Powering the future: Opportunities for private capital in the electric grid sector

I. Introduction to climate tech as an investment theme 

India’s ambitious climate commitments for 2030 and its net zero emissions target for 2070 call for a need for rapid decarbonisation. The transition to a low-carbon future will require the combined efforts of various stakeholders—corporates, industry, policymakers and startups—each playing a unique role in gradually eliminating fossil fuels, petrochemicals, and hydrocarbons from the value chain. Importantly, climate is a multidisciplinary field, which affects all aspects of societal and economic well-being—ranging from energy utilisation, mobility, and material innovation to food security, waste management and water conservation.

At Theia, our investment mandate focuses on mobilising capital towards climate solutions that use scientific innovation to build scalable technologies for large, underserved markets. These include broader areas such as circular economy, carbon credits, and alternative materials. For instance, our portfolio company, Varaha, enables smallholder farmers to generate carbon credits via nature-based solutions based on advanced remote sensing analytics and soil carbon modelling. Canvaloop, another portfolio company, converts agricultural waste such as hemp, pineapple and banana, to textile fibre and yarn to sell to global garment manufacturers. Metastable Materials uses a chemical-free battery recycling process using patented carbothermal reduction technology, to extract rare earth metals from end-of-life electric vehicle (EV) batteries. AltM Bio extracts lignocellulose from agricultural waste to utilise in applications such as green chemistry formula inputs in the FMCG, beauty and cosmetic industries.

Metastable Materials uses a chemical-free battery recycling process using patented carbothermal reduction technology, to extract rare earth metals from end-of-life electric vehicle (EV) batteries.

However, in this essay, we shine a spotlight on a core climate tech sector that Theia maintains a significant footprint in—the electric grid—and the need for private capital to spearhead its growth, encourage the integration of renewables and EV demand, and modernise existing power infrastructure through advanced technology, so it can effectively support the transition to net zero. 

II. Revolutionising India’s electricity infrastructure for sustainable growth

India ranks as the third-largest energy consumer in the world with consumption doubling over the last two decades. Yet, the per capita consumption of energy is lower than half the world average. This proves that there is a higher demand for latent energy and inefficient transmission of electricity to last-mile consumers, particularly those residing in remote areas that are subject to frequent power outages. There are 417 GW of energy assets deployed in India by power utility companies, but only 39 percent are fully utilised, owing to factors such as poor quality of assets (such as distribution transformers), inadequate planning, and transmission losses faced by distribution companies (discoms). mainly state-owned power distribution companies). These issues are further exacerbated by inadequate infrastructure and lower asset utilisation, leading to energy inefficiencies and escalating supply costs for last-mile consumers.

Below is a snapshot of some of the thematic areas where we, as a venture capital (VC) firm, see opportunities for capital injection to further encourage the decarbonisation of the electric grid:

a) Smart Grids 

With an increase in demand for power and the proliferation of distributed assets, the existing electric grids have reached their maximum capacity. Going forward, India needs to rely on a new kind of grid that can automate and manage the increasingly complex needs for electricity. A smart grid is a holistic solution that employs a broad range of information technology resources, allowing existing and new gridlines to reduce electricity waste and energy costs. Smart grids also offer the advantage of integrating high levels of renewable energy into the electric grid. If a solar Photo Voltaic (PV) system and industrial electricity consumers are integrated through smart grid communication technology, and the solar PV system switches off due to weather interruptions, the smart grid can automatically switch to the non-renewable source. Moreover, smart grids can provide discoms with continual, real-time information and monitoring of how distributed renewable systems are operating.

A smart grid is a holistic solution that employs a broad range of information technology resources, allowing existing and new gridlines to reduce electricity waste and energy costs.

Our portfolio company, Probus Smart Things, operates in this segment, providing distribution substation analytics through the Internet of Things (IoT) as well as smart meter design for power generation companies using Radio Frequency mesh technology. Several government-sponsored programmes, including Smart Grid Forum, the India Smart Grid Task Force, and the National Smart Grid Mission have also made it possible for India to transition from centralised to decentralised power generation.

b) Battery Energy Storage Solutions 

India is expected to produce 350 GW of renewable energy in this decade, which is 400-percent higher than the capacity added between 2010 and 2020. This makes it essential to add balancing sources like clean energy storage systems to maintain grid stability.

Battery energy storage systems of the future can support the grid 24×7 by providing frequency and voltage support, offsetting the use of diesel sets. This kind of application allows for power back-up, peak load shaving, frequency and voltage regulation, and selling power back to the grid. Furthermore, these energy storage systems can be integrated with solar panels and Electric Vehicles (EVs) for grid stabilisation to use the Time of Day (ToD) charges during the off-peak demand period. Notably, the Ministry of Power recently notified such ToD tariffs for electricity from 2024 onwards.

The EV segment is anticipated to contribute the most to this market size (64 percent). To this effect, in our portfolio, EdgeGrid and Sheru are two companies that demonstrate significant potential in this space.

In terms of market size, the cumulative potential for battery storage in India is estimated at 601 GWh by 2030, with a CAGR of 44.5 percent in annual demand, reaching 162 GWh by 2030, compared with the 2022 demand. The EV segment is anticipated to contribute the most to this market size (64 percent). To this effect, in our portfolio, EdgeGrid and Sheru are two companies that demonstrate significant potential in this space. They are both building technologies for distributed energy resources (DER) and cloud energy storage, which will support the grid to respond quickly to changes in demand and supply with greater flexibility and control in the management of power systems.

c) Virtual Power Plants 

Virtual Power Plants (VPP) are cloud-based power plants that aggregate generators, electrical loads, and storage units to work as a single entity. By leveraging information and communication technologies and IoT, VPPs ensure optimal power generation and enable the integration of renewable energy into the grid. They also enhance grid reliability and address power outages and blackouts, frequency and voltage imbalances, and network stability issues. In India, VPPs can effectively cater to the changing power needs, particularly with the increase in rooftop solar systems. Utilities can use them to optimally manage the amount of power consumed and generated. India still has a high proportion of rural areas, and deploying VPPs can indirectly expand access to electricity in such areas by enabling the deployment of more renewable resources.

However, the rise of VPPs in India will depend on vast consumer adoption of DER assets in residential, commercial, and industrial locations, as well as a ready wholesale market for consumers to transact in energy usage.

Virtual Power Plants (VPP) are cloud-based power plants that aggregate generators, electrical loads, and storage units to work as a single entity.

Moreover, discoms in India would need to display a willingness to partner with DER aggregation software platforms, which prove that collating hundreds of aggregated commercial-industrial customers’ behind-the-meter storage systems (including solar, electric vehicle chargers, and batteries) can lead to improved reliability and performance of power distribution. For instance, Sheru has partnered with BSES Rajdhani to launch India’s first vehicle-to-grid station. Through this initiative, Sheru will utilise its bidirectional battery swapping station to provide interchangeable batteries whilst also assisting BRPL in meeting its power requirements during peak demand periods by utilising the battery capacity of swapping stations as a DER.

III. Future outlook for private capital in this sector

Large-scale adoption of smart grids, battery energy storage solutions, and VPPs holds significant potential for revolutionising India’s electricity infrastructure. Several privatisation and delicensing measures to encourage external liquidity into the power sector—such as the formation of the Real-Time Energy Market and the Green Term Ahead Market (GTAM) by the Indian Energy Exchange, and the move to spur the transaction of Renewable Energy Certificates (RECs)—have paved the way for access to clean energy and efficient power distribution for the last mile. In 2022, the Indian government also notified the Green Energy Open Access Rules, which reduced the open access transaction limit to 100 kW (from 1 MW), which allows smaller customers to purchase and trade power, and not have it be limited to large bilateral power purchase agreements.

VCs need to recognise the transformative potential of this sector and take a more proactive approach to support early-stage companies and crowd in the first few cheques, which will kickstart the growth of private investment in this sector.

In our view, VC activity in this space has been limited, mainly because conventional VCs view this sector as highly regulated, along with long sales cycles with utilities, and its deep tech nature with longer scale-up and gestation periods. Historically, only large infrastructure funds have actively invested in the electric grid sector. Nevertheless, technological innovation, particularly in software around the concept of ‘digital decarbonisation’, and in modalities such as artificial intelligence (AI), machine learning (ML) and energy blockchain, if mobilised at the start-up level (and following in the footsteps of United States-based climate tech funds focused on this thesis), will be hugely attractive to catalysing mainstream VC capital into this sector. Furthermore, effective collaboration among other capital providers such as banks, philanthropic (risk-free) capital, industrial players, university R&D labs, and the government, is also essential to underwrite early product risk, which is where learnings from the successful initiatives in the solar and EV sectors could be particularly useful.

India’s ambitious plans for a net zero transition by 2070, and the increasing focus on renewable energy, make today an ideal time for VCs to explore investment opportunities in the electricity grid infrastructure space. VCs need to recognise the transformative potential of this sector and take a more proactive approach to support early-stage companies and crowd in the first few cheques, which will kickstart the growth of private investment in this sector. By doing so, they can effectively contribute to building a more efficient, technology-enabled, low carbon and resilient electricity grid for the last-mile in India. 

Theia Ventures is a climate tech and circular economy seed-stage fund based in India, investing in high-impact, IP-led, technology companies that are working towards decarbonisation.

Priya Shah is a Founder and General Partner at Theia Ventures. 

Himanshu Sharma is an Investment Associate at Theia Ventures. 

Waroon Chhabra was a Short-term Associate at Theia Ventures.