Appearing in Australian Financial Review (Energy Future feature), 15 May 2017
New wave of innovators for energy sector
There is a sense that the pace of innovation is rising in the energy sector but structural obstacles are preventing the full benefits from flowing to the economy.
“We are seeing a great appetite for innovations in the renewable energy and clean energy fields, supporting global commitments for a low carbon economy,” says Miranda Taylor, CEO of the National Energy Resources Australia industry group. “The area has moved into the social mainstream, with broad acceptance that it is the way of the future. The question is how to best get there.”
“Something we are seeing at the moment is a shift away from a pipeline innovation model, where large companies develop incremental innovations in-house or with one or two of their large vendors, and then send them through a series of bureaucratic gateways and evaluation processes. We are moving towards a platform model where multiple external knowledge experts, including small and medium-size companies, are coming up with new ideas.”
“The escalation in digital and automation technology is playing a large role in this. Open source automation means small companies and innovators can ‘plug and play’, and industry is no longer locked into closed, proprietal technology where no-one else could participate or innovate. At the same time, innovators can increasingly access simulations and living labs to make the process of demonstrating and verifying the value from innovation easier and less risky.
“As large companies move out of the expansion phase of the resources boom, where the emphasis was on refining and improving existing technologies, they are more willing to look at innovations from external sources, provided that the innovation is an answer to a real problem and will generate significant value.”
Taylor notes that while most of the large resource and energy companies have embraced new technology, including automation of discrete functions and tasks, they have not yet moved to full-systems inter-operability. She believes that they have not yet leveraged the efficiencies that would result from that optimisation. Few companies have created multi-disciplinary teams that help to promote whole-of-organisation improvement.
Taylor explains that NERA has begun to develop an innovation supply chain strategy, including mechanisms to assist SMEs. It recently established a new annual grants program offering $20,000 in assistance to ten SMEs to successfully commercialise their research and innovation in partnership with larger companies. The recipients were involved in areas ranging from a new drilling module that can handle gas pressures more effectively than existing options, a wireless device that uses gyroscopic and inertial forces to rotate and orient loads such as windmill blades and pipe sections, and a system that allows specialist workers to upload their personal and compliance information for potential employers.
NERA is also running a program to help SMEs ensure that their innovations are market-ready, as well as encouraging to SMEs to form ‘supply chain innovation clusters’. The aim is to help them achieve greater visibility, and build the scale required to compete in global markets.
Most universities now have research centres and innovation hubs dedicated to renewable energy and clean energy, and many innovations start there. But the longstanding issue of linking entrepreneurial SMEs with providers of venture capital remains.
“There is certainly more willingness for the venture capital sector to look at the energy sector than there was in the 2012-2014 period, where there was a definite pullback,” says Dr Mark Bonnar, Managing Director of Southern Cross Venture Partners. “In particular, there is an interest in companies with software that can be used to integrate renewable energy with the traditional grid, and improve energy management in line with the changes happening in the market. But VC companies are actively engaged in seeking opportunities, of whatever type they might be. We don’t sit in our office waiting for the phone to ring.”
Bonnar points out that many SMEs in the energy sector, even if they have a good product, fall down when raising funds.
“It’s surprising how little they know about attracting investment, in many cases,” he says. “In the US, financing skills are seen as a necessary part of the innovation process. But a lot of Australian entrepreneurs do not even grasp the idea of approaching a potential VC partner through a referral or recommendation, something which these days is quite easy to do with the availability of on-line social and business networks.”
Nevertheless, Bonnar sees the situation as steadily improving, with several energy-specific business incubators and early stage equity funds being established, as well as conferences and conventions designed to bring innovators and VC providers together.
“There are certainly positive signs about innovation in the energy sector,” he says. “Uptake is shifting from policy-push to consumer-pull, especially in areas such as energy storage, electric vehicles and new energy retail models where consumers can benefit from shifting their usage patterns during periods of high energy pricing”.