No market is more fundamental to the entire planet than the energy market.
Indeed, the single most important macro trend of the past 15 years, according to Jon Trygve Berg of Sarsia Seed, Norway´s leading seed stage VC firm, is the shift from black (fossil) to green (renewable) energy.
The energy market is in the midst of a revolution, in other words. And yet the energy market is at the same time esoteric, incredibly difficult to wrap your head around, fragmented and subject to realtime flux.
How many of the existing major energy companies can fully expect to survive in close to their present form for the next 10 years, as the industry transforms away from the conventions of the 20th century into a brave new world?
Stephen Woodhouse, Simon Bradbury, Innovation and Disruption At the Grid's Edge
Let´s focus on the electricity market specifically - a trading marketplace (like currencies or public equities, just electrons instead), where the end consumer is currently disenfranchised and unable to bargain on her own behalf.
Yes, oil and gas count for nearly half our export revenues, close to $50B, but, in fact, Norway is also a green powerhouse, in terms of green energy generation as well as technology development (I will highlight two Norwegian tech companies, Green Power Hub and Tibber, below).
Statkraft is not just Norway´s but Europe´s largest renewable energy producer. 90+ per cent of all Norwegian power generation comes from hydropower.
Further, according to the Statkraft website, “close to 50 per cent of the reservoir capacity in Europe is in Norway, out of which Statkraft owns about half.”
And worldwide, hydropower already accounts for approximately one sixth of the total electricity supply.
Norway is making a concerted effort to realize green value in several industries going forward. I shall highlight a few here (and no doubt leave out others that should be mentioned):
the value chain for batteries, including raw material processing, component production, cell production, assembly, integration and recycling
wind power, particularly in creating and supporting offshore wind farms
leading the world towards a green maritime industry (I shall highlight Evoy and Sensar Marine in a follow up post)
optimizing the grid, smart charging
hydrogen production with zero or low emissions (electrolysis of water using renewable electricity for example)
I drew the above from a recent report by the Confederation of Norwegian Enterprise (NHO) which further states that the above could result in upwards of 32B euro of revenue potential by 2030.
So if you are interested in investing in the inevitable rise of the green energy market, already a $700B market today, estimated to reach 1.1 trillion US dollars by 2027, note that Norway intends to be a main epicenter.
Energy is now constantly traded in a predominantly B2B marketplace, a balance in realtime of supply and demand. Spot trading, day ahead trading, futures trading, etc.
The European power grid is one of the largest regional interconnected power grids in the world. It realizes a multinational grid operation, which is rare. The total installed capacity of the European power grid is the largest throughout the world. In addition, the integration and utilization of renewable energy in this grid is a great benchmark for other countries and can help promote energy transformation and achieve a high proportion of renewable energy consumption
Global Energy Interconnection, Volume 3, Issue 2, April 2020
Power markets are not local. As an article in Power Technology states, “looking at power markets in isolation just does not make much sense anymore.” And the growing and growing production and demand for green energy will only accelerate this transition and “revolutionise the geopolitics of power generation.”
Indeed:
The world’s largest synchronous electricity network has allowed many European countries to make power trading a part of everyday grid balancing.
Power Technology, 21st April 2021
To bring it home, although I have a small hydropower facility right here in my very neighborhood in Fanahammeren, outside Bergen, operating since 1913, literally just 300 meters from my home, my home´s energy could theoretically be powered by coal from Germany instead of water from Norway (and I would have no clue and would not know the difference).
So how can I as a consumer or as a business executive acting on behalf of my company, insure that my energy is indeed green?
Simply put, sorry, electricity cannot literally be traced between generators and end-users.
You cannot track electrons.
Electricity is not a physical product that can be transported to a single buyer via UPS.
Instead, it is a charge that must be maintained on a grid.
So even if I purchase my power from, say, my local power plant, that electricity cannot be boxed and directly delivered to me.
Instead, electricity - and electrical charge - is injected into the grid in one place (Bergen) and end-users can take the same amount of charge off the grid somewhere else (Helsinki).
A balance is then maintained (think accounting principles) between the injection of electricity and the use of power (“taking it off the grid”).
And without this balancing act, we end up with blackouts, amongst other things.
Enter Renewable Energy Certificates!
Guarantees of Origin (GO)
Elcertificates (Elcerts)
Renewable Energy Certificates (RECs) &
International Renewable Energy Certificates (I-RECs)
Both GOs and Elcerts are systems for guaranteeing the origin of electricity. Elcerts are a Swedish - Norwegian scheme whereas GOs are rooted in the EU wide renewables directives and legislation. Elcert is a tax and a subsidy. A tax for consumers of electricity, a subsidy for producers of new renewable energy, mainly wind.
In short GOs are the only way in Europe to certify that the energy you consume is indeed green - documented, auditable.
RECs are a North American standard, also called Green Tags or Renewable Energy Credits.
I-RECs are built on the well established foundation of RECs and are instruments for proving that the energy you consumed outside Europe and North America is green.
My source of inspiration for wrapping my head around the above?
A Bergen based B2B SaaS platform for trading green energy certificates between 300+ trusted counterparties in Europe.
GOs and Elcerts today, iRECs coming this month.
The introduction of new definitions of sustainability (EU Taxonomy) will increase the requirements for traceability and quality of the documentation for GOs in the future. This is not just a nice to have, it will be a must have.
For example Novo Nordisk has told their 60,000 suppliers that they need to switch to green power or lose Novo Nordisk as a customer. That´s reality.
I think of it as GDPR level seriousness and regulatory bite for proving your green energy consumption credentials.
The EU Electricity Market Directive dictates that all electricity suppliers must inform their electricity customers of the origin of the supply of electrical energy in the previous year through product declarations (ref. EU Directive 2009/28 / EC).
Through the directive, the European Union states that GOs are the only accepted documentation that energy is green.
Nearly 14.5 terra-watt hours have been traded through the platform last year. Over 12,000 interests have been placed since its launch.
A watt-hour is the amount of energy produced by a one-watt source running for one hour. A megawatt-hour (MWh) is one million Wh or 1000 kWh, a gigawatt-hour (GWh) is 1,000 MWh, and a terawatt-hour (TWh) is one trillion Wh, or 1,000 GWh.
To put that Green Power Hub trading volume in perspective, a country like Estonia consumes just over 8 terra-watt hours in a year. The world consumes circa 23,398 terawatt-hours in a year, according to the source of all wisdom, Wikipedia.
Next to null marketing has been done. The platform was launched at Nordic Energy Days i Oslo, late August 2019. This growth has come primarily from a built in “refer a friend” function, i.e. when you register as a business customer, you identify your list of already known counterparties and invite them in.
Now the plan is to add €3m of marketing petrol to the machine and see what it really can do.
What´s brilliant is it´s a B2B software subscription model, where the motivation of the team and the value of the product is to provide transparency to a market that is murky (ie what really is the price of a GO? who is actually trading them?) The business model is NOT volume based so the team and the product stay unbiased with their clients and just focus on quality advice as well as a user friendly digital platform experience. Ultimately the value will build around the network itself in addition to the ARR.
Editor´s note: I have been inspired by the substack publication, Not Boring, and the author, Packy McCormick, who writes “deep dives” on companies - and is paid to do so. His only caveat being they must be companies he would genuinely recommend as an investment. So, full disclosure, I was invited by Sarsia into Green Power Hub as an advisor last year and the team, then the platform and then the market opportunity (in that order) won me over bigtime. If I had a fund, I would invest.
Here in Norway we have another major pioneer in the form of Tibber, an app that has now in fact become my personal electricity trader.
Instead of one utility company, in other words, I now have Tibber, which chooses from different available energy suppliers.
As I initially understood the proposition, Tibber would help me to find the cheapest source of renewable energy to power my home. They also have an aim to empower me to reduce my electricity consumption (by being more aware through realtime data of what activity is consuming the most power) and “sell surplus energy back to the power grid.” That last part I see no evidence of yet today, but then again, I have no excess energy to sell.
Here below you can see a screenshot from my app, which tells me my power is generated by Dale, which is hydropower. My price is set by Nord Pool, which “runs the leading power market in Europe” and one cent per kilowatt hour is added to cover the “elcertificate” and cost of procuring the power from a renewable source like Dale.
I also recently just installed an add on called Tibber Pulse, which shows me my home energy use in absolute realtime.
Tibber has a goal of 20% reduction in European household energy consumption by by empowering us through knowledge which leads to investment in smarter devices for the home and wiser usage overall.
I first adopted Tibber because I thought it was supercool to delink myself from a behemoth utility and was sold on the idea that it sought best prices for me based on a 3 hour forward look of my likely energy consumption. I can also program it so that my Tesla charges during the best times of the day, pricing wise. Suddenly I had my house in my hand.
But then I sort of forgot about it, just trusted it.
Recently, however, we have been suffering from historically sky high electricity bills. We as a family consumed 3,669 kWh in December, albeit a traditionally high energy consumption month due to the cold, and Tibber tells me to expect a bill of 8,194 NOK, or about €821 - for a 230 square meter home built in the mid 80s. I will fully admit our home is too leaky and we need to upgrade windows and do some more insulation, but, still, this represents a more than doubling of previous Decembers. Close to tripling.
NOW I am very interested in applying Tibber knowledge and smart devices to the fullest. The energy market has my full and undivided attention.
Why did energy prices suddenly skyrocket? That is the subject for another post (or a series of posts). I have asked 3 people I trust on the topic and received 3 degrees of answers varying from the fairly accepted party line of weather, the high cost of gas and coal, etc. and another began to go into the nuances of politics while the third just said “it´s complete bollocks.”
I´ve come to view it as an extra tax and lo and behold! the government has just in fact announced here that they, in essence, feel guilty about it all and want to refund me a good chunk of my costs from December going forward for a few months. We shall see.
I must return to Web 3 implications in brief before I sign off.
I am betting blockchain can and will accelerate the decentralization already taking shape in the energy market due to forces like the demand for renewable energy certificates. Renewables + Decentralization are two major driving forces in the energy market which is a natural fit for blockchain enablement.
Remember one of the major promises of blockchain is no need for 3rd party verification.
Both Green Power Hub and Tibber inspire me to hope that a peer to peer energy trading marketplace is not science fiction and will take shape in the decade to come, enabled by blockchain technology. The rise of the Prosumer!
According to Infinite Energy of Australia, the first recorded peer-to-peer energy trade occurred in Brooklyn, New York, in 2016 when a resident with solar panels sold a few kilowatt hours to his neighbour via the Ethereum blockchain.
Digital Twinning! Siemens is out in front here. And they cite research from the World Economic Forum that quantifies the money at play.