Jon Whiteman, Managing Partner at CIL, highlights how the global shift toward renewables, evolving grid infrastructure, and the rise of data-driven energy solutions are creating fresh opportunities for the electrical industry
The global energy sector is changing rapidly, creating opportunities for growth. But this can be a complex sector to navigate. Where do the opportunities lie, and how should businesses and investors approach them?
Why is the energy market growing?
The global energy market is continuing to transition away from fossil fuels and towards renewables. This is changing the way energy is generated, distributed and consumed.
Strong market dynamics are at play in the push for net zero. Government policy and public opinion, the falling cost of renewable energy, electrification of transport and heating, and advances in battery tech are all driving the pace of change.
But reaching ambitious net zero targets will require an even more substantial shift than we’ve seen so far.
To achieve global net zero by 2050, unprecedented development will need to take place, according to the IEA’s Net Zero Road Map:
- Generation: Cut fossil fuel generation by 80% by 2050.
- Distribution: Build 2 million kilometres per year of electricity grids up to 2030.
- Consumption: Create 28 million more public EV charging points by 2050.
But while the road to net zero appears long, it’s paved with opportunity. Development on this scale will require major changes across the sector, but particularly to grid networks, creating new opportunities for stakeholders across the ecosystem.
Where will these opportunities lie?
As nations worldwide invest heavily in upgrading their energy infrastructures, businesses specialising in grid support, maintenance, and modernisation services are becoming increasingly vital. Globally, power grid networks will require $3.1 trillion of investments up to 2030 to keep pace with the rapid renewable energy buildout.
- In Europe, the European Commission outlined plans in November 2023 to invest up to €584 billion in power grids by 2030 to accommodate the growing share of renewable energy and ensure stable and reliable supplies.
- In the UK, National Grid announced a £60 billion, five-year investment plan in May 2024 to ‘accelerate the decarbonisation of the energy system for the digital, electrified economies of the future’. This is more than a doubling of the investment of National Grid over the last five years.
- In the US, various funding commitments have been made to support grid infrastructure investment (such as the Infrastructure Investment and Jobs Act) alongside federal grants for specific projects to expand and strengthen the grid.
Alongside this, an area that will see particularly fertile growth is data. Given the proliferation of energy generation assets, the increase in requests to connect to the grid, and the all-round rise in the complexity of energy networks, grid stakeholders will need more and better data to operate effectively. They’ll also need to generate actionable insight from it.
This provides an opportunity for companies specialising in data – and those investing in them – whose expertise can be applied to energy networks:
- Grid connection specialists, able to help grid operators cut costly interconnection backlogs.
- Asset management and analysis providers, able to help operators monitor and model their grids, and optimise asset use.
- Market data and analytics providers, able to produce models that help energy providers make the right strategic decisions.
Following a period of volatility in energy prices, businesses are also placing increased focus on how they manage their power consumption to control and reduce costs. This could be through advanced metering, demand-side response, or other innovative technologies. All act to create new opportunities for investors to capitalise on.
How businesses can capitalise
The energy transition will create plenty of opportunities. What’s the most efficient way for companies to capitalise?
There are several ways in which the shift to an energy-centred proposition can be optimised – for example by serving existing customers with new services, or by focusing on energy-related opportunities in current markets.
Here are four key questions businesses can ask, to optimise their shift to an energy-related focus:
- Market potential: What is the current/future opportunity?
- Customer overlap: Is there a chance to serve our existing customers?
- Geographic overlap: Are there opportunities in the places we currently operate?
- Transferable competencies: Can we use our current capabilities to serve these new, energy-related segments?
What investors should consider
On a different level, would-be investors in these companies must think carefully. Despite the potential for growth, uncertainties abound.
Economic and political risks loom large. Rising costs and changes to government policy have impacted several renewables projects in recent years across the globe.
For example, in Europe, political volatility has led to fluctuating policies. Plans to become independent of Russian exports mean the EU has now classified natural gas and nuclear projects as green energy investments – unlocking billions for these projects, but potentially diverting money from projects based on conventional renewable sources.
With risks like these in mind, investors should keep faith in the traditional features of strong and sustainable businesses. Even in a high-growth sector, established investment KPIs – like those below – remain fundamental:
- Recurring revenue: Revenue models based on operational expenditure rather than upfront spend, e.g. maintenance services for renewables assets.
- Revenue stream diversification: Business models with multiple sources of income, e.g. asset analysis providers operating across renewable energy sources.
- Scalability: Tech-led business models that can be quickly scaled with sufficient investment, e.g. market data and analytics software.
- Broad geographic exposure: Companies operating in multiple countries, mitigating policy and market-specific risks.
- Resilient business models: Products and services that are critical to other stakeholders’ business models, e.g. grid connection support, which is essential to offshore wind developers.
For businesses and investors, the energy transition presents a mix of risk and reward. The potential for growth is huge, but as recent history has shown, not every bet will be a winner – and conventional wisdom should not be discarded.
Predicting successful investments and making informed decisions requires rigorous due diligence and deep sector expertise.
