On average, four private companies valued more than one billion dollars were born per year in the 2000’s. By 2012, there were about thirty such “unicorns”, a term first used by Aileen Lee of Cowboy Ventures, a seed-stage venture fund. Today, Crunchbase lists 261 members of the unicorn club, including 49 which were added in 2016. The number of unicorns is skyrocketing due to the current market conditions and because investors believe that these businesses are going to change the world and, above all, provide them with a large ROI.

After combining data from three different databases[1], and excluding individuals such as Angels, we identified 298 companies from diverse types that have bet on, at least, one unicorn company, three fourth of them having been founded after the 1990s. Unsurprisingly, Private Equity funds (which include both Venture Capital funds and Private Equity funds) represented the largest group, and accounted for 65% of all unicorn investors. Corporate Venture Capital funds came in second at 17% and were followed by banks, insurance companies, governments, incubators, pension funds, angels’ groups, and others. The “unicorn hunter” with the most unicorns in its portfolio was the US-based Tiger Global Management, which held stakes in more than 30 unicorns.

Who are the originators of this new phenomenon? What is the profile of the investors who have contributed to establish these “super-companies” which, for most of them, do not make any dollar of profit?

Geography

More than half of unicorns are based in the United States and more than a quarter of them are in China. The geographic dispersion of investors is relatively similar: two thirds of the investors referenced above are headquartered in the US, followed by China and Hong-Kong (15%), the United Kingdom (3.4%), Germany and Japan (2.0% and 1.7%, respectively).

The significant share of the United States in this ranking can be explained by the history of Venture Capital. Contrary to Europe and Asia, the US did not suffer from massive destruction during World War II: considered as the big winner, the US came out strengthened of the conflict. The unemployment dropped and the country got out of the Great Depression, while the rise of prestigious universities like the MIT, Stanford or Harvard was combined with enormous defense-related government spending during the Cold War to foster the development of innovative projects that required considerable amount of financing.

It was a Harvard professor, Georges Doriot, who created in 1946 the first investment fund to invest in young and risky companies: the American Research and Development Corporation. This marked the birth of the Venture Capital market in the US, and it was nearly 30 years later that the VC industry began to develop in Europe during the 70’s. Around the same time, the creation of the NASDAQ in 1971 created another new mechanism for American technology companies to raise large amounts of capital, which further emphasized the domination of the US in the field of new technologies.

Within the US, two states distinguish themselves: California is first-ranked with 45% of the US investors followed by the state of New York which represents 21% of American unicorn investors. Silicon Valley alone, and notably San Francisco, gathers five of the ten best unicorn hunters.

Role

The financing rounds required to support Unicorns are often extremely large, often in hundreds of millions of dollars if not a billion or more dollars. There are very few investors that can write checks of that size on their own, so the sheer size of these rounds often requires a large number of investors to participate. In most cases, there is only one lead investor for a given round, although there are some cases in which 2–3 investors co-lead a round. Regardless, the number of “follow-on” investors involved in a given round is often much higher than the number of lead investors. The average number of financing rounds led by an individual Unicorn investor is less than 1 out of 3 of all the deals that they’ve invested in.

In addition, there is a low correlation between the frequency of investment (i.e. the number of deals closed by year) and the number of invested unicorns: being an “active” investor does not seem enough to catch the stars!

Sector

The average number of unicorns a given investor is likely to support is lower for industry-focused investors, or other funds with narrow investment focuses, than for general-purpose investors. In fact, three fourths of the unicorn investors have a general-purpose investment strategy. However, most of the unicorns have emerged from a limited number of sectors, namely software and consumer internet, followed by e-commerce, financial services, healthcare and transportation.

To conclude, maximizing your chances to bet on unicorns means to:

Be a Private Equity fund with a focus on investing in venture-stage companies
Have been founded after 1990
Be based in California
Be a follower, or “passive”, investor
Have a general-purpose investment strategy
Invest mostly in USA and China.

[1] Crunchbase, CB Insights and Thomson One Banker

The Grid is becoming smarter, but is that enough for incumbent energy operators and utilities to meet the new challenges they are facing?

Smart grids are energy networks that can automatically monitor energy flows and adjust to changes in energy supply and demand accordingly. We all see nowadays a wide-spread use of the words “smart grid” or “edge grid”, also outside the energy community strictly speaking. Also, huge investments are expected: analysts and think tanks are debating about the latest projections — recent World Economic Forum report speaks about $2.4 trillion value created by innovation in the electricity industry over the next decade. So how did we get to that point?

Solar and Wind

About 10 years ago, the cost of electricity generated by sun rays hitting polysilicon crystals was approximately $500/MWh. Today the same electricity costs about $50/MWh (and in some cases less[1]), and the cost of wind energy has followed a similar path. The sharp reduction in the cost of the renewable generation has strengthened its position as a credible alternative to traditional sources (especially gas and coal). Even after the end of generous incentives programs, the result today is that most of the new installed capacity, at least in developed countries, is Renewable (see this nice article about “solar singularity” by Greentech Media).

That wouldn’t impact the grid that much, if not for one main reason: intermittency. Solar and Wind are not “dispatching sources”, or in other words are not “programmable”: you cannot say to the Sun <<shine!>> and to the Wind <<blow!>>. The immediate result of that intermittency is that the electricity grid now doesn’t know in advance where the energy will be produced, or how much, and that’s an enormous challenge for grid operators.

Distribution of energy generation

Not only energy generation has become cheaper through renewables, but it has also become increasingly distributed on a scale that never existed before. Now, in some countries, the electricity needed to run a washing machine or watch TV can be produced on your roof at the same cost (or cheaper in some cases) than the electricity you can buy from the grid.

While this is convenient for the clients it adds a second challenge for the grid and the operators: we are moving from a network structured around centralized production plants to a network of many disparate sources.

Energy storage

Historically, there has not been any obvious ways to accumulate energy produced. As a result, massive quantity of renewable electricity enters the grid, outnumbering the demand (especially at night, when wind blows the most and the demand is the lowest). As the value of electricity is typically set by tradeoff between demand and supply, negative prices are being observed with increasing frequency, or energy is exported from countries with excess of renewable production (Germany for instance) at very cheap prices. Fortunately, also thanks to the massive volume expected from automotive applications, Li-ion batteries are now less than $230/kWh (McKinsey study, 2017[2]) compared to $1000/kWh 5 years ago. Now renewable asset owners have increasingly the choice of trading the electricity they produce (i.e. deciding whether to store, consume or sell), again adding another challenge to grid operators and incumbents: the energy produced will not necessarily be entering the grid immediately as we have the option to store it within batteries.

Major new dynamics such as A/ affordable renewable generation, increasingly distributed on a large scale, B/new energy exchanges and trading opportunities, C/ hard time to predict demand and offer and their topography, are creating massive challenges to incumbents. Is the “smart grid” enough to cope with all that?

Smart meters were only the start

Historically, utilities have generated and monitored quite some data from their production assets, the substations at both low and mid/high voltage level, and to some extent at the point of consumption. But now, many scattered production assets belong to customers, and monitoring only traditional assets is not enough. Hence why, for a few years now, utilities have seen the interest to deploy “smart” meters to learn more about customers’ behavior, both from demand and production points of view.

While smart meters are considered entering the mass market (see chart above) many more connected devices are beginning to be deployed by early adopters. The new devices are no longer limited to consumption-related devices, with rooftop solar and behind-the-meter battery storage both generating “production” related data. Information is increasingly more accessible and transparent to any player, even outside the traditional energy value chain, including end users and consumers.

Utilities are finally learning that it is not just about being able to deploy and read smart meters. In fact, the complexity that has stacked up on the energy ecosystem is far greater to be dealt with only with smart meters.

Utilities are expected to respond with massive IoT and data-related investments

In 2017, IDC predicts[3] that utility investments into smart grid technologies will represent $56Bn of the $66Bn IoT investments they are expected to make this year. Three major use cases are likely to drive such investments[4]: smart meters, distributed generation and demand response. The investments will be mostly directed at solving short term pain points utilities are facing and will try to leverage as much as possible the data generated.

Having said that, many difficult questions remain: who is to finance the capital investments needed to maintain and upgrade the grid now that the value of the energy in transit is decreasing? What is the right balance between operational cost savings, system stability and reliability on the one hand, and revenue and margin improvement on the other hand?

One thing however is clear: whoever doesn’t take advantage of the massive data generated will be left behind. A 2016 Bain & Co study suggested a doubling or tripling the average number of variables taken into consideration to build a model predicting power outages, for instance, will improve the accuracy of events predicted by 2–3X. In turn, this will reduce the cost and the negative impact on customers from dealing with such outages by an equivalent proportion. If you consider more data in dealing with your business problems, you will have a quantifiable positive impact on your ROI. And the smarter you are about getting value out of data, the higher will be your ROI.

Troubles ahead for incumbents and role of innovative startup companies

As massive new investments from utilities and incumbents are focusing on deploying sensors (including smart meters) everywhere and supporting renewable generation capacity, we see a fundamental flaw in this approach: it doesn’t consider the customers’ needs as the main focus.

Failing to address customer centricity could be life threatening for utilities and incumbent players in the future. On the one hand, they enjoy increasing limited barrier at the entry and on the other hand, customers have a deeper awareness about the choices they have. To understand customers’ needs better, utilities and incumbent operators must master data analytics and switch their approach from looking inward to outward. This is no small task, but the good news is that many startups can offer inspiration.

Inspiring startups

Startup companies are disrupting the entire energy value chain. Some are taking advantage of new revenue streams available from flexibility options[5], such as KiwiPower, UpsideEnergy in the UK, or Restore in Belgium. Others are playing a pivotal role to build a new form of “collaborative” or “social” utility such as Sonnen or Lumenaza in Germany where individuals are exchanging the energy produced by their local distributed energy asset (solar PV especially). Finally, “independent energy retailers” are focusing on serving the final customer. Examples include FirstUtility in the UK, Lichtblick in Germany, or DirectEnergie and Ekwateur (an Aster portfolio company) in France. These companies are experiencing dramatic growth and are beginning to have a visible impact on major utilities’ market shares and, in turn, their P&Ls.

However, startup companies are also supporting incumbents to become smarter “customer oriented” players. Some are focusing purely on making data available, for instance to make it simple for utilities to publish data. This can include making it available through APIs as well as building applications which leverage the data. One such company in Aster’s portfolio is Opendatasoft. Others like Germany-based Thermondo are revolutionizing the sales process based on pure automation and data driven insights. They are currently focused on heating systems but plan to add solar PV soon, Other startups, such as Enbala in the US , Greencom Networks and Younicos (recently sold to Aggreko for $52m) in Germany, are positioned as providers of solutions that help utilities to tap into new revenues opportunities generate by an optimized electricity grid (Transactive Energy paradigm[6]).

Conclusion

We predict challenging times for incumbent players for the foreseeable future. However, some are learning the hard way and are taking action sooner through investing or partnering directly or indirectly with startups.

In the future, markets will be far more open and liberalized, the cost of producing electricity from renewables could possibly approach zero, and the value of existing traditional assets will need to be mostly written off. The survivors, whether incumbents or new entrants, will be the ones that master customer relationships and deliver valuable services through a deep understanding of customer’s needs. This will go mostly through mastering data collection and analytics.

In the meantime, the smart grid must serve new needs. The role of delivering high power to energy intense industries, integrating new utility-scale distributed generation facilities, and as well as complementing self-consumption for commercial and especially residential users will all need to be accomplished simultaneously.

Utilities and incumbent players will need to increase internal efficiency to face times of increasingly volatile supply and demand patterns with far more intelligence than they seem to have today. The reward will be substantial for those that are able to accomplish that and could probably make utilities survive for the next decade — maybe, until radical new paradigm changes might appear such as for instance the energy blockchain.

[1] https://www.lazard.com/perspective/levelized-cost-of-energy-analysis-100/

[2] This is in fact an average, as stationary batteries tend to be more expensive (in the range of 300$/kWh) while mobile application batteries are in general cheaper (around $150/kWh) : http://www.mckinsey.com/global-themes/digital-disruption/harnessing-automation-for-a-future-that-works

[3]http://www.businesswire.com/news/home/20170614005185/en/Worldwide-Spending-Internet-Things-Forecast-React-1.4

[4] IDC, Gartner, BCG; data are from 2016.

[5] Demand Side Management, Demand Response.

[6] http://www.gridwiseac.org/pdfs/te_framework_report_pnnl-22946.pdf

Aster Capital recently led the €2m Series A round of ekWateur, alongside BNB Paribas Développement and Bouygues Telecom Initiatives. Founded in November 2015 with the ambition to become a key energy retail player in France, the company provides an innovative and truly seamless customer experience in a collaborative environment, while offering a 100% green energy at a competitive price. The company also has an ambitious and clear vision for energy services development to complement its energy retail business.

Following the initial commercial launch in September 2016, ekWateur Q4 2016 achievements are impressive. The company already provides green energy to more than 4,000 clients, including a contract with French Procurement Department (DAE) for the supply of 2,600 public sites over 3 years, and its portfolio is experiencing a triple-digit month-over-month growth.

Why do we at Aster believe in ekWateur’s capacity to become a key player in the and competitive French energy retail market? How could the company establish itself as a relevant player alongside EDF, Direct-Energie, and other alternative retailers in the near future?

1. A fast-changing energy retail market in France

Despite deregulation of the residential energy retail market in France in 2007, market concentration remains much higher in France than in other European countries. 4 to 6 players are fiercely competing for the domestic UK, Belgian or German market for instance. Those markets used to be geographically fragmented (linked to network ownership of various companies per region before liberalization) and each historical regional leader now capture approx. 10-25% of the customer base. While EDF still holds a strong position in France (related to the historical national monopoly of the company – a key difference vs. other European countries), the French market is bound to follow its neighbors’ de-concentration trend as customers get educated and competition increases.

In addition to deregulation, a couple of drivers impacting end-customers and potential new entrants will further foster market fragmentation in the years to come:

First, Regulated Tariffs have been steadily increasing since 2007 (+2-5% p.a.), which has induced end-customers to look around for alternative / cheaper offers. Price remains the primary reason for customer churn. Subsequently, relevance of green offerings is gaining momentum for a growing number of customers;
Second, a set of financial and regulatory incentives is creating favorable conditions for the emergence of alternative offers (e.g., sharing of bad-payers’ costs across the value chain, ENEDIS subsidies for small retailers, etc.)

At Aster, we dedicate a lot of effort to identifying, meeting with and selecting the startups which seem to us to be the most promising, with the necessary strengths and talented teams as well as the ability to adapt, pivot and magnify their company’s technological and commercial potential. But we also feel that success is driven by vectors of transformation and disruption of markets, which act as catalysts for sector trends. These forces that often operate on certain markets and these breakthroughs that are often a result of the efforts of young companies can affect all sectors, including so-called traditional sectors in manufacturing and infrastructure like water, energy, transport, materials, food and construction. We believe ekWateur is a clear example of such transformation in the energy retail market in France.

2. A truly innovative new player on the market

ekWateur web platform, used for subscription and account management, is unique on the market and has been successfully designed and developed by the founding team to provide a UX in line with telecom / internet standards. Prospect customers can easily upload their energy bill on ekWateur website. From this, the platform would automatically pre-fill all the customer information (contact details, PDL/PCE numbers, etc.) and perform an estimation of the potential savings achieved with ekWateur vs. current energy provider. Beyond green energy offering at a lower price, this allows incredibly quick and seamless subscription process for customers. In addition, we are excited by the company’s ambition to create a truly collaborative customer base and by its roadmap for services development and commercialization starting in 2017.

Last but not least, the entire Aster team have been impressed by the capacity of the founders to quickly develop ekWateur offer, to gather a strong and committed development team and to constantly adjust to fast-moving market conditions (e.g., evolution of market prices, impact of EDF nuclear plant closure, etc.). We are excited to team up with Julien and Jonathan and are opening the full spectrum of our resources to help the company grow and lead the way towards a cheaper and greener energy supply for individuals in France.

Congratulations Julien and Jonathan for what you have been able to accomplish so far. We look forward to joining forces to make ekWateur an incredible success!

Liberté, Egalité, Mobilité! (Liberty, Equality, Mobility!) proclaims the Wimoov platform, whose team is committed to helping all vulnerable sectors of society (people with disabilities, people entering the workforce, seniors, etc.) achieve sustainable and autonomous mobility. A report by the Inclusive Mobility Laboratory indicates that access to public transportation is difficult for 43% of the French population. Yet, as a key factor of economic and social integration, mobility is a component of equality for citizens. How can start-ups help meet the challenge of universal mobility with their innovative solutions?

A favorable demographic and legislative backdrop for emerging innovations in the field of accessibility

The INSEE estimates that 12 million people in France are currently affected by a disability. Although 80% of them have a disability that is not immediately visible, 1.7 million people are visually impaired, and 500,000 use wheelchairs. These high figures reflect an aging trend in the population. The latest projections show that 15% of the population will be older than 75 in 2060, making each of us a potential candidate for difficult travel.

The government did not want to wait on the publication of these statistics to legislate on accessibility. The French law of February 11, 2005 — commonly referred to as the Disability Act — aims to restore equality to citizens in their access to public spaces, including transportation services. It initially granted public institutions ten years to comply with this accessibility requirement. In the end, a million public institutions were affected, including notable institutions like the SNCF, whose accessibility master plan, signed in 2015, commits to making an additional 160 stations accessible by 2024.

Governments are also renewing their efforts and discussions to promote mobility for individuals who are economically disadvantaged. Also according to the Inclusive Mobility Laboratory’s report, 23% of the population is said to have already had to turn down a job offer because of a transportation-related problem. How can this be avoided when the unemployment rate in France averages 10%?

This demographic, economic, and legislative climate thus motivates the emergence of innovative start-ups that foster accessibility. It should be noted, however, that Aster’s interest in these start-ups is cautious with regard to our venture capital activities. The importance of the numbers above often masks a diversity of situations and financial solvencies and blurs our investment criteria in terms of innovation “scalability”.

Not surprisingly, one of the top drivers of innovation is the use of smartphones. After all, more than half of all French people have one! More specifically, smartphones can now be used by visually-impaired and hearing-impaired people thanks to technological advances in speech recognition. For example, the RogerVoice application makes it possible for hearing-impaired individuals to have a phone conversation by instantly converting a speaker’s words into instant messages. And visually-impaired individuals can download the Voxiweb application for easier access to web content.

The widespread use of smartphones is a powerful vehicle for innovation. Indeed, digital accessibility is more than just an accessory; it is a fundamental component of accessibility to the public space.

Multiple applications inspired by consumer applications can therefore flourish, alleviating a particular situation. The platform receiving the most media attention is undoubtedly Wheeliz, often called the Drivy of wheelchair-friendly vehicles. But there is also Handivalise, a platform that links up companions and passengers for long-distance travel. The platform differentiates itself from a traditional carpooling site like Blablacar by extending its service to other means of transport, such as trains, and especially by educating its companions on the disability in order to gain the confidence of potential passengers. Such initiatives receive the support of transportation operators like SNCF, who spotlighted and promoted them and others during its Access Solutions event.

Meanwhile, other start-ups are working on offering innovative solutions to local communities in peri-urban and rural areas to supplement what is available through public transportation. One such example is the start-up Padam, which has developed a real-time vehicle route optimization algorithm based on user demand. This type of solution opens up the possibility of creating an on-demand shuttle transportation service that would likely be cheaper than regular services and more flexible than existing phone reservation solutions. The start-up CoVoitici is trying to encourage informal carpooling in peri-urban areas with its registration terminals located at busy intersections. Finally, there are initiatives like BipPop that offer a reverse mobility service that brings services directly to the homes of elderly or immobilized individuals.

This inventory of accessibility-friendly applications is not meant to be exhaustive, but rather to illustrate the latest innovations to supplement public transportation services that may be lacking or altogether missing. The challenge for these platforms is to reach a sufficient critical mass of supply and demand so that their matching service is as “liquid” and as instant as possible.

Prospects opened up by advances in geolocation

Another important driver of accessibility innovation comes from advances in geolocation services. More than ten years after the start of the RATP’s “Blue Eyes” experiment, the widespread availability of smartphones with sensors featuring mature geolocation technology make it possible to offer custom-tailored guidance and information services to people based on their disability.

For example, AudioSpot specializes in delivering adapted content to smartphones when it detects a BLE beacon posted at an exposition or tourism destination. The company already has markers in public spaces, such as Paris City Hall’s Nuits Blanches festival. The start-up Géonomie is trying to make travel easier for citizens by pinpointing geolocation to a few centimeters, made possible by the previously completed 360° mapping of the environment (train station, establishment, roads, etc.). These various BtoBtoC services will likely undergo several more months of experimentation before the market offers the best compromise in terms of cost and benefit.

Our French entrepreneurs, most of whom are young, are bursting with ideas for improving accessibility in daily life. We would like these initiatives to achieve sufficient critical mass for their viability and their profitability — possibly with the support of mobility stakeholders — so that public transportation is not just mass transportation, but rather transportation for all.

There is a long, long list of companies offering on-demand services in a specific sector to replicate the success of Uber: from Instacart (grocery shopping) and UpCounsel (legal advice) to Wag-Walking (dog-walking) or Mowdo (lawn-mowing). But is the trendy business model of Uber really applicable in any industry?

Given the meteoric growth that companies like Uber, Lyft and a host of other competitors that match human passengers with drivers willing to escort them around cities, it has been posited that similar applications can be developed in the logistics industry. Uber itself announced an Uber Freight application a couple of weeks ago. The narrative goes that a service matching companies which need to ship a pallet or container of goods (instead of human passengers) with shipping carriers (instead of drivers using personal automobiles) provides an obvious opportunity for the business model which has seen such wide adoption in the passenger transportation market. That belief is often supported by drawing similarities between several criteria that have contributed to Uber’s success, including:

A large market: the road logistics market is at least 6 times larger than the taxi market (in Europe, more than €300bn vs less than €50bn)
Fragmentation on both sides of the platform: the average carrier company in Europe or in the US owns 3 trucks, and the number of companies that use freight services at least one time a year is huge.
An inefficient market: the load factor in the logistics sector (the average load of trucks / capacity) is lower than 70%. Launching an UberPool service for trucks is one way to solve that.
A global problem/opportunity. And a growing problem, as the road logistics industry is expected to triple by 2050, especially driven by the growth in emerging markets who face a lack of sea/air/rail infrastructure.

However, is it realistic to imagine an on-demand service where a community of carriers effectively competes with existing logistics companies?

Despite the optimism expressed in the perspective above, there are a number of reasons to believe that the opportunity in the logistics sector is smaller than many perceive. Those include:

While the taxi prices are regulated, prices in the trucking industry are not. It’s actually the contrary, as prices vary a lot, depending on the size on the shipper, the time of transport, the line, the direction of shipping… It is difficult to act as an intermediary who would predict prices or provide instant pricing like Uber does, without large volumes and secured agreements with large carriers.
For B2B companies, an instant service at the best price is not the primary driver. The primary driver is to be able to plan the delivery of goods at a defined price, and to be sure that the goods will safely arrive on time. I can wait for an Uber, but an industrial company cannot stop the production line because the missing parts were waiting for the end of the surge-pricing period before being shipped to maintain margins.
As recently confirmed by the founders of Palleter (a European Uber for trucks) in an insightful Medium post, truck drivers’ priority is to deliver goods on-time, not to increase capacity factors. It makes sense at the system level for drivers to pick up extra loads to generate extra revenues, but few drivers really want to do so because the risk of disturbing their operations (e.g. delaying delivery, requiring repacking of the truck) is higher than the reward.

That’s why we believe that competing head to head with freight forwarders will be a daunting challenge for new entrants.

Don’t get us wrong: there IS opportunity for “Uber for trucking” startups

Many companies have raised money with the ambition to become the Uber for trucks, and we have no doubt that there will be some very large successes. We have met and been impressed by the teams at Convargo, Chronotruck, Ontruck and other great firms recently. The frictionless model with instant quoting is particularly useful for small and medium businesses who are not regular users of road logistics services. It could be useful for large companies to do shipments out of the “baseload” negotiated with freight forwarders.

How technology will affect the logistics value chain

Just because the Uber model does not look applicable to the logistics sector does not mean that new technologies will not impact the logistics sector. The logistics value chain is likely to remain intact, but each link of the value chain will benefit from different innovations.

On one side of the value chain, the day-to-day decision making of the shippers is mainly driven by two factors. First, do I get the best price to ship my goods? Second, will my goods arrive on time, and without any problem? The level of uncertainty will be drastically reduced with long-lasting trackers that can accurately and continuously monitor location, temperature or vibration of goods. Startups focused on tracking solutions include Traxens at the container level, Palletech at the pallet level, or Kizy Tracking at the parcel level. Some companies focus on the data aggregation from different transport parties to provide a unified view of the shipments to the shippers (like Shippeo). Shippers have also the opportunity to share the quotes they get and the price they pay for different routes with a crowdsourced price comparison service (like Xeneta, for ocean freight only).

On the other side, the freight-forwarders, who are the intermediaries between the carriers and the shippers, want to automate their operations workflow (quoting, transaction, tracking, settlement) as much as possible. Despite the fact that the quoting process is likely to require direct negotiation with the customer, a data-driven sales solution would at least help their sales team negotiating with a clearer picture of the margins (like the solution of Freightos).

These are a few examples to illustrate that the transformation in the logistics industry aims primarily at reducing the friction between the different actors. And if there is one company whose strategy related to logistics embodies this principle, this is Amazon.

Who is leading the transformation in logistics?

Amazon appears to be one of the players leading the transformation in the industry. By amassing inventory from thousands of merchants, Amazon started by securing the volume to buy space on trucks, planes and ships at reduced rates. But their strategy changed in 2015, when the company took advantage of its financial power to build its own integrated long-haul transportation system. The IT and data expertise of Amazon is a key asset to achieve their vision of “a revolutionary system that will automate the entire international supply chain and eliminate much of the legacy waste associated with document handling and freight booking.” Amazon’s ambitions are likely to inspire start-up founders and large corporations alike to rethink the status quo.

Driven by the low cost of solar PV and lowering cost of energy storage, Energy Communities are on the rise. Energy Communities cover aspects of collective action to reduce, purchase, manage and generate energy. As members of a community, consumers can share their self-produced energy with other members of the community. Doing so, consumers can achieve significant savings. Energy Communities involve major changes in the way the Energy value-chain is structured, and will push traditional players such as energy retailers and DSOs (Distribution System Operators) towards deep transformation.

Drivers: fall of renewables and energy storage costs, ubiquitous digital capabilities

Solar photovoltaic (PV) will soon be the cheapest source of electricity: the average cost of solar PV fell by 61% between 2009 and 2015. Utility-scale solar installations cost today less than $1 per watt, and solar PV LCOE (Levelized Cost of Energy) is soon expected to range between €0.02–0.04/kWh, depending on geographies[1;2]. Residential PV installations cost today less than $3, with huge productivity gains to be expected in the upcoming years.

The PV hardware cost reduction was achieved through sheer scaling of PV production infrastructure. The same revolution is now coming to energy storage, as we see huge investments worldwide in battery facilities. Energy storage cost dropped from more than $500/kW.h in 2013 to ~$200/kW.h today, and is expected to reach less than $100/kW.h in 5 to 10 years[3]. This creates room for new applications and business cases, as the Levelized Cost of Storage is better understood and compared to use-cases and their economics[4].

Last but not least, technological barriers to the Internet of Things (IoT) have dramatically been lowered: smaller, more powerful and affordable hardware, connectivity enablers and supporting tools such as big data frameworks and cloud-based infrastructure are now ubiquitous. This creates new opportunities for disruption, i.e. new drivers for transformations of a century-old industry: the Energy value chain.

Energy Communities

As a result of the low-cost of Distributed Energy Resources (DERs), Energy Communities are being set up of multiple types. They can be local with physical boundaries[5], or virtual with a larger geographical scope[6]. Energy Communities cover aspects of collective action to reduce, purchase, manage and generate energy. As members of a community, consumers can share their self-produced energy with other members of the community. Doing so, consumers can achieve significant savings. This is the main value proposition of Energy Communities and the main driver for change from customers point of view, although other drivers exist such as access to clean energy, social impact, independence from traditional utilities, etc.

In a nutshell: Energy is moving from a commodity value to an exchange value. Because of locally distributed resources (in space), and their varying availability (in time), consumers can leverage the community to make the most of DERs.

Multiple innovative players position themselves as actors of this transformation, with different strategic positions: end-customer solutions turned communities (e.g. Sonnen, Lumenaza), utilities solutions providers (e.g.Smarter Grid Solutions, Opus One Solutions), microgrid (e.g. Advanced Microgrid Solutions), or transactive energy players (e.g. Powerpeers, LO3 Energy, TransactiveGrid).

Impact on the Energy value chain

The above-mentioned players are inventing new models for generating and capturing value in the Energy value chain, selling smart DERs, community-based energy services, peer-to-peer energy trading platforms, etc.

This has a profound impact on the Energy value chain.

Distributed generation, mostly distributed solar, has already massively impacted generation-focused utilities (1). Increased self-consumption and community-based energy exchange now decrease revenues for both energy retailers (2) & DSOs (Distribution System Operators) (3).

But Energy Communities are also an incredible opportunity for established players. For retailers, Energy Communities are a great way to re-engage with their customers, by making customers become participative customers. For DSOs, local DERs can become a flexibility resource for active network management, thus reduction network CAPEX and OPEX costs. By doing so, retailers and DSOs can become enablers of change, reaping its benefits. In short, utilities need to embrace change, and do so rapidly. Indeed, because of network effects driven by Energy Communities, there will be in a not-so-distant-future strong first-mover advantages to offer energy & energy services.

[1] http://cleantechies.com/2016/09/20/jinkosolar-marubeni-score-lowest-ever-solar-pv-at-us%C2%A22-42kwh-in-abu-dhabi/
[2] https://www.pv-magazine.com/2016/12/28/danish-solar-auction-delivers-european-low-cost-of-us-1-81-centskwh/
[3] https://www.bcgperspectives.com/content/articles/energy-environment-how-batteries-and-solar-power-are-disrupting-electricity-markets/?chapter=2#chapter2
[4] https://www.lazard.com/media/438042/lazard-levelized-cost-of-storage-v20.pdf
[5] http://brooklynmicrogrid.com/
[6] https://www.sonnenbatterie.de/en/sonnenCommunity

“Silicon Valley wants more water start-ups” highlights a recent CNNMoney interview. Indeed, the number of water start-ups is considerably increasing -with the majority coming from North America, Europe and Israel-, introducing both breakthrough and incremental technologies that will undoubtedly disrupt the way water resources and services are managed.

Technology-wise, the two main sectors which have seen the most innovation are industrial water and wastewater treatment — with technologies that can save CAPEX and OPEX, in particular energy costs — and the introduction of digital technologies and services for water infrastructure and water quality management. The third one to watch is desalination. Higher performance membranes and alternatives to reverse osmosis are in development and will soon be commercialized at scale. These shall give a different perspective to this resource !

An example of a product by the Atlantium Technologies company, which aims to provide industry and municipalities with safe and sustainable water treatment solutions. The company has designed an innovative solution based on UV (ultra violet) disinfection, fiber-optics and hydraulics. It takes water safety to levels never before achieved with other UV systems or without chemicals. Aster first invested in 2013.

Start-ups range from early stage companies to research projects that can bring a real breakthrough in the sector and respond to an identified market need. It is important to create a long-term connection, be proactive and relevant in a sector which has historically been slow to embrace innovation. It is equally critical to acknowledge that in 90% of the cases, the technology is innovative, and the challenge is rather to bring a new economic and business model that will make the case profitable in the short-run. Partnering with incumbent companies can notably be a pre-requisite, but not exclusively.

Disruptions will be in technologies AND in the business models

Innovative technologies brought to the market by the start-ups will definitively disrupt the economic and business models applied in the water and wastewater sectors so far. Water start-ups have understood that both are important to be competitive. New business models will, for instance, consider ‘the technology as a service’: technology is scalable faster, and can be adapted to the industry’s needs. The industrial end-users will then look with a different perspective at CAPEX and OPEX for water management.

Start-ups are also building on prospects and opportunities brought forward by other technological areas. Boundaries between sectors are progressively being blurred : let’s take 3 examples:

Energy — the development of renewable energy has opened considerable perspective for improving access to water in those areas where it has been too complicated and costly to build infrastructure. For example, we are seeing decentralized solar-based water and wastewater solutions coming onto the market. The challenge being still around the cost of produced water. Conversely, the cost of energy for advanced technologies should soon no longer be an issue. Energy efficiency and energy recovery are at the core of the many innovations: these do not only concern wastewater treatment plants, which are increasingly becoming carbon-neutral and/or energy-positive.

Digital — Many publications have already done excellent analysis, and the focal point here is that ‘non-water’ digital start-ups positioned on utility markets see water as an opportunity. The solutions developed by those start-ups can easily be transferred to the water sector, and bring a different integrated approach to resource management.

Circular economy — Turning wastewater into a resource is not new. However, using wastewater in unexpected sectors is innovative, like in transport (to produce hydrogen to power electric cars) and in the battery industry (to use brewery wastewater into energy storage cells). Materials in batteries have also inspired the development of a new desalination technology, still early stage today, yet with a huge market potential in the future.

There are many more examples, such as block chain applied to water, carbon recycling for membrane coatings, and application of 3D printing to treatment technologies. The revolution 4.0 in water should be inspired by these examples: cross-fertilization between sectors is very enriching and should really be encouraged.

The missing link is still finance

Despite massive research programs from all levels of government in different parts of the world, there is still a disconnect in the world of water between academia and the actual implementation of the research results on the field. When everyone agrees on the importance and on the economic potential of the water market, investment remains still low. And when it is said that investments are too small, we all should remember that this was the case with computer and software companies in the 1970/80s.

There is a reality out there, at least in Europe, that municipal markets are much more reluctant to go for innovations. The low price of water and the historical risk-adverse culture to innovation are still major hindrances. The introduction of the ‘Smart City’ concept, and the new EU public procurement rules are opening new options to encourage innovation without hampering competition and transparency. The EU Procurement Directive adopted in 2014 introduces Innovation Partnerships as a new procurement procedure. One will have to see how these will concretely be put into practice in the future. One key aspect: EPC contractors will be critically instrumental for a successful implementation.

This year will certainly see another wave of M&As in the water sector. And consolidation might be necessary at some point. In the meantime, there are many developments that should transform the actual landscape from rather conservative to innovative and dynamic. The future should be built on the different above mentioned elements, on the greater noticeable interest from large companies in innovative start-ups, on the growing awareness that existing technological solutions will be limited to address emerging quality and quantity challenges. The imperious needs to optimize costs, and the opportunities brought about by emerging markets can also be added. Finally, new technologies will create new markets. This is already happening in energy.

Despite some inevitable failures, water remains attractive for business, and a sector that requires greater attention. Tremendous challenges are still ahead of us. Was it not the World Economic Forum in Davos which concluded that: “Water crises […] the greatest risk facing the global economy, outweighing the spread of infectious diseases, interstate conflict, energy price shocks and fiscal crises”? Hence, the challenges are not only about meeting the UN Sustainable Development Goals, water is also a significant and substantial issue for the industry, the utilities, and we can add the cities, the consumers, etc.

The energy retail market, often perceived as slow-moving, is evolving quickly in France. Start-ups are leading innovation into new business models, new services and customer engagement strategies, questioning EDF’s historical hegemony. The future looks full of new challenges and opportunities, for both new entrants and more established players.

The Nuclear Paradox

Deregulation of the French residential electricity market — fostered by various EU Directives — was fully completed in July 2007. Since then, 31 million customers can freely select their electricity provider, and are no longer required to contract with EDF, the French historical electricity producer and retailer. 10 years later however, it must be noted that EDF still holds a 90% market share on the electricity retail market and faces weak competition. Direct-Energie, EDF’s biggest and better-known competitor (mainly thanks to sizeable marketing campaigns created to educate the market on deregulation), today powers less than 2 million meters — still far from threatening EDF hegemony.

Other EU countries adopted similar national regulation in their respective domestic markets in the 2000s. In Belgium, Germany of the UK for instance, competitive landscapes now look much less concentrated than in France, with a few players capturing a 10–20% average market share each.

Certainly, the French market deregulation occurred later than in Germany, the UK or Belgium. Yet, we believe market conditions are more and more favorable for the French market to follow its neighbors’ lead — but why now?

Why now?

The opening of the retail electricity market will accelerate in the next few years due to the convergence of two main drivers:

1. As Regulated electricity retail prices (TRV) keep on increasing, customers are looking for more competitive deals

Surprisingly enough, Regulated Tariffs charged by EDF have been steadily increasing by 2–5% per year since 2008 depending on customer consumption profile. Some increases in price can even occur retroactively: this summer €1bn were charged back by EDF to customers for a somehow illegal freeze in price in 2014–2015. At the same time, in a context of difficult economic conditions and high unemployment rate, switching to a new energy provider is becoming a mainstream “quick-win” option for households. It could yield savings up to a few hundred euros per year. Recent surveys show than more than 70% of customers switching to a new energy provider are primarily looking for more competitive offers.

Historically churn rate on the electricity market has been lower than gas. In 2016, for example, churn was 4% in the electricity market compared with 9% in gas. While this may appear limited, it represents a sizeable opportunity to capture more than 1.3m electricity meters per year. In other words, the French market could theoretically create a new Direct-Energie every year! In practice, things are slightly different: Direct-Energie is growing fast and captures a sizeable proportion of churners, while other players fiercely compete to capture customers that are less price sensitive and/or enticed with other value proposition components (e.g., green energy, etc.)

In a market where customers are looking for more transparency of information, intermediaries (aggregators like JeChange.fr, Souscritoo, Selectra and Group Sales like UFC-Que Choisir) have positioned themselves as a strong and cost-effective new customer acquisition channel for most retailers and are likely to get a more and more important role in the future.

“There is already a potential to create a new Direct-Energie every year”

2. Financial incentives for smaller players facilitate emergence of new offers

Several financial incentives have been developed by regulators during the past few years to accelerate market opening and induce new players and new business models into entering the market. They include:

Direct Subsidies — For each energy retailer with less than 1.75m meters, Enedis (ex-ERDF) would grant €30/year/meter for 3 years to cover part of the costs related to the integration with their IT back-end
“Bad-payers” costs — These costs are now partially supported by both energy retailers and distributors (vs. historically 100% supported by retailers)
Access to ARENH energy — Any retailer can have access to EDF nuclear energy at a fixed price of €42/MWh. This allows small retailers to hedge against market Spot price increase, which can show strong volatility (related to operating status of EDF nuclear plants or winter temperatures for instance). Used cleverly, the ARENH scheme provides a real security of supply for small retailers until they reach a critical size of approx. 50k meters. At that point, retailers are managing a large enough quantity of energy to efficiently forecast demand and plan purchasing strategy accordingly. ARENH access is limited to 100 TWh in cumulated volume. This is sizeable (20% of France total yearly consumption) and has historically always been undersubscribed by electricity retailers, even in periods when market prices were often above ARENH price.

“Used cleverly, the ARENH scheme provides a real security of supply for small retailers, until they reach a critical size of ~50k meters”

A new competitive landscape — who will survive?

In this context, alternative players have entered the market (and more and more will probably do in the future) with an ambition to differentiate themselves from EDF and capture as many churners as possible. As expected, most new players compete on price and offer a 5 to 10% discount vs. Regulated Tariffs, while those who don’t are very unlikely to succeed in building a sizeable portfolio of customers. In addition to price, new entrants also try to improve the value proposition to the end-customers by offering green (solar, wind, hydro), locally-sourced and/or collaborative energy, with mixed success to date.

Gross margin on pure energy retail business is constrained by sizeable fixed costs (taxes, transport cost, etc.) and don’t exceed 5–10% of sales. This leads to two main “must-have” achievements for alternative players to survive:

Mandatory critical mass (>50–100k meters) must be reached quickly for new entrants to cover fixed costs, improve energy consumption forecast and build effective procurement strategy accordingly, and achieve independence from ARENH. Not all players will be able to do it fast.
Development additional services should be a cultural mandate for all new entrants. These can include insurance products, boiler installation / maintenance, trusted intermediary (market place) for household energy efficiency investments (insulation, solar, smart thermostats, etc.) and other premium services. In addition to improving customer stickiness and generating actionable customer date for retailers (e.g., smart home devices), they should become a strong margin contributors and change electricity retailers “traditional” P&L.

“Quickly reaching a critical size and effectively selling additional high-margin services are two “must-have accomplishments” for new entrants”

Within a 5 to 10-year period, successful new players will all be cheaper than Regulated Tariffs, and will differentiate from one another with alternative energy supply offers and/or innovative additional services.

Today’s competitive landscape and variety of offers show that the market has already reached an inflexion point that will ultimately lead to a more open and more diverse market offering where players will be constantly fighting for new customer acquisition through promotions and innovation. Incumbents will definitely have a role to play along the way by fostering (and sometimes even leading) innovation and leveraging their huge customer base.