Although many experts have predicted the demise of the power utilities industry as a result of renewable energy, the actual level of investment thus far in these potentially disruptive technologies suggests the incumbents still hold the advantage.

That was my take after listening to Brian Bolster, a lead banker in Goldman Sachs’ Clean Technology and Renewables Group, who was speaking at a recent energy and emerging market conference I attended at Georgetown University in early October.

Bolster told the audience that capital markets are currently shunning energy technologies such as battery storage because they involve too much technology risk and require too much capital.

A significant part of the reason venture investors are steering clear of these areas is that they’ve been burned before. And those painful memories are still fresh in their minds.

“The venture capital community has changed dramatically. If you have technology risk and big capital risk, you have problems today,” Bolster observed.

Since the bankruptcy of battery maker A123 Systems, for instance, many investors have simply avoided the sector altogether. And makers of electric vehicles and second-generation fuels have also had difficulty finding funding.

The funding problem is further compounded by the fact that Silicon Valley venture capitalists do not necessarily invest on a scale suited to a capital-intensive industry such as the power space.

Venture investors typically invest anywhere from $10 million to $50 million in a promising technology project. But battery plants can require as much as $200 million to $300 million.

Bolster said the key question is who will provide the growth capital for these larger projects.

And this question goes to the heart of claims that the utilities industry is in danger of being displaced. If truly disruptive technologies such as utility-scale battery storage are not receiving adequate funding, then they won’t be able to challenge utility incumbency in a meaningful way anytime soon.

At the same time, there is no direct correlation between the amount of dollars invested in new technologies and resulting innovation. But Bolster contends that to the extent the development of these new technologies remains dependent on venture capital, the funds will have to become much bigger.

Source: CleanTechnica

Even though venture investors are currently falling short, at least some utilities are already investing in developing utility-scale batteries to get ahead of the possible disruption.

Meanwhile, Elon Musk, founder of the electric car manufacturer Tesla Motors, is building a gigafactory to make batteries that might one day turn electric cars into dual-use batteries for power storage.

And California has started an ambitious new program to incentivize the development of utility-scale energy storage alternatives.

But without more capital from venture investors, how likely will such innovation be widespread and enduring?

To be sure, renewables and cheap natural gas are changing the way utilities do business, but they won’t necessarily displace them. In fact, utilities are already adopting renewables, building natural gas plants, and even buying shale resources in response to changing market dynamics.

But storage technology is in a different category altogether: It’s a potential utility industry killer.

Emerging technologies in this area could make possible distributed applications that would allow individuals, even cities, to be completely independent from large, centralized power systems. That’s why monitoring the level of investment going into storage technology is extremely important.

Whether this disruption is desirable from an investor standpoint really depends on what might replace the industry as an investment. That’s the big question energy executives and investors alike have been asking, and we have explored it in past.

Beyond the potential of energy storage, other important questions are being asked, such as whether utilities will be displaced by software providers. For instance, Google is already exploring the possibility of bringing utility services and information together digitally.

Or should utility executives fear rooftop solar companies, or some completely different industry?

If we follow the money, we can get some idea of what the future might have in store. Bolster said the top-three areas attracting the highest interest in the energy space right now are:

1. Yield companies, or YieldCos, which aggregate high-quality income-producing energy assets.
2. Elon Musk and his companies have become their own energy investment category.
3. Rooftop solar.

But the banker reminded us that capital markets are usually followers, not leaders, so it will take time to see which technologies ultimately prove successful in the marketplace and what that portends for the utilities industry.