- David Energy, a startup trying to transform the power sector, just raised $19.1 million.
- The firm develops software to help buildings manage their electricity demand and take advantage of onsite batteries and other assets.
- David Energy is competing against huge energy corporations, but experts say it has a unique business model that could be transformative.
- Visit the Business section of Insider for more stories.
Cleantech firm David Energy, a startup trying to redefine the power business, has raised $19.1 million in new financing, the company announced Tuesday. The funding includes seed capital from a few small VC firms and a credit line from the commodity trading firm Hartree Partners.
Helmed by 29-year-old James McGuinness, David Energy developed software designed to help buildings control their demand for electricity, by managing various energy resources onsite, such as batteries and rooftop solar panels.
The startup on Tuesday also said it would become an electricity retailer via a partnership with Hartree. That means it will buy wholesale electricity from the market and sell it on to customers, just as energy giants like Exelon and NRG do today.
This is key to the firm’s business model: David Energy will help buildings manage their demand and sell them electricity directly, allowing the firm to capitalize on fluctuating energy prices in the wholesale market. The company will split savings with its customers.
David Energy is among a crop of new startups that saw a massive opportunity in the changing electric grid.
Traditionally, energy was a pretty boring industry: It was generated and sold, largely by a few big companies, and consumers did little more than pay their electricity bills. Now, as more companies pledge to reduce their emissions and cleantech floods the market, consumers are buying or renting their own energy-generating devices, shifting power away from central electricity providers.
“Because of these distributed energy resources, the very fabric and the way in which we build electricity grids is fundamentally changing, which is opening up the market for us,” McGinniss, the CEO and cofounder of David Energy, told Insider.
The rise of renewable energy is transforming the electric grid
President Joe Biden plans to ensure that, by 2035, the power sector doesn’t produce carbon emissions. About 40% of the electricity produced in 2020 came from renewables and nuclear power, according to the US Energy Information Administration.
There are several challenges to hitting that target, and a big one is intermittency: Wind turbines and solar panels don’t always produce electricity, like, say, a coal-fired power plant. What do you do in those instances if you don’t want to burn fossil fuels?
One option is to simply reduce demand by having consumers draw less energy.
Distributed energy resources help them do that. With the right software, you can call on backup generators, rooftop solar panels, and HVAC systems to ramp up or wind down in step with how much electricity is available on the grid.
Beyond making large-scale renewable energy work, those assets provide a big opportunity for companies like David Energy. By hooking them all together in a network, as the firm’s software does, it can control exactly how much energy a building needs at a given time.
Importantly, that allows a company like David Energy to take advantage of fluctuating energy prices on the market.
David Energy has an unusual business model that experts say could succeed
There’s a lot of money to be made in managing distributed energy resources (DERs). The smart grid industry is worth $25 billion, according to a report last year by the consulting firm Cleantech Group.
Competition is building from large incumbent energy companies like Schneider Electric and startups like Opus One Solutions and AutoGrid. They’re all developing solutions to manage a network of energy sources and solve the problem of intermittency.
David Energy’s business model, however, still stands out. While there are many companies that offer software to optimize a user’s energy demand, and others that sell retail electricity, there aren’t many that do both.
“What we saw in the market was a big line between these old electricity companies — retailers — and the software companies,” McGinniss said. “There was no meaningful communication between them. As a result, a lot of value was being left on the table.”
With $15 million in working capital from Hartree Partners, David Energy aims to buy wholesale electricity to sell directly to its customers, which will make the firm vertically integrated, McGinniss said. The retail electricity industry generates about $58 billion in revenue annually, according to Wood Mackenzie.
The startup makes money by taking a cut of the savings it creates for its customers. As for customers, they’re able to save about 10% on their energy costs by using David Energy, McGinniss said.
“It’s a really smart model,” said Louis Brasington, an analyst at Cleantech Group, adding that it’s done well in other parts of the world. “The consumer is really the center point for this.”
In addition to the capital from Hartree Partners, David Energy raised $4.1 million in a seed round led by Equal Ventures. Box Group, Greycroft, and Operator Partners also made investments. David Energy has raised a total of $5.8 million in equity to date.
What’s next for David Energy
With its new funding, David Energy plans to expand its customer base from New York City to the greater Northeast region. The company is also eyeing an expansion into Texas, a state with lots of wind and solar power, McGinniss said.
Startups have an advantage in the industry because they can adapt more easily to different markets and innovate quickly, said Mark Feasel, president of smart grid North America at Schneider Electric.
But as a very small energy retailer in a sea of giants, David Energy will have to prove that it has a differentiated and advantageous product, said Elta Kolo, a grid expert at the research firm Wood Mackenzie.
“They’re taking on some really big players,” Kolo said of David Energy.
Then again, that’s been the startup’s plan all along. The David in its name refers not to a founder but to the protagonist of the biblical story of David and Goliath.
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