SINGAPORE (Nov 27): Royal Dutch Shell is scouring Asia for digital start-ups to support its clean energy unit. The world’s second-largest publicly traded oil company started a New Energies business last year as global use of renewable energy sources grows. Shell expects the unit to invest US$1 billion ($1.35 billion) in low-carbon projects such as hydrogen, solar, biofuels and wind over the next three years.
Shell already has a 20-year-old fund, called Shell Technology Ventures, to help it stay on top of tech disruption and find new growth areas. But it has recently formed a new venture fund called Digital Ventures, which will invest in technologies to develop digital and connectivity-based solutions for customers. Examples of Shell-funded start-ups are Germany- based Tiramizoo, which provides same-day delivery and software to help retailers manage large volumes of goods; UK-based Fare Pilot, which helps self-employed taxi drivers find areas of high demand; and Wonder- Bill, which helps ordinary people track their electricity bills and find better deals from suppliers.
A key focus area is transport and logistics. “We look to partner leading players as well as start-ups that challenge the conventional transport models or services to motorists and help shape how we use transport and energy today,” says Nir Ten Bosch, Shell’s venture lead for connected freight. “We are developing a portfolio of equity investments in mobility and connected energy startups that we will actively support.”
Shell’s Digital Ventures is already working with a few start-ups that will potentially deploy solutions in Asia. “I am working on this digital smart-freight solution that [optimises] stock ordering for retailers [and gives] control to suppliers,” Bosch tells The Edge Singapore in an interview on the sidelines of this year’s TechInnovation event in September. Bosch was among the speakers at the annual tech industry brokerage event. “[Making freight movements more efficient can help] relieve traffic congestion that could be [the result of] vehicles [taking] inefficient routes.”
He reckons more than half of the portfolio companies from his division, called Connected Freight, will come from Asia in the next two years. As a whole, Shell’s Digital Ventures has a team of more than 15 staff in the region actively looking to partner both early-stage start-ups as well as the more mature ones. “Asia is where we see growth and opportunities, as many of these customers have not yet digitalised,” he explains. “In Europe, the market is very mature, with millions of start-ups in every space. This is not only [more nascent] here, but people are more open to working with you on new ideas.”
Changing tack
Investments in clean energy and new technologies still represent a fraction of Shell’s spending on crude oil. The company’s capital expenditure is in the range of US$25 billion per annum; around US$200 million is spent annually to develop new energy businesses. But this may change over time.
Already, oil majors have more than doubled their number of investments and acquisitions in the renewable energy space — from 21 in 2015 to 44 last year, according to data from Bloom berg New Energy Finance. In total, these players have completed 428 transactions and spent US$6.2 billion snapping up stakes in clean energy companies. “As revenues from the legacy business plateau, global organisations have had to make business diversification one of their mission-critical priorities,” says Gavin Tay, research director at Gartner.
Shell’s New Energies unit has made substantial progress, having won a tender to build an offshore wind farm in the Netherlands and created digital solutions for electricity consumption. In the US, it is the second-largest power trader. And it recently bought an electric vehicle-charging network firm called NewMotion.
The company also has a Game-Changer programme, which works with businesses and start-ups to develop ideas that have a big impact on the energy sector in the future. Investments range from kite-powered energy to using magnetic resonance imaging technology to track fluids in rocks. Within Digital Ventures, Tiramizoo is helping Shell optimise its Philippines retail business to save costs.
These investments are unlikely to have a big impact on Shell’s earnings for years. But over the long run, they could prove useful in diversifying the Anglo-Dutch group’s earnings base. For the quarter ended September, Shell reported a 47% y-o-y increase in earnings (on a current cost of supplies basis) to US$4.1 billion. This came on the back of brutal cost-cutting and asset disposals worth billions of dollars in the wake of continued weakness in oil prices.
Urbanisation bet
Nearly 45% of oil demand came from the road transport sector last year, according to statistics portal Statista. It makes sense, then, that Shell is thinking a lot about urban mobility.
Bosch reckons that within the next one or two decades, most people will be living in cities. And he expects the sharing economy to become a big part of city life. “It will impact our industry, the way energy is being used and the expectations of our customers,” he says. “We are working on many areas to optimise transport and the way we move goods, to reduce the density of traffic with the potential to reduce emissions.”
Shell’s Digital Ventures is currently working with at least 10 start-ups and is on the hunt for more. What other types of start-ups is Shell looking for? For starters, it has plenty of retail space at its numerous petrol stations. “If we can connect our retail customers to digital platforms, we can understand them better and offer them different solutions,” Bosch says.
Or, a start-up may offer a better way to monitor traffic in real time. This may help Shell provide its partners and retail customers with ways to find the best routes so that delivery trucks will not get stuck in congested areas.
“One of the challenges in this region is connectivity,” Bosch adds. “If I want to develop sophisticated platforms, the foundation is to have connectivity. So, we are meeting a company in this space. [It has developed a way] for trucks, stores and partners [in our network to share] connectivity with each other.” If a store has no connectivity and a truck with connectivity passes by, the store can leverage the truck’s connectivity to send data to the cloud.
In return for their technologies, Shell offers start-ups access to its network of customers and its industry know-how. The company also has decades of experience building relationships with regulators — helpful for start-ups that want to break into new markets.
Bosch says he is aiming for long-term partnerships with start-ups. “We look at the performance of the company, the burn rate, the management’s vision and the intellectual property rights. In many cases, we want to make sure that these companies are economically viable.”
Working with start-ups with the potential to displace Shell or eat directly into the company’s bottom line can actually help the company grow, Bosch says. “Instead of looking at cannibalisation, we look at joining them and building our new business based on these new [technologies]. We started as an oil company, but now the world is moving on. You can fight it or join it. [We are joining it] through our new energy organisation. The future is a low-carbon future.”
This article appears in Issue 807 (Nov 27) of The Edge Singapore which is on sale this week
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