We talked with Energy Impact Partners' CEO & CUO
Energy Impact Partners (EIP) is a first-of-its-kind electric utility investment fund, formed by industry players with several years of energy experience. The fund is built on a collaborative strategic investing approach pioneered by the team when they worked at General Electric.
It provides its partners with information on emerging technologies and business models. It also offers collaboration and best-practice sharing among peers and strategic investments in the potential building blocks for the utility of the future. EIP's partners, among others, include Southern Company, National Grid, Xcel Energy and Tepco. The firm was founded in 2015.
We talked with Hans Kobler, EIP's CEO, and Kevin Fitzgerald, its Chief Utility Officer. Kobler was previously CEO of Digital Power Capital, and headed GE Capital's energy technology practice. Fitzgerald was previously executive vice president and general counsel of Pepco Holdings, and headed Troutman Sanders' utility practice.
PUF's Steve Mitnick: How did you come up with this approach?
Hans Kobler: Our approach goes back to work that our team did at General Electric in the late 90s. There we figured out the principles of successful strategic equity investing. We focus on helping companies gain insights into emerging technologies and business models. We assist them in picking a partner, and we help them gain confidence in their abilities to focus on new business relationships.
If you fast-forward to today, fifteen years later, we're applying the same principles in the utility world. Except rather than working with one utility or just with General Electric Power Systems, we now work with a dozen of the leading utilities from around the world.
PUF's Steve Mitnick: Why now? How did you get so many utilities to jump on the bandwagon so quickly?
Hans Kobler: I don't have to tell you that for the industry, the time is now. For the first time in history the utility world is changing as it has never changed before. We have seen changes since the first peak of investment after deregulation in the late 90s. We saw another peak in the mid-2000s, with renewables emerging.
Now it's real, it's existential. The costs of renewables have dropped and are fundamentally changing the industry. Storage is becoming cheaper. Regulatory changes are beginning to emerge. Utilities everywhere are considering what happened in Germany, and what's happening elsewhere around the world. They are trying to figure out what that means for them.
PUF's Steve Mitnick: Investing in our industry has not always worked out well. This seems to be a very difficult thing in our industry, which is conservative by its nature.
Hans Kobler: Yes. The power industry is a difficult place to invest. You have all the normal challenges that financial investors face when they invest in Facebook or the next big social networking company.
But in our industry, the laws of physics are a bit less forgiving. You cannot FedEx the electrons, so you have to work with the distribution companies. Of course, the regulators have a great deal of influence. Innovation and new products cannot be permitted to impact reliable, affordable electric service to all customers, including low income, which generally leads to a cautious adoption cycle. So if you put all of that together, then investing is really hard in this space.
Many financial investment firms that have been very successful elsewhere have come and gone. They struggled with the challenges I just described.
Corporate investment arms also had their challenges. They may not be allowed to put the right incentive plan in place to keep their teams long enough. Or they may be too restricted in which deals they are allowed to do, as the operating business limits their investment scope.
That often leads to the corporate venture capital arm doing deals that are not so financially attractive, and then later fail. We've seen this countless times and it's not really utility-specific. That's a generic challenge for the corporate venture capital industry.
PUF's Steve Mitnick: So what's your secret sauce?
Hans Kobler: We try to blend the best of both worlds - corporate and financial investing. Call it a hybrid model.
We have a team that has been doing this for twenty years and has seen more deals than most other people. We have the right incentive structure in place, and most importantly, we alone decide whether to invest or not. Our partners, on the other hand, help us with deal flow, assist us in due diligence and help our portfolio become more successful by entering partnerships and bringing revenue.
PUF's Steve Mitnick: We have researchers at EPRI, universities and the national labs, and at entrepreneurial companies such as Tesla and smaller entrants all over the place. Does that complicate what you do?
Hans Kobler: It enhances it. Figuring out the utility of the future is such a complex challenge, you want all the input you can get. That includes EEI; they do great work bringing the industry together and discussing innovation. EPRI is doing a great job on the research side, providing feedback, testing and insights. We have consultants who think about the big picture, strategy, regulation, and industry trends.
We hire research firms and talk to universities, laboratories, and other utilities. Then we look at the financials, the management team, the suppliers, patents, and the board.
We invest in companies that have products they can deploy today. We strive to provide them with added confidence when they make a decision. That's not so different from what we did at GE. Keeping the lights on is absolutely critical.
Kevin Fitzgerald: The answer to innovation is not found in one company and one method of thinking. It is illuminated via the testing and retesting of new ideas, business models and technology in a forum of robust analysis and discussion.
Through this process the right answer is in the room, and it's a function of sticking to our process and drawing it out after analyzing every angle before we invest. The experience of participating in that process is also of great value culturally and from a process management perspective for our utility partners.
These discussions are not theoretical. They are driven by a company that is already deployed in the marketplace and is growing. They are now looking for EIP to act as an accelerator to move them to the next level. The deep due diligence that we provide on the technology, financials and management makes it real and tangible to our investors.
PUF's Steve Mitnick: So is the metric of success our return on investment, or is it more complex than that?
Hans Kobler: As strange as it may sound, making money is actually the least important thing.
We just had our annual meeting. Southern Company hosted it in Atlanta with eight of our current partners and seven others that may be interested in joining.
We learned that for them, it was all about learning about what is coming over the horizon. It's about discovering new technologies and business models. How can they use these emerging technologies to increase revenues, get closer to the customer and harden their operations? How do they need to adapt to be prepared for the future and compare notes with their peers?
These are our partners' top priorities. Don't get me wrong, they also want to make money, but they view that as a given. Even if we triple their investment it won't move the needle. But if we increase their hold on customers, show them a path to new revenues or help them figure out the utility of the future, the payback can be enormous.
PUF's Steve Mitnick: Is it a challenge to effectively communicate these insights and have them be absorbed to where it's really useful for your partners?
Hans Kobler: I would not call it easy. It's a challenge similar to what the strategy and innovation departments of our partners face. They don't want to be the ivory tower. You have to make the connection between the operating business, the people that actually pull the trigger, and the people that think and write papers.
The way we do it, we have all our partners dedicate someone to working with us. They come here to our office every month. We look at companies together, we talk, and then they go back and spread the word.
PUF's Steve Mitnick: They send some people over to work with you?
Hans Kobler: Yes, this is absolutely critical. The secret sauce is that you really need to get the operating businesses engaged. That's what it's all about. It's about bringing great technologies to our partners, and sharing what other utilities have done.
It's also about exposing the operating people to new innovative technologies and business models. It's getting them to use new products and technologies but also changing their mindset. We need someone at each of our partners to provide that link. We call them "Ambassadors." Some of our partners have several, others go part-time and rotate.
PUF's Steve Mitnick: What is the magic formula to make this work?
Hans Kobler: The key is to create a win-win.
The innovators with great ideas - they need customers and revenues. They also need equity investment money. So they come to us and get the investment money from us and then we help them win business by facilitating access to our partners.
Our partners, the utilities, benefit because we show them so many interesting companies that they might not see by themselves. We do added due diligence for them, so we increase their confidence level that this is the right company to partner with. That improves the odds that the lights stay on and that they make the right decision.
We are primarily a great information provider, an over-the-horizon radar. We are a collaboration platform where we allow them to really compare notes and work together on challenges that they'll all face.
PUF's Steve Mitnick: You said that Southern, Xcel and National Grid were involved early. Is there something that distinguishes the companies that are working with you?
Hans Kobler: We seek partners that can help make our coalition stronger. The stronger the coalition is, the more successful we will be. A strong coalition requires a couple of things.
First, our partners have to do interesting things. They have to be willing to test companies, pioneer, and think ahead. Second, they have to be willing to collaborate and share. The team spirit has to be there. The chemistry has to be there.
You know, the New England Patriots win because they work together. But if you have the sort of people that don't share, that don't work well together, it doesn't work. So, the chemistry has to be there.
We have partners with very different experiences. We have large partners with sixty billion dollars market cap, and we have a few smaller ones with less than five billion. We have partners with a very high cost of power and we have some with a very low cost of power. We have people in highly regulated, integrated markets. And we have a partner in Australia that joined us recently, which is completely different. Diversity makes us strong.
PUF's Steve Mitnick: Have you accomplished all your goals?
Hans Kobler: We just started. We are at the beginning and I think we really learned a lot in the last year. We always knew how to do strategic venture investing, and how to do corporate venture investing right.
What is new for us, where we went through a little bit of a learning process, is to not do it with only one but with a dozen companies that want to collaborate. Having done that now for a year, I'd say we're blown away by how well that process works and how valuable collaboration can be.
We are Six Sigma trained, so we have dashboards and do quarterly surveys with our partners to check how we are doing. I think collaboration comes out at the very top.
We had working groups on storage, electric vehicle charging and microgrids share the results of their pilots, saving much time and money for several of the less advanced partners.
PUF's Steve Mitnick: Kevin, what's your role at EIP? Are you the utility side of the fund?
Kevin Fitzgerald: My role is to lead the collaboration and best-practice sharing that goes on among and between our utility partners. I'm sharing my experiences at PHI, as a utility veteran with EIP, our partners and our portfolio companies.
I'm also leading our efforts on the utility of the future. I work with C-level management and boards on the evolving utility of the future; I help with the cultural change experiences that may be necessary for their organizations to meet the new market needs.
Past utility management line authority and top-down thinking can be an impediment to meeting a customer's changing needs and desires. I also work with our portfolio companies on product development and deployment, as many of them have not dealt with a utility or a regulator before.
PUF's Steve Mitnick: What would you want the larger regulatory and government world to know about what you're doing?
Hans Kobler: We are here to help our partners. We are here to help the utilities that choose to work with us, to get them as smart as possible about future technologies and business models and what they can do with them. That is our mission. Out of that process, we may see the need for certain types of regulatory tweaks that may be necessary to further evolve the industry and new technology deployment.
PUF's Steve Mitnick: It sounds like you're supercharging them with good insights about which of these technologies and business methods are practical and will have an impact.
Hans Kobler: I don't think they need supercharging - they are already pretty charged! Our partners are in this because they recognize that the world is changing as it has never changed before.
They want to play a more active role in that, saying, "I don't want to wait here and see what happens. I want to be an active player, or at least I want to know what to expect." They seem to recognize that we may be able to help them get to where they want to go a little bit faster and a little bit more efficiently.
PUF's Steve Mitnick: Where will Energy Impact Partners be five years from now?
Hans Kobler: We put our head down right now and do the job we were hired to do. I don't know what will happen five years from now, but I'm pretty sure the change in the industry will not be over in five years. It will be an ongoing process. We are focused on helping our partners do their job today and for the next five years, and then we will see what happens.
PUF's Steve Mitnick: Has Energy Impact Partners sucked all the air out of the room as far as a company that wants an innovation company?
Hans Kobler: I would say it the other way around. We put oxygen in the room. We inject fuel.
Our partners realize what a strong ally we can be by providing them with over-the-horizon radar and a platform to share experiences with their peers. Emerging technology players recognize how hard it is to sell to utilities. They appreciate the fact that we can open doors to not only one but a dozen of forward-thinking partners. We bring the two together for mutual benefit.
We are a young firm and only have made five investments to date. Three of those already have received significant business from our partners. And if you spoke to them and asked them, they would never have expected that impact in such a short period of time. Equally, our partners are thrilled by the exposure to new ideas.
PUF's Steve Mitnick: Any last comment you want to add?
Kevin Fitzgerald: We are incredibly lucky to be involved in the most important industry in the world. Our industry is the life blood of the economy and society. It is imperative for our way of life. Its importance was underscored by the fact that for more than a hundred years, production, delivery and consumption were highly regulated without much thought given to changing those factors.
Yet some of the companies we are seeing are remaking the landscape by doing things we never thought possible in each of these three segments. In my experience of twenty-plus years in this space, change was generally driven by regulatory and legislative mandates.
Today we have internet, wireless communication, cloud computing, machine learning and common battery technology. Increasingly, the only constraint on the utility of the future is one's imagination.