Embracing innovations and new ideas remains one of the energy sector’s most difficult, but potentially most rewarding, business activities and given the pace and scale of change in the energy sector of late, it’s a task that’s becoming ever more crucial by the day.
Innogy, the German energy company that’s about to be split between E.On and RWE, has established a €150 million portfolio of investments in more than 80 start-ups, centred in four key geographies in a bid to wrestle control of energy’s cutting edge.
Current± sat down with Mickey Steiner, who heads up innogy Innovation Hub’s Israel base in Tel Aviv, to identify what, exactly, makes a start-up attractive to innogy, what the energy giant’s ambitions are and how start-ups stand to shape the future of the energy sector.
Current±: What was the inspiration behind innogy’s Innovation Hub?
Mickey Steiner (MS): The innogy Innovation Hub was started not with the energy sector in mind, which might surprise you being an energy company. It was started to be ready while the energy sector is being disrupted, and to be ready for the new utility sector in, let’s say, three to five years from now. That’s why we’re not really ‘in’ the energy sector.
Our [innogy Innovations] charter is to innovate or look for innovations that will be relevant for the new energy sector. That’s why most of our people are not really energy people and we are not directly looking into energy.
C±: So are they more tech-based, or is there any other particular area of interest?
MS: Yes, we have tech people and perhaps even more business model or business analysis roles. We have tech people to understand and evaluate the technologies but the main thing is to look at the focus areas we have defined, and find innovations that can disrupt the sector in the long run.
C±: Is this then more evidence of the evolution of the energy sector in that innogy, an energy company, has set up an innovation hub that is looking everywhere but the energy sector?
MS: Absolutely, our vision is that energy as such will evolve into a more integrated approach where energy is only a part of what makes the world tick. A lot of it is data. An energy company has a lot of data and it has to be handled very carefully, but we see how things merge between energy, data, people, transportation, homes, buildings and all of this with the cover of cybersecurity.
For instance, to look at the machine economy, it’s how machines can interact with each other and pass payments and information and so blockchain is the buzzword everyone talks about. For example your car could pay for the energy it consumes by charging, and this payment can go to whoever produced the energy, which could be a consumer with PV on their roof.
This economy will evolve into something a lot more distributed and a lot more fluid and we want to be there with this knowhow.
C±: How does innogy Innovation Hub go about identifying suitable targets for investment?
MS: We have a presence in four territories where we see a lot of these innovations happening, Silicon Valley, Tel Aviv, Berlin and London. We have teams on the ground in each of those locations, and we make our presence known so start-ups knows about innogy and our specific focus areas.
We get deal flow from people who know about us, from VCs, from accelerators or incubators, and we try to talk to every company that fits our focus areas. Usually we invest in early-stage start-ups, C-stage or A B, and they really come to us.
C±: And is there anything in particular you look for, or benefits you target?
MS: We’re not looking for acquisitions, we’re not an acquisitive company today. Today we have around 80 companies in our portfolio – 60 through direct investments and around 20 with indirect investments – and if you look at the whole portfolio, there’s a lot of knowhow and understanding about the future. We don’t own these companies, but since we are on the board of these companies and participate in their management, we get the knowhow through them which gives us visibility. We might, at one stage, decide to collaborate deeper with a company and acquire them, but that’s not currently the plan.
C±: Do you feel traditional utilities are struggling with the need to innovate, which is what’s leading the interest in start-ups?
MS: We’re discussing this a lot with other large companies, who have a lot of difficulties with innovating internally. Not only in energy, but in telecoms as well, because creating innovations will not take you to the next era. What start-ups bring to the table is this breakthrough thinking which cannot occur if you come to work every day to do your job, behind your KPIs or targets. It doesn’t leave enough time for disruptive creativity. So these companies are looking to bring in start-ups to bring in this disruptive nature, and it’s very difficult to integrate them into your operating business.
Your operating business has an immune system, and I saw this in nine years with SAP doing similar activities in Israel, which rejects every new element or idea because it threatens them. It’s very tough, but many companies are doing this now. Many have a scouting group that looks for innovations and either acquire them or look to integrate them into their operating business.
C: So what are the obstacles to taking these innovations into ‘business as usual’ operations?
MS: Well, at the risk of saying something politically incorrect, it’s usually middle management. Top management knows the need for innovation, rank and file employees love it because they feel they’re doing something new and exciting, and usually middle management is reluctant because it threatens their existence. I’ve seen it over and over again.
C±: What attracted innogy Innovation Hub to London?
MS: London is certainly one of the hubs for innovation that innogy sees, and each hub that we’ve identified has its own characteristics and areas of focus. It’s not only London, I think it’s the UK in whole. We’re also now starting to do some scouting in Russia where we see innovation, excitement and good talent.
But for innogy Israel, one of our main interests is to also let our start-ups grow and find target markets where they can start selling and gain traction. After having many discussions, we came to the conclusion that London or the UK would be a great place for Israeli start-ups to hit the first market. Much better than Germany, where there’s a different language and it’s more difficult.
C±: And what’s the aim for the next two to three years?
MS: We want to at least double the size of the portfolio and see some exits of companies. We’re strategic investors, we tell our companies we’re not here to make a quick exit but of course we would love to see one become a unicorn. But we also know full well we will lose some companies. We’ll be making additional investments of course.