Houston can help unlock the key to a viable energy transition

guest column

Houston’s broad energy sector can attract engineering expertise and clean tech talent, serving as a locus for knowledge-sharing on the financial and operational challenges ahead in the energy transition. Photo via Getty Images

The future of energy holds monumental and diverse expectations. Houston’s long history as the hub for oil and gas development – combined with its growing and important role in development of renewables, carbon capture, and other energy innovation – makes it a critical meeting point for discussions on strategy, investment, and stakeholder engagement in the energy transition.

In our research last fall, we detailed how the oil and gas industry was embracing capital discipline and prioritizing shareholder returns. The industry generated record cash flows and offered a combined dividend and share buyback yield of 8 percent in 2022—the highest among all industries. The industry’s commitment to maintaining capital discipline and investing in viable low-carbon projects has only strengthened in 2023.

In fact, according to our most recent research, the global upstream oil and gas industry is estimated to generate between $2.5 trillion to $4.6 trillion in free cash flow between 2023 and 2030. With capital availability not posing a significant constraint, boardrooms of oil and gas companies are engaged in discussions regarding capital allocation between hydrocarbons and low-carbon solutions, while striving to achieve desired rates of return and meet stakeholder expectations for dividend payouts.

What are the different expectations surrounding the energy transition that could potentially influence the capital allocation strategy or deployment of this free cash flow? Deloitte recently surveyed 150 industry executives and 75 institutional investors globally to find out how respondents expect capital to be deployed either back into the core business, back to shareholders, or into new low-carbon fuels and technologies.

Interestingly, while oil and gas investors and executives tend to agree on many issues, our research also indicated several key areas where expectations of the energy transition diverge.

Energy transition investment potential

Industry executives generally continue to apply discipline in evaluating bankable low-carbon projects, giving investors a chance to direct the dividends they receive into promising energy transition technology. However, sixty percent of executives we surveyed stated that they would invest in low-carbon projects only if the internal rate of return (IRR) from these projects exceeds 12 percent to 15 percent. These returns are a minimum for the industry to fund its base hydrocarbon capital expenditures and meet dividend commitments. For context, in 2022, the average IRR for most renewable power projects was less than 8 percent. Because overall, oil and gas companies are focused on returning value to shareholders, the comparatively lower IRR on some low-carbon projects can make the choice regarding these investments more difficult.

Changes in dividend payout contingent on minimum yield

Many oil and gas executives surveyed also placed higher priority on continuing to provide high dividend yield than some of the investors surveyed. Almost 50 percent of executives indicated that, in their view, dividend cuts could drive away investors. However, about 80 percent of the investors queried said they would likely continue to hold oil and gas stocks – even if companies slightly reduced dividends – to accelerate investments in lower-carbon technologies. However, three-fourths of investors said they required at least a 3 percent dividend yield.

The right technology

About 75 percent of low-carbon technology is still experimental or in early stages of development. Executives seem to remain focused on fuels and technologies — natural gas, hydrogen, carbon capture and storage — that are adjacent to their core businesses. Investors surveyed, on the other hand, tend to favor transformative technologies, such as battery storage and electric vehicles. About 43 percent of investors emphasized battery storage as a promising area.

Our research underscores the importance of immediate action to close the innovation gap. As the Energy Capital of the World, home to 4,700 energy-related organizations, Houston is positioned to lead the way. Houston’s broad energy sector can attract engineering expertise and clean tech talent, serving as a locus for knowledge-sharing on the financial and operational challenges ahead in the energy transition.

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Amy Chronis is vice chair of US Energy and Chemicals Leader and Houston managing partner at Deloitte LLP.

Kate Hardin is executive director at Deloitte Research Center for Energy and Industrials.

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Houston-based ENGIE to add new wind and solar projects to Texas grid

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Houston-based ENGIE North America Inc. has expanded its partnership with Los Angeles-based Ares Infrastructure Opportunities to add 730 megawatts of renewable energy projects to the ERCOT grid.

The new projects will include one wind and two solar projects in Texas.

“The continued growth of our relationship with Ares reflects the strength of ENGIE’s portfolio of assets and our track record of delivering, operating and financing growth in the U.S. despite challenging circumstances,” Dave Carroll, CEO and Chief Renewables Officer of ENGIE North America, said in a news release. “The addition of another 730 MW of generation to our existing relationship reflects the commitment both ENGIE and Ares have to meeting growing demand for power in the U.S. and our willingness to invest in meeting those needs.”

ENGIE has more than 11 gigawatts of renewable energy projects in operation or under construction in the U.S. and Canada, and 52.7 gigawatts worldwide. The company is targeting 95 gigawatts by 2030.

ENGIE launched three new community solar farms in Illinois since December, including the 2.5-megawatt Harmony community solar farm in Lena and the Knox 2A and Knox 2B projects in Galesburg.

The company's 600-megawatt Swenson Ranch Solar project near Abilene, Texas, is expected to go online in 2027 and will provide power for Meta, the parent company of social media platform Facebook. Late last year, ENGIE also signed a nine-year renewable energy supply agreement with AstraZeneca to support the pharmaceutical company’s manufacturing operations from its 114-megawatt Tyson Nick Solar Project in Lamar County, Texas.

Houston geothermal company raises $97M Series B

fresh funding

Houston-based geothermal energy startup Sage Geosystems has closed its Series B fundraising round and plans to use the money to launch its first commercial next-generation geothermal power generation facility.

Ormat Technologies and Carbon Direct Capital co-led the $97 million round, according to a press release from Sage. Existing investors Exa, Nabors, alfa8, Arch Meredith, Abilene Partners, Cubit Capital and Ignis H2 Energy also participated, as well as new investors SiteGround Capital and The UC Berkeley Foundation’s Climate Solutions Fund.

The new geothermal power generation facility will be located at one of Ormat Technologies' existing power plants. The Nevada-based company has geothermal power projects in the U.S. and numerous other countries around the world. The facility will use Sage’s proprietary pressure geothermal technology, which extracts geothermal heat energy from hot dry rock, an abundant geothermal resource.

“Pressure geothermal is designed to be commercial, scalable and deployable almost anywhere,” Cindy Taff, CEO of Sage Geosystems, said in the news release. “This Series B allows us to prove that at commercial scale, reflecting strong conviction from partners who understand both the urgency of energy demand and the criticality of firm power.”

Sage reports that partnering with the Ormat facility will allow it to market and scale up its pressure geothermal technology at a faster rate.

“This investment builds on the strong foundation we’ve established through our commercial agreement and reinforces Ormat’s commitment to accelerating geothermal development,” Doron Blachar, CEO of Ormat Technologies, added in the release. “Sage’s technical expertise and innovative approach are well aligned with Ormat’s strategy to move faster from concept to commercialization. We’re pleased to take this natural next step in a partnership we believe strongly in.”

In 2024, Sage agreed to deliver up to 150 megawatts of new geothermal baseload power to Meta, the parent company of Facebook. At the time, the companies reported that the project's first phase would aim to be operating in 2027.

The company also raised a $17 million Series A, led by Chesapeake Energy Corp., in 2024.

Houston expert discusses the clean energy founder's paradox

Guest Column

Everyone tells you to move fast and break things. In clean energy, moving fast without structural integrity means breaking the only planet we’ve got. This is the founder's paradox: you are building a company in an industry where the stakes are existential, the timelines are glacial, and the capital requires patience.

The myth of the lone genius in a garage doesn’t really apply here. Clean energy startups aren’t just fighting competitors. They are fighting physics, policy, and decades of existing infrastructure. This isn’t an app. You’re building something physical that has to work in the real world. It has to be cheaper, more reliable, and clearly better than fossil fuels. Being “green” alone isn’t enough. Scale is what matters.

Your biggest risks aren’t competitors. They’re interconnection delays, permitting timelines, supply chain fragility, and whether your first customer is willing to underwrite something that hasn’t been done before.

That reality creates a brutal filter. Successful founders in this space need deep technical knowledge and the ability to execute. You need to understand engineering, navigate regulation, and think in terms of markets and risk. You’re not just selling a product. You’re selling a future where your solution becomes the obvious choice. That means connecting short-term financial returns with long-term system change.

The capital is there, but it’s smarter and more demanding. Investors today have PhDs in electrochemistry and grid dynamics. They’ve been burned by promises of miracle materials that never left the lab. They don't fund visions; they fund pathways to impact that can scale and make financial sense. Your roadmap must show not just a brilliant invention, but a clear, believable plan to drive costs down over time.

Capital in this sector isn’t impressed by ambition alone. It wants evidence that risk is being retired in the right order — even if that means slower growth early.

Here’s the upside. The difficulty of clean energy is also its strength. If you succeed, your advantage isn’t just in software or branding. It’s in hardware, supply chains, approvals, and years of hard work that others can’t easily copy. Your real competitors aren’t other startups. They’re inertia and the existing system. Winning here isn’t zero-sum. When one solution scales, it helps the entire market grow.

So, to the founder in the lab, or running field tests at a remote site: your pace will feel slow. The validation cycles are long. But you are building in the physical world. When you succeed, you don’t have an exit. You have a foundation. You don't just have customers; you have converts. And the product you ship doesn't just generate revenue; it creates a legacy.

If your timelines feel uncomfortable compared to software, that’s because you’re operating inside a system designed to resist change. And let’s not forget you are building actual physical products that interact with a complex world. Times are tough. Don’t give up. We need you.

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Nada Ahmed is the founding partner at Houston-based Energy Tech Nexus.

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