What Shell's Acquisition of Limejump Says About the State of the Market

This week Shell announced that it will acquire Limejump as part of Shell’s broader strategy to offer cleaner energy solutions.

Limejump has become a market leader for demand response services. It provides a cloud-based software platform combined with access to the wholesale energy markets to create virtual power plants. The service enables energy users to reduce demand during periods when the grid is under pressure and battery storage owners to maximize their returns by selling into the grid when it is optimal.

Shell Invests to Capitalize on Clean Technology Future

Shell is seeking to increase its exposure to cleantech. The future of the energy market is forecast to be dominated by decentralized generation and cloud-based services intelligently linking generation, distribution, storage, and consumption. Shell’s recent acquisitions (including UK-based retail energy provider, First Utility, and Europe’s largest EV charging network, Dutch-based New Motion) help the company’s business to capitalize on this future trend. Shell’s competitor, BP, has also made meaningful investments into the clean energy market, most significantly with its $200 million investment in international solar developer and asset manager, Lightsource.

The move by oil & gas majors into the clean energy market tells a compelling story about the changing landscape of the decentralized generation market. And the dynamics in play are challenging the traditional utility players as well.

Lessons Learned from Utilities and Oil Leaders

Guidehouse sees three key lessons as utilities and oil majors seek to keep up with an energy market in transition:

1. A compelling origination strategy: The balance sheet of oil & gas companies like Shell mean that they can offer financial products to early stage market entrants long before they consider investing in or acquiring them. In finance speak, this is a low risk origination strategy. Offering clients access to the balance sheet and wholesale energy markets means that Shell and BP get to observe the operations and management team of many upcoming 2.0 utility companies before anyone else.
2. Trading desks are driving deal flow: Many of the investments are being driven by the demand of energy trading desks inside oil & gas majors. The ability to make more profits and drive down trading costs are linked to the amount of flow they can put through them. Having access to the generation capacity being built by Lightsource or the additional buy/sell orders made by Limejump to balance its own trading book creates more flow for the trading desks. A typical acquisition therefore creates multiple new income streams for BP and Shell, as well as assisting their diversification away from upstream oil.
3. Oil & gas majors are competing with the traditional utilities to own a piece of the energy transition: Almost all major utilities in the US and Europe have now established venture funds to place bets on the next generation of companies that will shape the energy market as we transition into the energy cloud. Paris-based Engie Ventures and Miami-based ClearSky are being charged with backing utility-focused game-changing new entrants. They now face increased competition from the oil & gas majors that are moving aggressively into the distributed generation world. This competition has led to increased market valuations and focus on how partnerships can best yield long-term rewards.

Just the Beginning

This week Limejump said its mission is to pave “the way to a more sustainable energy future; maximizing revenue streams for all decentralized asset owners; and utilizing data science and technology to enhance the interplay between renewable supply, demand flexibility, and energy storage.” Limejump’s acquisition by Shell is part of a larger trend that is blurring the roles between oil & gas companies and traditional utilities. Expect this trend to continue.