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National Grid Partners

There’s an adage in the energy industry that captures how utilities think about systemic change: Everyone wants to be first to be second.

And with good reason. For more than 300 years, utility companies have been rewarded by their boards, regulators, and shareholders for being risk averse. They make new investments only after careful study, long deliberations, and with a primary focus on safety, affordability, and reliability.

That’s a far cry from the mindset of your average startup. I’ve spent more than 20 years leading venture capital investments, and each has been a high-octane ride of do-it-now, break-it-faster, we-can-always-patch-it-later. Many of those investments succeeded. None would have made it in the heavily regulated world of utilities.

I was mulling these differences as I read a recent piece by Bill Gates on the state of the energy transition and the challenges of getting to net-zero carbon emissions. Over the last five years, I’ve had a front-row view of those challenges.  And there are two that, if left unanswered, will significantly impact the world’s efforts to combat climate change.

I run Silicon Valley’s first utility-owned venture capital and innovation fund, National Grid Partners. In that role, I’ve helped introduce and integrate new decarbonization technologies into our parent company, National Grid, one of the world’s largest publicly traded energy companies. We’ve used our transmission networks as a massive proof-of concept for scaling decarbonization at an industry level.

Utilities need to see technology in action to believe there’s value in even trying it out. That 300 years of caution won’t simply disappear because someone claims to have built a better mousetrap. In fact, you can throw all the money you want at decarbonization and develop all the innovation you like – but if you can’t demonstrate its impact in stepwise fashion, under real-world conditions, you’re on a road to nowhere.

In just four years since launch, our fund has taken stakes in 40 companies, had seven exits, and returned more than $80 million to our corporate parent. But our biggest successes lie in demonstration projects we’ve helped spur across National Grid. In fact, more than 80 percent of the companies in which we’ve invested are working on strategic deployments with National Grid in the US and UK.

We’ve been successful because we accept that utilities and startups operate differently – and that we need to bridge those differences. So, we’ve focused on two things that are easy to overlook but really matter: Making it easier for utilities and startups to work together and sharing the results of that collaboration with the industry at large – as quickly as possible.

Here’s what I’ve learned. Don’t Fight the System – Master Working Within It

One of the first roadblocks to deploying decarbonization technologies is starting a conversation. Most startups don’t know whom to call at a utility, and most utility managers have no idea how to work with a startup, assuming they even return the call.

My team’s first job is to sit with the business units at National Grid, listen to their problems, and look for potential solutions – whether they exist in our investment portfolio or somewhere else. A great example of a non-portfolio company with which we’ve engaged in a project demonstration is VEIR, a Boston-area startup that spun out of MIT and is backed by Breakthrough Energy Ventures, the Gates investment arm focused on eliminating greenhouse gas emissions.

VEIR is working to solve a critical part of the decarbonization puzzle: Getting low-cost, renewable energy from sparsely populated areas to high-demand centers. Depending on the length and condition of the transmission, you can lose 10 to 30 percent of your energy during that journey, a phenomenon called line loss. In other words, while you can generate a ton of solar energy in California’s Death Valley, getting it to Los Angeles is another matter.

Leaders at VEIR were convinced they had a solution to line loss, but they needed to test it at utility scale. We introduced the company to senior leaders at National Grid, and as a result, the two groups are collaborating to test VEIR’s freon-cooled, superconductive transmission lines. If successful, the approach could provide five to 10 times the capacity of conventional transmission systems.

That same approach – listening for problems and scouting for solutions – has helped us launch dozens of other critical proofs-of-concept throughout National Grid. Our portfolio company LineVision, for instance, mounts dynamic line rating (DLR) sensors on transmission towers, then monitors lines for opportunities to increase capacity safely.

We started exploring an investment in LineVision shortly after they began talks with Grid’s clean energy team. A subsequent pilot project in Massachusetts identified the potential to increase capacity by 13 percent. That hard data gave National Grid the confidence to recently deploy LineVision sensors in the UK, where the utility expects to increase line capacity by up to 45 percent, use that excess to carry wind power, and save customers about $1.9 million annually. National Grid will also use LineVision sensors in the largest DLR deployment in the United States.

Clearing The Roadblocks

All that said, we must work better and faster to scale up utility decarbonization. I still hear too many stories of startups that run into brick walls or get blank stares when they try to pitch their work to utility companies that aren’t sure how to move forward.

To bridge this gap, alliances are needed. We need a bigger tent, with more players, who can share what they know. People who have worked in both the utility and startup worlds have unique insight into how to do this, and these translators, so to speak, are vital for VCs if they want their energy investments to succeed and make a dent in global decarbonization.

That’s why we created the NextGrid Alliance (NGA), a membership organization of nearly 100 utilities from around the world that include giants like ConEd, Dominion Energy, Enel, and NextEra, as well as plenty of smaller regional players.

Unlike other industries, utilities have few barriers to sharing information, making them ideal candidates for an industry-wide alliance. That’s because they have fixed geographic boundaries and are governed by specific state regulators, so they don’t compete with one another.

“These companies all have the same challenges, and the NGA gives them an opportunity to work together,” says James Dean, CEO of National Grid Partners portfolio company Sensat. “There’s no other forum for them to do this.”

The NGA provides webinars and workshops for utility leaders to exchange ideas, partner on projects, and share best practices, all with the aim of getting to net zero faster. The alliance also plays matchmaker between startups and utilities: At our recent NGA summit, for example, we set up nearly 200 meetings between our portfolio companies and senior energy executives.

Opportunities like these are crucial in taking transformative energy technologies from fringe ideas to deployment – making a tangible impact in the fight against climate change. We believe the NGA and other industry associations will continue to expand across the globe to make more and more green energy technologies widely available.

This is the future of decarbonization in the energy industry. This is the work we need to do faster: Facilitate more conversations, make more introductions, sponsor more proof-of-concept demonstrations, and share even more lessons learned about what works and what still needs to be thought through.

By going first, we’re giving energy utilities the confidence to be second.

Helping Utilities Proceed (With Caution) Toward Decarbonization