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National Grid Partners

Efficiencies boost Capex funding, accelerate energy transition

In April, the Intergovernmental Panel on Climate Change issued its most dire warning yet. The window of opportunity is closing. The world needs to drastically accelerate its transition away from fossil fuels to avoid the worst effects of climate change.

Decarbonizing the energy sector to achieve this requires major investment in two areas. First, there’s deploying existing zero-carbon technologies like wind and solar. Second is developing and scaling new technologies not in wide use today, like long-duration energy storage and CO2-free hydrogen. The International Energy Agency estimates that achieving net zero by 2050 is only possible if global investment across these two areas grows to a sustained pace of $4 trillion per year — quadrupling recent levels.

Whether that pace of investment is economically feasible depends on the cost to consumers and businesses for CO2-free electricity, hydrogen, and renewable natural gas. Transitioning away from fossil fuels to generate electricity and to power end-uses like transportation and heating often requires replacing assets before the end of their useful life. This added investment means the cost of some energy services will inherently increase relative to today’s levels.

As the owners and operators of electric and natural gas networks, regulated transmission and distribution companies have to straddle this tension. They are being asked to help achieve corporate, state and customer net-zero commitments, while tempering upward pressure on bills and maintaining safety and reliability.

There are some cost components in a customer’s energy bill that regulated utilities have limited control over, like electricity supply charges and the cost for energy efficiency programs. There are other expenses, too, like the capital costs to upgrade and modernize utility networks. These costs are set forth in rate cases which are filed with regulators and, if approved, determine the utility’s profitability. The bill’s final component is operating expenses, which utilities control but don’t profit from because the cost is passed to customers without markup.

As interim 2030 net zero targets approach, energy companies will come under increasing pressure to navigate these conflicting demands. The industry would be wise to learn from utilities in the US Northeast, which already operate in a relatively high-cost region. And unlike much of the rest of the country, residential electricity prices in the region have also increased in real terms over the last decade.

Energy companies like National Grid have introduced major initiatives to create headroom for additional capital investment in the energy transition. These companies rely on finding new and innovative ways to reduce the operating cost component of electricity and natural gas rates. The rule of thumb is that every dollar National Grid saves in operating expenses translates to about $8 that could be deployed into new capital investment. A similar ratio applies at other utilities, which also recover the cost of their capital investments over 20–40 years or more.

At National Grid Partners, an important area of focus is identifying and investing in startups that help reduce utility operating costs. Our portfolio companies AiDash and Urbint are prime examples of this commitment.

According to an analysis by Accenture, US utilities spend $6-8 billion annually on vegetation management, which means clearing trees from overhead lines before they can disrupt power or start fires. Vegetation management is the largest component of most utility operating budgets, usually involving hours of manual, mile-by-mile inspection. AiDash combines high-resolution satellite data and artificial intelligence algorithms to map and track vegetation along electricity distribution lines. National Grid's work in its US service areas with AiDash is transforming how our company performs vegetation management, evolving from static, time-based cycle pruning to a condition-based approach that’s more proactive and cost-effective.

On the natural gas side of the business, repairing third-party excavation damage to buried pipelines is another significant cost for utility companies — not to mention a serious public safety concern and source of fugitive methane emissions. Urbint applies AI to public and private data sets to help utilities like National Grid predict and reduce incidents – before they occur – and efficiently deploy resources to the right place at the right time.

National Grid Partners also invests in startups that have a direct effect on accelerating the energy transition. These include software-based companies like Leap and Omnidian, which are applying business-model and financial innovations to more quickly deploy and maintain already available CO2-free technologies. Likewise, hardware-based companies like Viridi Parente and TS Conductor are developing next-generation clean energy infrastructure technology that’s poised to scale over time.

Whether directly or indirectly, National Grid Partners is committed to helping utilities lead the energy transition by connecting them to the best technologies and ideas from across the innovation ecosystem. If you’re a startup with a compelling net-zero solution, we want to hear from you. Visit us at ngpartners.com for more information, including details of each of our portfolio investments, and to get in touch.

Kristian Bodek is a Director at National Grid Partners investing in energy and climate-related startups. He is also responsible for the National Grid Partners fund portfolio, including deriving added financial and strategic value via co-investments and portfolio company, business unit engagements. Kristian has 15+ years’ experience working at the interface of energy technology, markets and innovation.

Previously, Kristian was a senior member of the power practice at IHS Markit (now a part of S&P Global), a research and advisory firm. He led techno-economic, market fundamentals and policy analyses on a range of topics spanning generating technology cost and performance to electricity demand forecasting. While at IHS Markit, he also developed and chaired the CERAWeek Energy Innovation Pioneers program, a platform for introducing established companies to innovative startup companies working across the energy value chain.

Kristian holds a BS in Physics from Bates College, MS degrees in Mechanical Engineering and Technology & Policy from MIT, and he currently serves as a Kauffman Fellow.

Startup Investments Make Net-Zero More Affordable