~Written July 2024

Introduction

Worldwide energy consumption has been steadily growing at 2.6% CAGR since the 1950s alongside population growth, global industrialization and electrification, and rising incomes. Although the early 2020s marked the peak rate of population growth for much of the world and more than 90% of the world now has electricity, energy demand and consumption has not abated. However, more than 75% of existing energy is generated from non-renewable sources and climate concerns have stifled development of new projects, leaving a significant gap and opportunity that needs to be filled as demand grows further and non-renewable sources need to be replaced by renewables.

The progress of technology has continued generating more consumer demand for electricity. This can be exemplified by statistics like there being more cell phones than people in the world, continued device innovations like smart home appliances, wearables, and VR that drive more consumption, and expectations of exponential demand from the proliferation of data centers, cryptocurrency miners, electric vehicles, and AI compute to name a few. This demand has placed the grid under significant strain. In the U.S., North Virginia and Arizona are pushing energy capacity limits due to rapid expansion of data centers serving the East and West Coast, Georgia is facing similar issues but from surges in industrial and manufacturing power demand like for hydrogen generation, and Texas outages have become more frequent from increasing temperatures and grid damage from natural disasters.

The next decade of the utilities industry will rely on grid resilience to meet growing demand amidst aging infrastructure, and governmental pushes for green sources will direct investment in projects with expectations to not only keep up with demand, but also replace the large majority of non-renewable supply. This will create opportunities and new innovations, much like how U.S. military spend has spurred institutional investment in defense tech.

Much of the existing investments solving for this problem fall into four categories: government, corporations, private equity, and startups. Governments around the world have committed to investing in this new age of energy, and the U.S. has been no different. Corporations seem to be the least incentivized to reduce usage as more (energy) consumption likely leads to more revenue, but carbon consciousness has led to positive change. Private equity funds have seen recent growth as firms invest in multi-year projects with high capital outlay like infrastructure builds and grid updates. Startup opportunities exist in three main areas: generation, storage, and delivery.

Generation

To keep pace with expectations of increases in energy demand over the coming decades while being mindful of climate concerns, opportunities have emerged for innovations in both non-renewable and renewable sources of energy.

Non-renewables

Innovations in non-renewable energy sources have aimed to flatten the adoption curve and soften the transition to renewables. This involves inventing new compounds and mixtures of non-renewable and renewable fuels that will still work with existing engines and infrastructure, but emit lower greenhouse gases (GHGs) per unit of electricity to contribute towards climate goals.

These opportunities are most salient in heavy industry like manufacturing and long-distance freight like aviation, marine, and trucking.

Heavy industry: Hydrogen

One of the largest contributors to GHG emissions in heavy industry come from the generation of hydrogen, which is used as inputs for chemical production (e.g. ammonia) and metallurgy (e.g. steel manufacturing) among other areas. Currently, nearly 95% of hydrogen generated worldwide is via a process called steam methane reforming (SMR), which combusts methane, a natural gas and nonrenewable, to catalyze a reaction with high temperature steam that separates the hydrogen and oxygen atoms in water into bonded hydrogen (H2) and carbon dioxide (CO2), a GHG.

Biomethane created from organic waste or biomass used in place of pure methane during SMR hydrogen generation is a medium-term solution. This prevents disruption to existing facilities, while the organic waste and biomass used to create the biomethane constitute a closed carbon cycle that makes the fuel carbon-neutral.

Further strides have been made to reduce emissions from hydrogen generation via electrolysis, which removes the need for methane entirely, but is dependent on the carbon neutrality of the electricity input and additional details of this hydrogen generation process are out of the specific scope of energy generation.

When considering innovations for heavy industry, inertia of existing players combined with the indispensible nature of these industries creates lucrative opportunities for new innovations.

Transport

The transportation industry contributes more than 25% to worldwide GHG emissions, of which long-haul freight (ie. air, marine, land) constitutes more than half. However, entirely replacing fleets will likely cause severe supply chain disruptions and require large capital investments, disincentivizing existing players from making changes.

Solutions to this problem have come in the form of lower-emission fuels. Examples of this include synthetic fuels created by combining hydrogen with captured CO2 (eFuels), bio-based marine fuels as pioneered by ExxonMobil, and other advanced biofuels that are blended with conventional fossil fuels to reduce overall emissions while maintaining compatibility with existing infrastructure.

Although these fuels present a middle ground between conventional fossil fuels and fully renewable energy sources, they are often more expensive to produce and scale, and currently see lower efficiency compared to traditional hydrocarbons. Thus, innovative production processes and compounds can disrupt and capture different market segments as governmental pressures continue to push corporations towards lowering emissions and reaching climate goals.

Renewables

These resources are the most salient long-term solutions for sustainable energy, and include solar, hydro, wind, geothermal, nuclear, and biomass sources. However, the largest blockers to adoption relate to the delivery of these renewable energy sources to end users as described in the Delivery section below, and improving storage infrastructure to balance generation from consumption as described in the Storage section below. On the generation side, much of the industry is already well established aside from some early players in nuclear fusion technology.

Image 1 below provides visual context on where these renewable sources already proliferate in the U.S., both on- and off-shore, which can be opportunities for private infrastructure investments in generation facilities, but out of scope as an early-stage venture opportunity. Note: nuclear and biomass generation don’t have geographical constraints and are thus not shown.

Storage

Distributed energy storage systems are crucial for managing the intermittency of renewable sources, supplying backup energy for grid resilience, and providing clean energy in mobile applications. This involves two primary use cases: large-capacity duration storage and electric transport. Between each, different tradeoffs and innovations must be made to balance material composition, energy density, battery lifespan, and usage flexibility.

Material Composition

Raw Materials

Current battery technologies require rare earth elements (REEs) as manufacturing inputs, but the vast majority of worldwide REE trade is dominated by China, whose export restrictions and price controls have spurred concerns for buyers. Additionally, given complexities in mining and refining REEs, existing U.S. production serves <5% of domestic demand and new supply can take up to a decade to come online.

To combat this, the U.S. has invested heavily in opening new domestic mining and processing facilities to reduce import reliance, improving cost-efficient battery recycling to repurpose materials, and researching earth-abundant raw material alternatives for batteries. Therefore, novel cell structures and material compositions entering the market can disrupt existing players, especially when progressing beyond research to production and catering to commercial use cases at scale.

Components

A level abstracted above raw materials used are the different components that make up the battery. Solid-state and liquid-core, the physical state of a battery’s electrolytes, constitute the primary differentiator between batteries, and hybrid versions (ie. semi-solid, quasi-solid) are still undergoing research. Other characteristics including electrode composition, structural design, and protective components (e.g. thermal control, dendrite prevention) further delineate differences depending on use case and tradeoffs.

Without getting into the weeds of stratifying the current battery industry, design decisions on raw materials and components are intricately intertwined and add complexity such that breakthroughs can meaningfully move the needle on existing architectures.

Density

New materials and components directly impact two important metrics for battery density: energy density and power density, which are distinct features that often trade off against each other. Energy density considers the amount of energy that can be stored per unit mass or volume (ie. watt-hours per kilogram, watt-hours per liter), while power density measures the rate energy can be delivered per unit mass or volume (ie. watts per kilogram, watts per liter).

Energy Density

Batteries with higher energy density are important for use in applications that require consistent energy over a longer period of time, like for electric vehicles (EVs) and portable electronics. High energy density can be achieved with select materials that store more energy and in thicker form factors, but these physical properties usually limit energy discharge and power density.

Power Density

Batteries with higher power density are important for applications that require short bursts of power, like for power tools and vehicle acceleration. However, batteries designed for high power density often must be paired with control components that manage current, heat, and ion exchange, which adds weight and lower energy density.

In aggregate, similar to the materials section above, battery designers can elect density tradeoffs on a continuous spectrum as tailored to different use cases. Furthermore, composite system configurations can allow end users to take advantage of both energy and power density as needed. For example, EVs need long-range, energy dense capacity alongside power dense burst capability. Success entails appropriately matching usefulness to feasibility, then effectively scaling production to meet demand.

Battery Lifespan

Cycle Life

A battery is only as useful as the number of charge and discharge cycles it can undergo before capacity degrades below a certain level, called its cycle life. Aside from hardware innovations as covered in battery material composition and density, extending cycle life can also be achieved with effective battery management systems (BMS) and predictive algorithms.

BMS software monitors and controls voltage, temperature, and current among other aspects to maintain optimal operating conditions and minimize damage from overheating and overcharging. Similarly, predictive algorithms can help anticipate potential issues before they arise, enabling proactive measures to reduce battery stress, improve efficiency, and extend cycle life.

Performance in suboptimal conditions

Given the physical properties of batteries, performance can degrade in both very hot and very cold environments, as we are already seeing from weather fluctuations attributed to climate change. Hot weather can accelerate the chemical reactions in batteries, leading to faster discharge rates, energy loss from heat dissipation, and electrolyte evaporation in liquid-cores. Cold weather slows chemical reactions, reduces generation efficiency, increases internal resistance (ie. lowers the power density needed to start a car), and causes physical damage if the battery freezes.

Proper insulation and temperature regulation control planes are particular solutions to extreme weather concerns, but any solution that helps extend cycle life as above will likely also benefit battery performance in suboptimal conditions.

Flexibility

Aside from providing appropriate levels of energy, opportunities for advancements in battery technology exist when batteries are depleted. In this context, flexibility considers the different methods energy can be replenished, such that it is cost-effective and efficient for end users. Some examples of this include building out a robust network of recharging infrastructure, and, more interestingly, novel methods of recharging.

Wireless charging

Though still in the research stage for high-powered applications (e.g. vehicles), similar frameworks like wirelessly charging mobile devices have already gained adoption. Ongoing research has largely been led by government organizations and national laboratories, with foci on power density (ie. charge rate), completion speed, ease of use, and compatibility with existing technologies.

Oak Ridge National Laboratory (ORNL), alongside Purdue University and various corporations, has pioneered research in a polyphase system that can transfer the same amount of electricity much faster and through a smaller surface area than existing single-phase charging systems. Earlier this year, ORNL announced the first successful demonstration of wirelessly transferring 270kW of power to a light-duty electric vehicle. Their continued polyphase system research aims to increase power density and explore different charging modalities including when parked over charging pads and wirelessly charging vehicles in motion on the highway.

Hot swapping

Tackling end user flexibility from a different angle, hot swapping developments aim to efficiently replace spent batteries with fully charged units even faster than it would take to fill up a gas tank. There are already many startups building in this space, but progress still needs to be made on ensuring standardization across units and grids, optimizing cost and scalability, and integrating with existing grids for energy storage and load balancing.

Delivery

The current electrical grid in the U.S. was largely built in the 1960s and 70s, with an expected lifespan of 50 to 80 years. This conservatively puts the majority of existing infrastructure like transmission lines and power substations in the latter third of their expected lifespans. American Electric Power (AEP), who owns the largest transmission system in the U.S., projects at least 30% of their assets will need to be replaced in the next 10 years. In aggregate, spend to replace aging transmissions facilities are already estimated to be more than $10 billion per year.

These investment dollars and replacement expectations create opportunities for new entrants to provide advanced solutions for the next generation of energy delivery needs. Further, given the structural complexity and multidimensionality of building infrastructure across state and municipal lines, regulatory capture will be up for grabs for successful entrants.

Transmission (long distance) vs. Distribution (last mile)

U.S. grid assets were deployed during a time when energy generation was concentrated in non-renewable sources. This process involved 1) transporting oil, coal, and natural gas via rail and pipelines to 2) regional power plants that burn the fuels to create electricity, which is 3) sent over transmission lines (long distance, high voltage) to 4) substations that convert the electricity to lower voltages and 5) routes power to local communities via distribution lines (last mile, lower voltage).

However, clean energy sources require completely new architectures because energy generation plants must be localized to its source (ie. wind farms) rather than near where it’s consumed, and new infrastructure (ie. lines, substations) must be built to not only connect these new sources to the existing grid, but also efficiently distribute to end users.

With expectations of a large scale grid refresh, innovation opportunities critical to grid modernization exist across advanced systems, devices, components, and materials among many other areas. Select examples below are by no means exhaustive:

Advanced Systems: Microgrids

Microgrid architectures hope to distribute and decentralize electrical operations to ensure grid resilience, and can be thought of as the building blocks for a new grid infrastructure. This stems from the inefficiencies seen in our current grid architecture of just 3 major regions: the Eastern Interconnect, Western Interconnect, and Texas Interconnect. Formed in the early 20th century by local utilities providers to share peak loads and supply backup power to each other, the past benefits of their large size now invites coordination problems in keeping up with modernization. For example, the pace of upgrades and deployments of new transmission lines has slowed, an increasing backlog of proposed generation projects remain on hold due to lengthy approval processes, and their distinct regional differences add complexity to interregional coordination and planning.

Microgrids aim to solve this by 1) localizing energy generation to consumption as much as possible, particularly from renewable sources, 2) distributing grid controls and maintenance to local entities to allow disparate prioritization of infrastructure, and ultimately 3) ensuring network resilience from disruptions with microgrids able to run independently from the main grid.

Building for this future requires both new software and hardware. Software needs to enable grid operators to monitor and maintain power quality in any situation (ie. push and pull), prioritize loads based on criticality and demand (ie. granularity and forecasting), and optimize processes with data analytics and machine learning (e.g. network configuration, fault tolerance, (cyber)security). Hardware innovations are most apparent in sensor technologies needed for microgrid control and operation, flexible power conversion and distribution systems to integrate disparate energy sources, and advanced power electronics and control systems to safely manage power flow like when connecting and disconnecting from the main grid.

Components: Inverters (DC -> AC) & Rectifiers (AC -> DC)

The electrical grid largely operates in AC due to historical precedent, ease of voltage adjustments, and transmission efficiency over long distances. Most home appliances are also configured to receive AC power. However, many renewable sources generate electricity in DC (e.g. solar, wind), batteries store energy in DC, and conversions between AC and DC can be lossy.

There have been numerous research evaluations and plan proposals to build and integrate HVDC (high voltage direct current) transmission lines alongside existing HVAC (high voltage alternating current) ones. This aims to capture the cost and efficiency gains HVDC has over HVAC for long‐distance, point‐to‐point high power transfers, its better power flow and stability control for grid resilience, and ability to transmit through different modalities (i.e. underground, underwater). Furthermore, HVDC lines are better suited to interacting with renewable sources that are already generating and storing energy in DC, and bridging the longer distances between renewable energy generation and consumption.

Although we are unlikely to shift end consumer consumption from AC to DC, an opportunity exists in the infrastructure and components that will be needed to integrate more DC throughput throughout the grid. Thus, this involves scaling and innovating efficient components that convert DC to AC (inverters) and AC to DC (rectifiers) as electricity travels around the grid.

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Looking Forward

The rapid transformation of the energy sector presents an exciting landscape for innovation. As the world faces growing energy demand, aging infrastructure, and the urgent need for renewable solutions, startups and investors alike have unprecedented opportunities to shape the future. From advancements in generation and storage to modernizing delivery systems, these challenges open the door to technologies that will redefine resilience and sustainability. With the right vision and drive, this next wave of energy innovation will not only meet today's demands but also create a cleaner, smarter, and more efficient future for generations to come.