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Shell-owned virtual power plant startup sees no threat from big utilities

SNL Image

A battery array operated by Limejump in the U.K. The company manages between 250 MW and 300 MW of battery storage.
Source: Limejump

➤ Traditional utilities will "fall by the wayside" in flexibility race, CEO of U.K. startup Limejump says.

➤ Competition is heating up for virtual power plant providers.

➤ Following its acquisition by Shell in early 2019, Limejump's focus will stay on building out its domestic platform.

U.K. energy technology startup Limejump Ltd. is one of a handful of companies to have broken new ground in the utility sector in recent years. The company, co-founded by former commodity trader Erik Nygard in 2014, operates almost 1 GW of distributed renewable and gas generation, including one of the largest portfolios of battery storage in the U.K. The assets are bundled into a virtual power plant, traded in the wholesale market and contracted for ancillary services to help balance the grid.

In an interview at a startup hub in south London, Nygard talked about what's next for Limejump after it was acquired by oil and gas major Royal Dutch Shell PLC earlier this year. The following transcript has been edited and condensed for clarity.

S&P Global Market Intelligence: Now that the dust has settled on the Shell takeover, are you focusing on geographic expansion or using that funding to build out your technology further?

Erik Nygard: The focus is definitely platform and scale in the U.K. One of our core strategies at the moment is to build a virtual grid that will allow us to transact between buyers and sellers of [flexibility] and energy within our portfolio. That's the first thing. But I think, on that journey, the international landscape ... we will definitely start looking at it. It should become easier with Shell there because they already have that broad reach, so tapping into their human infrastructure [will be useful]. It's not on our cards today, but I would hope that that is something that we can take advantage of very quickly when we're ready.

Can you talk about how the Shell deal came about? What other types of investors were you talking to?

We never went out to actively sell this business in the market. We were in for [a] Series B [funding] round and it was very funny the kind of influx of interest on the acquisition, [rather than] the Series B part. At first, we chose not to look, [but] as we got to know some of the counterparties better, it became clear that they would be able to solve many of our bottlenecks and balance sheet is one bottleneck. You also had, around that time, the new [Intergovernmental Panel on Climate Change] report that came out, that made it far clearer that we've got a problem at hand. So that kind of meshed together.

We then started talking to the more inquisitive would-be acquirers to suss out whether they really were aligned on our vision. [Venture capital] is a financial machine, but for something like this you need it to be more than just that. In the discussions with Shell, it was very clear that they were fully aligned with what we wanted to do, and it was clear that there was a lot of synergies to tap to just accelerate what we're trying to achieve, be that local in the U.K. or global. And our business is not the big [capital expenditure] spend in this business; we're not the wind farm developer or whatever. We are literally that glue that brings all of these things together. So we view ourselves as being an important player in that transition, and we just need scale.

SNL ImageErik Nygard, co-founder and CEO of Limejump
Source: Limejump

Are you thinking of specific markets to move into?

I don't know, to be honest. I think there's a lot. Japan's opening; that looks interesting. California looks pretty cool. You have some of the nodal stuff on the East Coast in the U.S. that looks quite interesting. The Nordics. But, then again, in many of these markets you probably have a lot more competition, so we just need to assess how we would enter these spaces.

Competition could also grow at home, with companies like Sunverge Energy Inc. eyeing an expansion into Europe. Are you seeing a lot more activity in this space generally?

Of course. Flexitricity Ltd. [for example] ... They're all now looking at becoming a more holistic provider of services, including the utilities. So do we see challenges with people competing on our tech, not just the solutions? For sure. It has to go this way. I think if you can't keep your customer at the heart of it, you can't survive in this industry. The problem is there's not a lot of money in the game right now. Margins are tight, if you look at retail. We are in a slightly more secluded part, but if you look at the retail end of it, it's a disaster ... [The utilities] need to figure out how to serve their customers well, which they don't do. They need to innovate to reduce costs [and then] bundle that in by getting into real-time optimization good luck to them. I don't see it happening. They're all going to fall by the wayside, in my opinion. The data already speaks for itself. I mean, look at the share price of Centrica PLC. You have SSE PLC trying to flog [their retail business] every chance they can. But tech and software can solve a lot of this stuff.

If not the utilities, who else is seriously competitive in this space right now?

You have other interesting companies. Next Kraftwerke GmbH out of Germany we quite like; Energy2market GmbH from a proposition point of view, they are very similar to us. We would now argue we have a more sophisticated platform to serve customers, but who the hell knows? From a value proposition to the customer, just pure money, they were right on the ball. And I'm sure there's companies in the U.S. probably popping up all over the place. The transition is happening so much more in the last two years, versus the five before. There must be more startups, and you will get kids coming up [with new stuff] like that. I'm sure of it.

Would you consider moving into the residential market as well?

If it all gets onto half-hourly metering, we could do it. But remember, under the Shell umbrella, you've got sonnen GmbH, which is phenomenal. And you've got Shell Energy Retail, which just rebranded from First Utility Ltd. I think that would need to be synergistic relationships.

There's a very public green push at Shell, but it's still an oil company. Did you determine the green component outweighs the potentially negative reputational effect that comes with being associated with them?

It's complicated. Like, "Are we taking the devil's money?" It's so complicated ... You have a lot of places around the world that still need [oil and gas]. That probably will continue for quite a while. But it's a big question to rationalize that. Is it good, and can Shell change? I took a view, having looked at this and speaking to as many senior people as I could at Shell, before the acquisition, to ask this question: do you guys really believe that the model has to change? And the response I got did not seem like pure rhetoric to me. It's partly data and partly their statements. Ben [van Beurden, CEO of Shell] has come out with really bold statements. You have [Shell New Energies Director] Maarten Wetselaar, who's come out with bold statements about wanting to become the biggest power company ... Now the proof is in the pudding. And I think part of that is acquisitions like us; it's proving it. So I am now a converted disciple. But it has to show itself. And they've got so much money to do it. What do they spit out, 20, 30 billion per year in free cash? If all that could get funneled into the right place, imagine the impact. It would really be phenomenal.