SFV’s Investment In Leap
We are thrilled to announce our participation in Leap’s latest financing round. Distributed energy resources are being rolled out at scale, and Leap is the partner they’ll use to connect to US energy markets.
By Matthew Chagan and Reid Carroll
Virtual power plants are having a moment.
Today, grid operators and regulators are increasingly grappling with the constraints caused by intermittent wind and solar. The most recent instance just unfolded in Texas, where a heat wave drove huge air conditioning loads at a time when wind power dropped dramatically and unexpectedly cloudy weather constrained solar generation.
In response, an ever-growing crop of companies are vying to help by leveraging the flexibility of distributed energy resources (DERs), which can be pooled together into virtual power plants.
These DERs are being deployed in an exponential fashion (think: rooftop solar, heat pumps, batteries, EVs, and induction cooking), and entrepreneurs around the world have identified the opportunity to monetise these assets through grid participation.
We introduced our perspectives on this landscape in January, and highlighted why the topic is such an important one (TLDR: it will require $14T in infrastructure spending and $5B/year in software spending).
The good news
Fortunately this need for flexibility is well understood. Regulators and grid operators are setting up ‘carrots and sticks’ that provide significant financial incentives to DERs.
Today, the most readily available way to monetise flexibility is by bringing it to the large, liquid markets that already exist: energy markets, capacity markets, and ancillary services. Regulations like FERC 2222 in the US mandate that energy markets must allow aggregated DERs to participate in the same way that a traditional power plant would.
The problem?
Energy market participation is not a core competency for companies that control DERs. Some are customer acquisition engines, some have deep software optimisation expertise, and some are hardware providers, but very few have the expertise to manage participation across regulated energy markets, which is complicated and expensive.
Asset owners need to register in multiple programs and manage all of the data integration and compliance that goes with this. There are collateral requirements to meet, trading strategies to optimise, and ever-changing rules around participation (with significant financial penalties for those who don’t comply). Multiply this by 7 ISOs in the US and 3+ market types per ISO (energy, capacity, ancilarry services, etc.), and the complexity increases exponentially.
This is where Leap comes in — they are becoming the route to energy markets for their fast-growing DER partners, in much the same way that Stripe is the go-to payments partner for corporations around the world.
The product
With a single API integration to Leap, DER partners can participate in regulated energy markets across the US. Leap’s platform streamlines meter on-boarding, automates bidding, generates performance insights, and manages payments. With Leap, connecting to energy markets is a no-brainer.
Why are we so excited about the deal?
Market Positioning: Leap is One of One
During our diligence process, we were blown away by the feedback from Leap’s partners. These partners expressed the view that Leap is the only viable partner for high-growth DER companies to connect to energy markets.
Unlike their aggregation predecessors, Leap has an automated, product-centric approach and a sterling reputation. This reputation comes, in part, from Leap’s unique partner-focused model — other aggregators compete with DER companies for the end customer relationship which creates a conflict of interest.
“Leap was our top choice, and it wasn’t close,” said one prominent partner.
Leap’s positioning has allowed them to secure partnerships with companies like Resideo (Honewell),EnergyHub (Nest), Stem, Optiwatt, Generac, Sonnen, and Sunrun, to name a few. As these partnerships grow, we believe Leap is perfectly positioned to land the next wave of high-growth DER companies who want to monetise their flexibility.
A World-Class Team
The Leap team is highly credible, and we were impressed with their organisation throughout the diligence process.
CEO Thomas Folker, CCO Jason Michaels, CDO Andrew Hoffman, and the rest of the management team bring relevant backgrounds and complimentary skill sets. They are deep subject matter experts who have been crisp in communicating Leap’s strengths while articulating the ways they’ve learned from mistakes (spoiler: bringing thousands of small loads to energy markets is hard!).
Numerous Growth Opportunities
Leap is primed to benefit from several simultaneous growth vectors:
- A strong pipeline of new partners that Leap is well-positioned to win
- Their partnership model means that Leap will directly benefit from the steep growth of their current partners
- Leap’s continued expansion to new (stackable) markets means that the platform’s revenue / MW will grow, independent of partner expansion
- The value-per-asset on the platform (i.e. the value per battery or EV) will multiply as “exports” (crediting buildings with batteries for more than just the size of their grid connections) and bi-directional charging are introduced
- Increasing energy volatility caused by higher intermittent renewable penetration will increase revenue potential of energy markets, while fossil fuel phase outs will increase demand in capacity markets
We are joined in this round by Standard Investments, Union Square Ventures, Congruent Ventures, and DNV Ventures. We’re excited to back Leap and look forward to supporting the company on the next stage of their journey.
