Why we invested - Frequenz

Removing the mystery of Microgrids

How one startup is using AI to optimize microgrids to reduce costs, risks and CO2 emission.

It was not long ago when commercial and industrial solar rooftops were seen as a “nice-to-have”. More of a marketing asset than something with serious business impact. Fast-forward to 2022, with the war in Ukraine raging and Europe facing a “cold winter” with skyrocketing energy prices; a solar rooftop system combined with a battery storage system seems like a no-brainer to become independent of the volatility of fossil-fuel based energy.

The scenario described above is an example of a term you may have heard thrown around frequently – “Microgrids”. Microgrids are small networks of electricity production and consumption that are usually attached to a centralized national grid but can also function independently.

Their typical ingredients – rooftop solar, stationary batteries, EV charge-points, intelligent communication tools - are all standard technologies today. But to really gain benefits from microgrids – be it through grid supportive peak-shaving operations, increased solar self-consumption or arbitrage trading on the electricity markets – you either need a lot of specialist knowledge as a customer, or your own dedicated operations and resources, making them less viable than they should be.

But it’s worth-while to gain that knowledge because the market for these systems is huge. In Germany alone there are more than 400,000 locations of commercial and industrial (C&I) electricity users that consume >100,000 kWh annually. Market volatility, increasing energy prices and grid fees have made renewable energy self-production and consumption even more of an economic must have for such customers. On top of that, incumbent energy suppliers have made electricity sourcing riskier for such companies, as they pass volume and time-of-day consumption risks onto their customers.?

This is where Frequenz enters the picture. Frequenz is a prosumer-focused digital utility for commercial and industrial (C&I) customers. They make life easy for their customers in 3 different ways:?

First, you don’t buy technology from them, you simply buy an electricity contract.

Rather than buying an electricity supply contract – which provides unidirectional flows of electricity to you – you buy a prosumer contract. A contract which automatically optimizes how much residual grid electricity you need to consume, and which might even pay you if you supply more electricity to the grid than you take from it.?

Secondly, Frequenz provide a service for any hardware components that you might need for your microgrid.

You already have a solar PV roof, but you want to add a battery? Not a problem. You are completely new to this area and want a whole new installation as part of the package? Done. In this way, Frequenz’ customers can build their own microgrids without any CAPEX required, renting the required components from Frequenz as part of the overall package.

Lastly, Frequenz constantly optimize the different scenarios that you run on your microgrid so that your potential revenue streams can actually increase over time.

Think Tesla over-the-air updates for your microgrid. Under the hood of Frequenz, there are some clever AI-powered microgrid controllers that maintain your whole system. Meaning that as a customer, you don’t have to understand every scenario in detail or constantly monitor what the controllers do with your system tomorrow, this is all done automatically and transparently for you through the Frequenz platform.

So you are able to implement a cutting-edge distributed energy system without having to dedicate large and specialized resources to it – plus the economics of the system improve over time without a need to purchase new hardware.

A great team ready for the future

When we first met the founding team of Tom, Lars and Thomas it was immediately clear that they were deep into this market and had already gone through many feedback loops with early customers, regulatory experts and suppliers to tailor the offering closely to the market’s needs. We were also attracted to the team by the fact that none of them had a background in the energy industry and therefore they were able to approach this problem with a completely fresh and pragmatic take.

The current funding round, which includes 468 Capital and Alexander Rittweger gives strong backing to the team to further build out their product and implement microgrids at more customer sites. While we were finalizing the transaction not only did the brutal war in Ukraine unfold, giving added impetus to Frequenz’ mission, we also saw an ever-tightening supply chain for key microgrid components become a new risk for the timely roll-out of Frequenz’ solution.

So, there are plenty of challenges ahead but we have seldom seen in a startup such a clarity of what needs to be accomplished coupled with the focus and drive to get it done. We are thrilled to join the ride!

SET Ventures is an active investor with a successful track record in this domain since 2007 executing this strategy throughout the several funds we manage. We always have focused on digital technologies to be part of the product or service of the European start-ups we invest in. It is our core belief that new business models drive today’s energy system towards that of a completely new, carbon-free system.