Energy Has Gone Digital – So Why Isn’t Google Investing?

Virtual energy platforms startups such as Limejump, Electron, and Upside Energy have become increasingly attractive investment opportunities to big energy companies and are the darlings of the energy transition. And while utility-backed corporate venture funds have spent billions ensuring they back the next generation of Utility 2.0s, there is one group of investors that has yet to enter the space: big tech players like GAFA (Google, Amazon, Facebook, Apple) and Microsoft.

Energy Is Digital 

In the last 10 years nearly every facet of the energy industry has become digital. Solar farms transmit generation data instantly to monitoring portals that automatically report a system failure via text message to the local engineer seconds after it has occurred. Households can be paid to connect their electric cars to charging points overnight to store surplus power—or deploy it if there is a sudden shortage. And the electrons in transmission systems are now tracked and delivered using artificial intelligence-backed monitoring systems. 

The virtualization of the energy ecosystem has created an environment for tech-focused energy startups to experiment with new business models and where successful models can rapidly scale. This moment in the innovation cycle has attracted investors keen to back experienced management teams with firm views regarding the future of energy.

When Will Big Tech Arrive and What Will It Mean?

Google, by far the largest single consumer of electricity, announced in 2017 that it had reached its target of 100% renewable energy having contracted 2.6 GW (and over 20 projects) of green energy assets. And while GAFA have all committed to green energy targets, they have not yet pursued opportunities beyond meeting their own sustainability commitments.

“Why can’t I buy electricity from my Nest?”

Excluding the acquisition of Nest in 2014, Google has yet to make a single investment of a virtual energy player. 

Microsoft has contracted a portfolio of more than 1.2 GW of renewable energy via corporate power purchase agreements (PPAs) in three continents. The company’s energy strategy team recently announced that it believes “buying renewable energy should be easy.” To enable this, the team developed a new PPA (known as a volume firming agreement) to streamline the process and better allocate risks between generators and off-takers. The innovation in contracting has been welcomed by off-takers keen to better manage the direct risk posed from buying electricity directly from wind and solar generators. 

Big Tech’s move into renewable energy procurement has supported the global development of new solar and wind farms. However, Big Tech’s impact on revolutionizing the way corporates procure renewable energy has not translated into the opportunities presented by the digitization of the Energy Cloud. 

The Opportunity for Big Tech

Most homes will begin generating and storing energy in the near future. Once this momentum becomes mainstream the players that pursued an “energy as data” strategy will be the winners. While Big Tech has likely identified the trend within the energy market, there are some reasons why they have pursued investment strategies in smart home systems, electric cars, and healthcare. 

The greatest challenge for Big Tech to overcome is that energy markets tend to be localized: virtual energy platforms tend to be focused on geographical markets. Energy markets tend to be highly regulated with local nuances around ownership, financial returns, and even terminology. This means that the French energy market is substantially different from the Swiss market. And being able to compete in Texas does not means that the same market dynamics are present in New York State. 

While scalability is the primary reason why Big Tech has yet to enter the market, it also presents the greatest opportunity: local market nuances are a barrier to entry for many market participants, requiring a redesign and relaunch of platforms to meet new regulatory and market needs. This tends to be cost-prohibitive. Connecting local networks via virtual energy platforms presents a global opportunity to companies that can use their technology platforms to build a truly connect world.