Will Houston Be the Energy Transition Epicenter?

Will Houston Be the Energy Transition Epicenter?
A pair of veteran Silicon Valley venture capitalists plan to accelerate the end of the fossil-fuel era from an unlikely perch.

(Bloomberg) -- Veteran Silicon Valley venture capitalists Neal Dikeman and Craig Lawrence plan to accelerate the end of the fossil-fuel era from an unlikely perch: Houston.

The U.S. oil epicenter is lacking in startup talent to match its hoards of investment capital and technical expertise, a gap Dikeman and Lawrence intend to fill. With financial backing from South Korean conglomerate GS Group, Energy Transition Ventures plans to explore post-fossil fuel technologies from electric-vehicle charging to carbon capture and hydrogen fuel.

“Eventually we’re going to be using gas for chemicals and not for burning,” said Dikeman, whose previous roles included overseeing alternative-energy investments at Royal Dutch Shell Plc. “It’s almost economic suicide to build a natural-gas fired power plant now if you can do solar or wind instead.”

Despite the dearth of serial entrepreneurs, Dikeman said Houston is a prime spot to bankroll the transition away from fossil fuels because the ultimate customers for what they will produce -- be it car-charging stations or hydrogen-fuel gear -- are companies clustered in and around the fourth-largest U.S. city.

SunRun, SolarBridge

Dikeman and Lawrence have a long history in venture capitalism and alternative energy. After a stint in oil and gas investment banking in Houston in the 1990s, Dikeman migrated to Silicon Valley in the runup to the dot-com boom and joined a firm that backed Yellowpages.com. Before they teamed up to form Energy Transition Ventures, the outfits they helped seed included Sunrun Inc. and Smart Wires Inc.

The combination of Houston’s pre-eminence in oil and Texas’s status as the top U.S. wind-power producer make it the ideal place from which to profit from the dawn of a post-fossil fuel economy, Dikeman said in an interview.

“If you’re going to play tech, you should do it in Silicon Valley,” he said. “If you’re going to do media, you should do it in New York. If you’re going to do auto, do it in Detroit. If you’re going to play energy, do it in Texas.”

‘Science Projects’

Thus far, “all of our big startups in Houston are E&P companies, service-and-supply companies,” he said, referring to oil and gas exploration and production companies. “These are low-tech execution plays and they raise a lot of capital on the smell of an oily rag and they deliver. That drove the last decade of boom.”

Some of the most-talked about new technologies on the energy-transition horizon still face steep technical or economic hurdles, Dikeman said. One that he’s following closely is direct-air capture, which involves grabbing carbon dioxide out of the air and sequestering it before it can damage the atmosphere. Oil companies including Occidental Petroleum Corp. are betting on the technology to help them meet emissions goals.

“I would love it to work but it’s awfully hard to beat planting trees, from a cost perspective,” he said. “I spent a lot of time in carbon and a lot of time in hydrogen, so those are the areas that are aspirational for me. I’m dying to find some technology that I love, and I just keep uncovering science projects.”

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