Utilities try new role as venture capitalists

By David Ferris | 11/16/2016 09:01 AM EST

Utilities are struggling to keep up with technology these days. Electric power insurgents like solar power, energy storage and big data are starting to upend the grid, and the power companies — big, regulated and cautious — aren’t wired at that speed.

Now several power companies are investing tens of millions of dollars into a new venture fund that gives them a backstage pass to high-tech companies in the energy space.

Energy Impact Partners (EIP) launched last year and has been joined by several sizable American utilities, including Southern Co., Xcel Energy Inc., Avista Corp., Great Plains Energy Inc. and Ameren Corp., and ones that are based abroad with a U.S. footprint, such as Fortis Inc. of Canada and National Grid PLC of Great Britain.


It’s a model new to the electric industry. Hans Kobler, EIP’s CEO, calls it "an information provider, collaborative platform and investment arm in one."

Companies have paid either $50 million, $25 million or $10 million to join, depending on their level of access, according to representatives from Avista and Fortis. The top tier is made up of Southern Co., Xcel, National Grid and AGL Energy Ltd., an Australian utility that just joined this week, according to the fund. Fortis joined at the $25 million level, said Jim Laurito, a vice president at that utility, as did Avista, according to Ed Schlect, the company’s chief strategy officer.

Avista and Fortis, which like all the member companies are investor-owned utilities, said their portions don’t come from money received from ratepayers.

The ostensible purpose of joining a venture fund — making money — is not the biggest upside the participating utilities see. "As crazy as it sounds, our last priority was making a return on our investment," said Laurito of Fortis.

Every month, representatives from each utility travel to EIP’s headquarters in Manhattan to meet with a crop of companies who put forward their pitches for funding, making it a sort of "shark tank" for the power sector. They also meet with each other as part of working groups that focus on fast-changing parts of the grid, including energy efficiency and demand response, home automation, microgrids and how to engage with customers, according to Al Choi, the manager of emerging technology for Xcel Energy.

"EIP was a fantastic opportunity to collaborate with like-minded utilities, to understand and possibly shape how these technologies may develop to benefit the utilities," Choi said. "The time-saving element of this is enormous."

Utilities rarely compete directly with each other for customers, and other venues exist for their technologists to compare notes, such as industry forums like the Edison Electric Institute and Electric Power Research Institute. But looking through the prism of new companies provides a focus they don’t find elsewhere, utility representatives said.

EIP, whose leadership includes venture-capital veterans from General Electric Co., looks for energy startups that have fairly mature technology and market momentum and are poised to grow quickly, Kobler said. Like other venture funds, it hopes that the companies make money back for their investors by being acquired or going public in three to five years.

"We look at hundreds of companies, and most of the time, we find it’s too early," Kobler said.

EIP’s investments so far include two companies, AutoGrid Systems Inc. and Opus One Solutions Energy Corp., that build digital platforms to help utilities manage distributed energy sources like solar panels and energy storage.

It also co-led a $14 million bet on Sense Labs Inc., a company that makes a device that clamps to a home’s electricity panel and from it teases information on how appliances are performing. From there, it can tell a homeowner if the garage door opened while she was gone or how long the television was on in a week.

EIP’s presence is valuable for reasons other than the cash, said Mike Phillips, Sense’s CEO. The company started out oriented toward its home users but didn’t know how to approach the utility companies. Having utilities peer into and advise his startup is shaping the product and creating a ready-made set of customers.

"The thing is, we speak different languages," Phillips said. "You think it’d be an easy discussion to have, but often we use the same words but mean different things."