so to meet these systemic energy challenges.

Building A Bridge

How do we bridge this innovation gap? Utilities can create dedicated groups to help them engage with innovators, unpack critical insights and drive the use of new technologies at scale. They can also offer direct financial investment: National Grid Partners, my company’s venture capital arm, has funded nearly 50 startups since 2018—and 80% of those have been strategically engaged in some capacity with our parent utility.

Leaders seeking to drive innovation should target areas that promise maximum organizational impact. This will help internal stakeholders better understand where to seek out innovation. At National Grid Partners, our investment strategy centers on four pillars: future electric networks, customer-first approaches, innovation-driven efficiency and gas decarbonization. These pillars help us align investments with startups addressing critical energy transition challenges.

Most utilities want to innovate in order to provide more power than ever while still ensuring reliability and affordability. But most simply don’t have the culture or effective processes to team with startups. Utilities must appoint leaders charged with bridging these gaps who can underscore that innovation is a strategic priority. And they should offer startups both financial and hands-on support while creating an internal environment that embraces innovation. Once you have a happy internal champion, help them spread the word and drive adoption across the organization via in-house channels, meetings and calls with other business units.

We’ve seen progress from utilities deploying startup technology in pilots or proofs-of-concept. Now it’s time for innovative leaders to double down on these successful approaches and scale the technologies we need to transform our energy system.

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