Microgrid company GI Energy announced this week that Shell New Energies would acquire a majority stake in the company for an undisclosed amount.
This marks Shell’s sixth investment or acquisition of a company working on the grid edge since the beginning of 2017. Last year, giants including Enel, Total, Engie and Centrica also joined the "grid edge shopping spree," according to GTM Grid Edge Research Manager Elta Kolo.
That “spree” has turned into a long-range business strategy in 2018. With another investment in thermal storage company Axiom Exergy announced Wednesday, Shell’s investments so far in 2018 already rival the number of acquisitions it made last year. According to Kolo, it's part of a concerted push from the giant over the past two years, after a promise to invest in distributed energy cautiously.
Through investment arms New Energies and Technology Ventures, Shell has already backed a wide range of companies, including mini-grid developer Husk and EV charging company NewMotion. In April, Shell published an Energy Transition Report detailing its “intent to move in step with society toward a lower-carbon future.”
The investments still represent just a small fraction of overall capital expenditures, but they indicate major energy players are valuing clean energy technologies — or at least hedging their bets.
Utility investment in distributed energy companies has tripled since 2010, according to GTM Research. Investments have been most notable in Europe, with companies such as Enel and Shell taking the lead. Utilities spent a collective $1 billion in 2016.
Energy majors are still figuring out how these investments fit into their future visions. Some giants have devised big-picture plans, such as Centrica's Business Solutions and Engie's rebrand, according to Kolo. But for others, it's more of an educated guessing game.
"One caveat to keep in mind with these European giants making these investments: They all have some sort of strategy in place," said Kolo. But, she adds, "They're still figuring out their strategy as to what they want to do with these groups."
The buying blitz helps each company diversify, buying time as they map the energy future.
Kolo said a majority stake investment in a DER developer like GI Energy makes sense for Shell as the oil major focuses on electrification. GI Energy builds microgrids and onsite energy systems for commercial, industrial and education customers. Their projects include a combined-heat-and-power system at New York City’s 2.5-million-square-foot One Penn Plaza and a geothermal installation on Roosevelt Island*.
In a release on the Shell investment, GI Energy said it looked forward to working with MP2, another recent Shell acquisition with demand response and C&I solar offerings. GI Energy's offices in Chicago, New York and California could support MP2 in building a presence in those areas. At the same time, Shell's financial backing offers legitimacy to GI Energy.
"Having Shell as a backer gives both existing and new customers financing opportunities that are less risky; Shell can own these assets and take on the risk," said Kolo. "This gives some breathing room and an extra opportunity for risk-hedging."
Kolo see it as a beneficial relationship for both parties. And according to GI Energy, the partnership with Shell indicates growing cooperation within the energy industry.
“To address the converging problems of climate change, population growth and how to improve living standards in the developing world, we need a new consensus around how we produce, use and conserve energy,” said Dave Yanni, GI Energy’s chief development officer, in a statement. “Shell is adapting to lead that effort and drive sustainable change.”
Alongside those commitments, giants like Shell still remain focused on their core fossil fuel business. In its transition report, Shell proposed cutting 50 percent of its net carbon footprint by 2050. But the 41-page report also used the word “uncertain” nine times, a nod to lingering skepticism from the company and its stakeholders about a clean energy future. Shell's reliance so far this year on investments rather than acquisitions may indicate a more cautious approach, said Kolo.
"There isn't much certainty in these investments and acquisitions that will result in significant revenue in the short term," said Kolo. "It's more like, 'We don't want to miss the wave in the long term, so we're going to play this game right now.'"
Want to learn more about how Shell sees the future? Listen to this recent episode of GTM podcast The Interchange.
*This story has been updated to reflect projects GI Energy has constructed.