The Surprising New Energy Side of Shell
“With Shell Technology Ventures we position ourselves strategically in many places, so that we can experience first-hand where the energy ecosystem is going, and create options for the future”. An interview with Geert van de Wouw, Managing Director of Shell’s venture capital unit, part of the company’s New Energies division, shows the fascinating new side of the old oil company. Quietly, Shell is getting ready to become a major player in a wide range of energy services and renewable energies, from solar PV to microgrids, load balancing, storage, smart mobility, smart meters and many other ‘big data’ applications. Shell Technology Ventures is spearheading this transformation.
FarePilot, a new company active in London, offers a unique service. It sells an app that helps taxi drivers find the ‘hot spots’ where the biggest crowds are about to emerge looking for a taxi. It does this with the help of clever algorithms that make use of various types of ‘big data’, such as credit card transactions and even body heat patterns. Great for taxi drivers who can now avoid waiting ages in queues for customers that may never show up!
FarePilot launched in London in late 2016 and has already captured over 30% of London’s ride share drivers, which is more than 10,000 users. More recently, it launched in Los Angeles, and has plans to expand quickly to other cities in the UK, USA and Europe.
Even more surprising perhaps than the FarePilot app itself is one of the venture capitalists behind it: Shell Technology Ventures (STV). Why would a company like Shell invest in a startup that develops apps for taxi drivers?
It seems difficult to understand at first, but after a conversation with Geert van de Wouw, Managing Director of STV (among insiders affectionately called ‘Stevie’), it’s starting to make a lot more sense. Fact is, Shell is changing. Changing quite fundamentally. And few people are aware of it yet.
Startups can still enter the New Energy Challenge 2017!
Together with Rockstart and Yes!Delft, Shell Technology Ventures (STV) is organising the second edition of the New Energy Challenge, a competition for European start-ups offering innovative, low-carbon energy solutions. The competition aims to accelerate the development and implementation of breakthrough technologies.
The winning start-up will receive a €100,000 convertible loan from Shell and will work with STV for a year to deveop its business. Two other winners will be able to enter the accelerator programs of Rockstart & YES!Delft respectively and a cash prize to move their business forward.
The deadline for entries is 19 July. The top-20 finalists will be invited to join the finals week from 24-28 September in Amsterdam, The Netherlands — as an integral part of StartupFest 2017.
On Finals Day — 28 September — the top-10 finalists will be doing their final pitch before the jury — who will then select the Winner of the New Energy Challenge 2017.
YES!Delft is one of the leading tech incubators in Europe, offering graduates, scientists, engineers and professionals guidance in building successful technology companies. Rockstart is an incubator program started in Amsterdam in 2011, specializing in building entire innovation ecosystems around specific domains, such as Digital Health and Smart Energy.
Shell received quite a bit of publicity last year around its new offshore wind activities, when it won a Dutch tender to build a 700 MW offshore wind farm. Last year the company also set up an entirely new division, called New Energies, with $1.75 billion of capital employed in 2016. Shell is spending around $200 million annually to explore and develop ‘new energy’ opportunities. The company aims to grow investment in new energies to up to $1 billion by the end of the decade, as CEO Ben van Beurden said in a speech in March.
Yet among outside observers the significance of the changes taking place at Shell has barely begun to sink in. New Energies has been viewed mostly as a vehicle by which Shell is attempting to diversify into large-scale renewables such as offshore wind that are a good match with the company’s existing skills set. But it turns out that the company’s ‘new energy’ ambitions go much further than that.
Shell is rapidly moving into the very heart of the newly emerging ‘energy services’ markets. It is developing and investing in propositions around electricity storage, load balancing, efficiency, and decentralised energy sources. It is becoming active in smart meters and a wide range of applications that make use of big data. It is building microgrids in developing countries. It is working in-house, very quietly, on revolutionary smart mobility solutions. And it is on the verge of becoming a big player in solar power.
Much of this activity is being spearheaded by ‘Stevie’.
Van de Wouw, a biochemist by background who has been with Shell for 13 years and became Managing Director of STV in 2012, says the venture capital unit of Shell, founded in 1997, went through a big change in recent years. “We had spun off our previous fund but took Stevie back inside the company again after 2012.”
The initial focus of STV was on new oil and gas technologies, in particular those that can help Shell reduce costs, many of which are enabled by innovative digital solutions . “But when the energy transition came knocking on our door, we soon expanded into two other areas”, says Van de Wouw: “renewable energy and digitalisation in the broader energy sector.”
The primary aim of STV’s investments in these new areas is to take up strategic positions so as to learn how these markets are developing. “In the past, when we only had oil and gas, we could reasonably blueprint our way into the future with our scenario analyses”, Van de Wouw explains. “The future was fairly predictable. That’s not the case anymore. You don’t know what technologies or business models are going to be the big winners, who will become the big players, unless you are active in the market. With Stevie we want to take minority shares to be at strategic places so we get a feel of where the ecosystem is moving. And to create options for the future.”
STV, which has a staff of just 20 people in the U.S. (San Francisco, Houston, Boston) and Europe (UK and the Netherlands), and is going to set up offices in China and India, typically invests between $1 and $5 million initially in a startup. When this is successful, new financing rounds will take investment higher, to between $10 and $20 million. Since Van de Wouw took the helm, investments were made in some 25 startups – 7 last year and “there will be more than that this year”.
Look for our interview with New Energy Challenge jury members Freerk Bisschop (Rockstart) and Evert Jaap Lugt (Yes!Delft) tomorrow (6 July)
They explain why it is crucial that the established energy sector makes more connection with startups. “Things are changing so fast. The smart meter is already obsolete.”
These are modest investment figures for a company like Shell. But with good reason, says Van de Wouw. “In the past we used to go into a new area in a big way, throwing billions at it. We did that in biofuels, hydrogen, solar. We did manage to build a successful business in biofuels, but, to be honest, the ventures in hydrogen and solar did not pan out so well. We probably went in too early.” Shell won’t make that same mistake again: this time it is acting more cautiously, as it is moving into many different new territories with smaller steps.
But could a traditional ‘Big Oil’ company like Shell really become successful in the fragmented, rapidly changing electricity markets, with small profit margins, which bear little resemblance to the complex and massive oil and gas exploration and production projects which are the company core strengths? Actually, says Van de Wouw, the change for Shell is not as big as it may seem. “Shell is in many ways well prepared for the electrification and digitalisation that we are seeing in the energy world.”
To begin with, says Van de Wouw, “although not many people know this, we are the second biggest electricity trader in the U.S. So we already have a strong position there. We are looking at opportunities to build up our position in Europe.”
“There are many companies active in solar, that’s true. But there aren’t many making money”
As major electricity seller, Shell is getting more and more questions from its big customers to develop new services. “Walmart for example is one of our electricity customers. They want us to help them with issues such as load balancing and storage. They want to know from us whether it is beneficial for them to use energy storage capacity, for example.”
As a trader, moreover, it is essential for Shell to have its own generation portfolio. As for instance in offshore wind where Shell is starting to build its own generation portfolio. But Shell is not limiting itself to offshore wind: it is also preparing to enter (actually, re-enter) the solar market. It has already started through its investment in Glasspoint, a manufacturer of solar steam generators, in Oman.
Shell is now looking at various options to expand its generation capacity in offshore wind and solar. “Through STV, we are zooming in on several start-ups which are testing new business models around distributed solar and storage,” van de Wouw says.
What could a company like Shell bring to the already crowded solar market? Van de Wouw: “There are many companies active in solar, that’s true. But there aren’t many making money.”
With its huge R&D capacity, Shell believes it is able to make improvements in solar on the technological side. As just one example, STV has invested in GlassPoint, whose solar steam generators are designed to meet the unique steam needs of the oil and gas industry and other industries.
“With this thing you can see what time your kids came home and whether they opened the fridge at night”
But Shell has another important asset, Van de Wouw points out. “We have a huge sales network around the globe. We have had a long presence in countries like Nigeria, Tanzania, Gabon, India, the Philippines, and many others. We are uniquely able to evaluate financial and project risks in those places.”
Thus, Shell has decided to become active in the electrification of rural areas in developing countries. “We are considering investments in companies that develop microgrids, based on solar PV in combination with biogas or batteries. These are typically ‘pay as you go’ business models that for many areas form the starting point of their economic development. We want to come in here on the ground floor.”
Developing digital services for large and small customers is also not as big a change for Shell as one might expect, says Van de Wouw. “Don’t forget we already have a large retail network around the world. We are used to dealing with many customers. We are one of the biggest sandwich sellers in the world and one of the most international, with more retail outlets than Starbucks or McDonald’s have stores.”
In the Philippines for example Shell is investing in an e-platform for small transport companies. “Earlier this year we invested in a German logistics company called Tiramizoo. They had a solution for ‘last-mile optimisation’ for distribution companies. The last mile is the part from the motorway to people’s houses, which is often unprofitable for these companies. But we had a different application for this technology: small distribution companies in the Philippines, who only have 2, 3 or 4 vans, which are often empty. We are now building an e-platform where these companies can come together and increase the utilisation of their vans.” An extra bonus for Shell, says Van de Wouw, is the brand loyalty that comes with offering solutions like that.
Kite Power: will it fly?
One of the most unusual startups that Shell Technology Ventures (STV) is investing in is surely the British start-up Kite Power Systems.
This company promises to produce electricity with kite systems at a lower cost than offshore wind turbines.
Is this a serious proposition, we asked Geert van de Wouw, Managing Director of STV?
“Absolutely. We are active in offshore wind and we see that by building larger turbines we can shave off a few percentage points from the cost of electricity production. With Kite Power it’s more like 30%.” He points out that in addition to STV, serious companies like Eon and Schlumberger have invested in Kite Power Systems. “This really has disruptive potential for the wind industry.”
Last year, a Dutch kite power firm, E-Kite, won a prize in the renewables category at the first New Energy Challenge sponsored by STV in Amsterdam.
Another surprising Shell investment is in “home energy monitor” Sense. “A fantastic little machine”, says Van de Wouw. Sense is an app that shows for every electrical appliance in the home when it’s used and how much. This is called “load disaggregation” with a technical term. “With this thing you can see what time your kids came home and whether they opened the fridge at night”, says van de Wouw, with a smile.
He adds that Shell views Sense, which is not available in Europe yet, as a first component in a “much broader energy proposition that we are building around the household”.
In the important area of storage, STV invested in Acquion, a U.S. company that had developed new sodium-ion battery technology. But this company filed for bankruptcy earlier this year. “I think it’s fair to say that they had a good technology”, says Van de Wouw, “but the storage market uptake of this technology has been disappointing.”
He does not see STV becoming active in large-scale battery production. “That kind of activity requires very large investments.” In the storage sector STV is more interested in the market for intelligent storage solutions for households and businesses. “Think of what a technology-agnostic company like Sonnen in Germany does.”
Shell is naturally also highly interested in the rapidly evolving electric car market, which will be a competitor to its existing business. But the company has not made any big public moves into this market. Van de Wouw reveals, however, that Shell is “incubating” several promising “smart mobility” services in-house. What they are exactly Shell does not say as yet.
The oil and gas market will of course not disappear overnight, notes Van de Wouw. But in this market too the emphasis is changing in a significant way. “What we as STV look for primarily in this market is not applications that can increase production as much as possible, but that can reduce unit costs as much as possible.”
“We have an idea of where we are going, but we don’t know yet what big steps must be taken to get us there. That’s why we are taking many small steps now”
He mentions startup Manaa, in which STV invested, which has developed a unique way of linking databases that could not be linked before. “We are already using their technology in 14 different places inside Shell.”
The newly emerging energy market may be more distributed, renewable, electrified and digitalised than the old one, for Shell it’s just as much an opportunity as a threat, says Van de Wouw. Uncertainties are part of the game. “We have an idea of where we are going, but we don’t know yet what big steps must be taken to get us there. That’s why we are taking many small steps now. We are looking for the most logical places to be at it in the new energy ecosystem.”