Evolving energy distribution systems – an investor’s view

By Tomas Hvamb and Matt Anstead

Electricity networks, and the shift to smart grids, will be fundamental in achieving a secure, cost-effective, net zero future. Smart grids (or DERMS) are necessary for our future energy system, but they also represent an interesting investment opportunity for specialist investors.

But for now at least, as the world focusses on the production of energy from clean sources, the rapid, stable penetration of renewable energy into outdated grids poses a whole host of new and complex challenges for operators.

This need is accelerating. According to the IEA, in 2020 almost 90% of new electricity generation came from renewable sources, suggesting the need for more efficient systems to support our evolving grid and integrate newer sources of energy.

Becoming more commonplace

DERMS control distributed energy resources (DERs), like solar PV, wind turbines and battery storage, to smart thermostats and EV charging stations. DERMS and DERs work together to ensure system stability. Arguably the smartest part, DERMS improve the reliability, resiliency, flexibility and efficiency of the electricity distribution system, providing essential resilience to electricity networks that derive power from distributed generating assets.

The seamless interplay between electricity and data is essential. It enables an electricity grid to feed information and data to various stakeholders in the electricity market which can be analysed to optimise the grid, foresee potential issues and resolve them before they cause disruption.

Emerging growth conditions

Policymakers have become more invested in expanding the value proposition for DER. Though realisation of transactive markets may be a long way off, initiatives like New York’s Reforming the Energy Vision (REV) have started a significant policy conversation around enabling distribution-level markets.

The cost of DERMS adoption is being driven down due to technology innovation, new business models, and incentives lowering the cost of ownership. Consumers, small to medium businesses, and commercial and industrial (C&I) customers are increasingly adopting DER in a portfolio-based approach.

Growing alongside demand for clean power, the overall DERMS market is projected to pass £1bn in 2022 with 3x growth to over £3bn by 2026. Market analysts believe several drivers are coalescing to drive demand for DERMS across global markets. These drivers are a result of natural market and technology evolution, as well as top-down initiatives by policymakers and utilities to promote growth of DER.

Vital for energy transition

The vision for DERMS is to have an entirely zero-emission power supply. While DERs support decarbonisation in many ways, DERMS lower emissions by allowing more DERS onto the grid. With the development of DERs advancing rapidly across all fronts, we need to ensure the grid is well equipped to accommodate them. At EV, we believe DERMS is a vital enabler for electrifying our energy system in order to help net zero targets be met.

At EV Private Equity, we’re investing in the technologies that have the potential to transform our future of energy system.

Smart grid technologies are areas we’re currently looking to invest in.

Get in touch with Tomas Hvamb/Matt Anstead to discover more about our work in this area.

This article is part of  an ‘Energy Transition Technologies’ bimonthly blog series.