National Grid’s Venture Capital Arm Is Blazing A New Path For Utilities

The National Grid wanted to connect a data center’s power cable to its grid. But it couldn’t get access to third-party properties, requiring it to partner with Sensat — an enterprise that uses remote visualization technologies to streamline projects. Indeed, National Grid Partners — the venture capital arm — has invested in 40 companies since its start-up in 2018.

The goal is to future-proof the utility business — to get ahead of technology disruptions that have evaded the industry but are knocking at its door. Moreover, it’s a clean energy and clean-tech strategy to help all power companies reach their net-zero aims. The utilities that get ahead of this will be the beneficiaries.

“It’s one thing to understand that these technologies are out there. It is quite another to take action,” says Lisa Lambert, president of National Grid Partners, at a dinner in New York City with this writer. “We are working with large utility incumbents, all with different risk profiles. If you show them the benefits, they will take a chance.”

The National Grid also spearheads the Next Grid Alliance, comprised of 100 utilities that deploy encouraging technologies. That alliance vets dozens of deals — from the dawning moment to demonstration to deployment. The objective is to highlight those ventures that improve utility services in a timely and cost effective manner — from decarbonization to reliability.

As for National Grid’s U.K. project, Sensat’s platform provides a richer picture than what drones offer, shortening the survey from weeks to a day. The utility had a detailed and panoramic view of the project by accessing a software program. Sensat uploaded a base map of the real-world environment, allowing users to share, collaborate, and view data and proposed designs.

According to Sensat’s Chief Executive James Dean — who qualified for Forbes 30 Under 30 — National Grid Partners owns about 8.6% of the company. He told this writer in a phone conversation that the venture capital unit is interested in his company because its software can deliver complex and costly infrastructure projects on time and within budget. His product has vast potential because the utility sector is earmarking trillions to meet the electrification demand.

“The renewable energy transition — from centralized generation to distributed generation — will incorporate 30 years of massive investment,” says Dean. “The demand has grown so much we can’t do it the same way as before. There’s an opportunity for new technologies — which can save utilities time and money by uncovering hidden risks when building infrastructure.”

Not Betting The Farm

More than 80% of National Grid Partner’s portfolio companies engage with the parent’s — National Grid — business units to test, develop, and deploy their technologies throughout the U.S. and U.K. Those collaborations not only help National Grid modernize and transform its operations but also assist startups scale their technologies worldwide in months, not years.

The 40 companies National Grid Partners has backed have generated more than $80 million for the parent’s shareholders. In perspective, National Grid Partners is worth $400 million, a small slice of its parent’s market cap of $52.56 billion. “National Grid is not betting the farm,” says Lambert, the venture capital arm’s founder. “We are not just financial investors. We are a strategic arm of the core business — matchmaking it with leading strategists.”

But should utilities stick to generating and delivering electricity or does the decarbonization movement compel them to seek better alternatives? The inquiry is in the context of the Enron era — when some utilities bought into riskier, future-oriented enterprises only to lose money, causing them to retrench and refocus. So it is not unreasonable to ask if doing so again might lead to similar results.

To that end, the Enron era focused on electricity restructuring and deregulation — concepts that had been poorly thought out and had undesirable consequences. Today’s technologies center on electrification and deploying onsite generation, battery storage, and microgrids. The goal is not just decarbonization but also to improve reliability.

“The utilities coming to the Next Grid Alliance are proactive,” says Alexina Jackson, vice president of strategic development at the AES
AES
Corporation, in an interview. “Instead of putting money in different buckets — like a venture firm — we focus on innovators with synergies that add value. Then we create a deep collaboration. Most utilities want to be the first one to be second. AES is willing to go first.”

Now Is The Time For Utilities To Shine

Indeed, the International Energy Agency estimates governments and the private sector will need to invest $4 trillion annually by the end of this decade to reach net-zero carbon emissions by 2050. With that, National Grid Partners invested in Autogrid, now part of Schneider Electric. It aims to deliver clean, affordable, and reliable energy using artificial intelligence and the Internet-of-Things.

It also invested in LineVision, allowing utilities to connect their renewable sources to the grid rapidly. The company’s patented sensor and data analytics platform monitors line conditions in real-time, assessing how much electricity those wires can safely carry. The technology also has the potential to ‘widen the belt’ without physical upgrades to the system.

“When we think of the energy transition, electrifying transportation, and moving towards a zero-carbon grid and connecting more renewables, one of the biggest obstacles is congestion due to the limited capacity on the existing grid,” says Hudson Gilmer, chief executive of LineVision.

National Grid Partners invested because of the urgent need to expand infrastructure. Most utilities are underutilized and operate at 30% to 40% capacity. But they build to meet peak load — on the hottest or coldest days of the year. Founder Lambert acknowledges that the grid must also grow — something the parent company is committed to. However, that process is costly, contentious, and time-consuming. Adding space to the transmission lines is quicker and cheaper, changing how utilities think about their business.

She says LineVision can add 15% to 40% more capacity to the existing wires — at 5% of the cost of a new transmission line. The solution takes months to deploy, not several years. “This is what I mean by game-changing technology — delivered more cost-effectively and time effectively,” says Lambert.

What the utility alliance does is to ‘de-risk’ investments, making them more accessible to those who follow the leaders. Regulated utilities don’t compete against each other, enabling the industry to share ideas and adopt promising technologies that help the country get to net zero.

And it’s an economic bonus. It means more energy in the form of electricity flows through the utilities’ footprints. As the economy gradually electrifies, it attracts new businesses and reduces energy prices for everyone else. For example, Honda is building a new battery plant in AES’ jurisdiction in Ohio, creating jobs and a more significant industrial electricity load that reduces overall costs.

“People recognize the need to decarbonize, and there is a sense of urgency,” says AES’ Jackson. “I am excited about this moment in time. The utility-based partnership allows us to come together — to form a view of our electrical grid and which technologies will help us achieve our aims at speed and scale. If we do it piecemeal, we can’t do it as quickly. There is value in having a shared vision.”

The electrification of everything rewards utilities. And while it means more revenues, it also requires capital investments in transmission and distribution — an effort and an expense that can suck the air out of many power companies. Some utilities want to be on the cutting edge — like National Grid, whose venture capital arm is blazing the path. Others, though, want to wait, paving the way for an industry-wide alliance to vet promising technologies and future-proof the sector.