There is no cleantech transition without electrification: An interview with Sven Heiligtag and Tommy Labryga

Currently, only about 23% of the final energy we consume in Europe comes from electricity¹. At the same time, all credible scenarios in which Europe reaches net zero by 2050 require us to more than double our current electrification rate.

We caught up with Sven Heiligtag and Tommy Labryga, Partners at Vireo Ventures, to explain to us why electrification is a key lever of the clean energy transition in Europe and what we can do to harness its potential.

1. Please explain to us in simple terms what electrification is: Is it a means to move away from fossil fuels or a way to maximize energy efficiency? Why is electrification important for the cleantech transition?

Direct electrification (e.g., electrification of mobility or heat) and indirect electrification (i.e., conversion of electricity to other carriers such as green hydrogen or e-fuels) is essentially the replacement of fossil fuels to enable an energy net zero world.  Achieving an energy net zero world requires a number of levers along three areas:
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• On the supply side, we must replace fossil fuels through renewables both via domestic production, as well as via interconnectors and green energy carriers from other regions.
• On the demand side, we have to reduce demand through energy efficiency in essentially all sectors and households, and enable the switch in mobility and other sectors to electricity and its derivative carriers.
• On the system side, the task is enabling the switch from a central, baseload and dispatchable balanced system into a decentral, intermittent system via upgrading the grid and providing baseload and dispatchable generation and storage capacity.
  

As such, the cleantech transition in energy is electrification.

Indeed, achieving net zero by 2050 poses several challenges. Renewables like solar and wind energy face intermittency issues, meaning they depend on weather conditions to be available, and that may not coincide with energy demand spikes. This requires energy storage solutions, which is currently expensive and complex. While indeed, great advancements are being made in battery technology, large scale energy storage solutions are still in development. Last but not least, transitioning to a fully renewable energy system requires substantial infrastructure investments, including grid upgrades and the deployment of new transmission lines.

These challenges can be overcome, and to do so, electrification is key. While renewables provide clean energy production , electrification is what will enable us to efficiently utilize that clean energy across sectors such as transportation, heating and heavy industry. This occurs as electrification facilitates the deployment of energy storage solutions, which are essential for overcoming the intermittency issues of renewable energy sources. It also opens the door for enhanced flexibility in the electricity grid by enabling bi-directional energy flows. Electric storage allows electricity grids to store intermittent renewable electricity production during periods of high supply and feed it back into the grid at times when, for example, solar power is in short supply, such as in the evening or morning hours.

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‍2. What are the emerging technologies in electrification, and how might they shape the future of energy systems? Can you share some examples from your portfolio companies?

There is obviously a multitude of emerging technologies and I will only pick one for each area that I find particularly intriguing or counter-intuitive:

• On the supply side: Regional, long-distance interconnectors to provide baseload and dispatchable capacity for our intermittent system such as the Xlinks family of projects (without the twofold conversion as with green hydrogen). Similar to how broadband has connected the telecom sector across continents, long-distance interconnectors will connect the various energy systems around the globe and often at much lower cost than green hydrogen.
• On the demand side:  Integrated management of all energy sources (power, gas, heat, e-mobility etc), all energy-related assets (PV, batteries, heat pumps, energy procurement, production assets) and all processes, especially on the production side such as our portfolio company Encentive does (rather than the partial optimization that has so far been offered in the market).  
• On the system side:  An open-source, standardized backbone for the e-Mobility ecosystem to enable the switch to and scaling of electric mobility such as our portfolio company Pionix pioneers across Europe, the US and Asia.

3. Hydrogen vs Electrification: In what ways can hydrogen technologies complement electrification initiatives, and vice versa, to make the cleantech transition a reality?

Direct electrification (via renewables) is the most effective use of electricity and therefore the method of choice whenever possible. Green hydrogen and its derivatives are the method of choice for hard-to-electrify sectors such as steel, aluminium, cement, long-haul traffic, especially when directly replacing natural gas or grey hydrogen. In addition, green hydrogen will play a role as (longer-term) storage for (excess) renewable capacity. Therefore, it is not electrification vs. (green) hydrogen but rather electrification plus (green) hydrogen: they complement each other and are both required for a net zero world.

4. There is some skepticism around electrification as regards  - among other things - grid capacity, resilience and energy storage. What are the biggest challenges to Europe wide electrification?

The biggest challenge to an EU- wide electrification is the transition from a central, reliable energy system to a decentral, intermittent energy system. The baseload and dispatchable generation stack and the grid network that worked well in the old system is not fit-for-purpose for the new system resulting in three specific challenges.

These are:

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• Deploying carbon-free baseload and dispatchable capacity, i.e., short-term (electrical) storage, local demand response flexibilities and interconnectors  replacing baseload flexible coal and gas-fired power plants.
• Upgrading and enforcing the transmission and distribution grids to connect other countries and regions with their complementary generation stacks (transmission), to manage the decentral nature of renewables generation and capture local flexibilities (distribution).
• Financing the cost-out of new technologies to scale them fast and thus drive down their cost quickly to achieve cost/market parity such as in solar, wind onshore and offshore.

5. What policies are necessary to support the widespread adoption of electrification?

 With the global cleantech race heating up and all of Europe’s global peers having in place coordinated investment plans to support the wide deployment of clean technologies, the first step to ensure that Europe achieves its decarbonization goals is putting in place its own cleantech investment plan. For the adoption of electrification in particular, the three most pressing policy actions are:

• Funding and/or support schemes to scale the required baseload and dispatchable generation and storage technologies such as interconnectors, cable capacity, battery storage and partially green hydrogen though for green hydrogen the US IRA is already providing a generous tax-credit scheme to drive down cost and mature the technology.
• Manufacturing and working capital guarantees for the new players in the field to level the playing field with the incumbents.
• Public-private partnerships to attract private funding with public funds as catalysator (plus supporting regulation) to enable tapping the institutional capital, especially on the insurance and pension side similar to the US.

This interview is part of our ongoing series Voices of Innovation, where we convene cleantech investors to discuss challenges, opportunities and trends of the cleantech transition in Europe.

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[1] https://ec.europa.eu/eurostat/web/interactive-publications/energy-2023

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