Investors in Houston and across Texas are proving to be transformational partners to finance and grow energy hardware startups. Photo via Getty Images

Texas is a national leader in wind and solar, generating more energy in these categories than any other state since 2006 and double that of next placed California. As investment in renewable energy continues to skyrocket, the limitations of the 19th-century grid prevent the industry from realizing the benefits of this 21st-century technology.

For years, Texas has grappled with insufficient infrastructure for its current mix of energy sources, which includes surging renewables. The Alternating Current (AC) grid — the standard since the 1800s — requires matching supply and demand in real-time to maintain a stable frequency, which is complex and costly, especially with renewable energy when the sun doesn’t always shine and the wind doesn’t always blow.

Startup firms are busy developing technologies to solve this issue. For example, it’s possible to modernize the AC grid to control the voltage of the distribution network precisely, to ensure fast adjustments to demand, and to adapt to changes in supply from renewables. Enoda, a U.K.-based scale-up, is an example of an innovative company developing and delivering technology to enable the AC grid to accommodate much higher levels of renewable energy and electrification.

Equally important to these technical innovations are innovations in financing for energy startups. On two levels, investors in Houston and across Texas are proving to be transformational partners to finance and grow energy hardware startups.

1. Innovative Funding Structures

Because of the long timelines, hardware investing requires, in part, more patient capital than the typical Silicon Valley venture capital model prevalent in startup investments. Their playbook is best suited for software companies that develop new features in weeks or months. Energy hardware startups require a longer timeline because of the far greater complexity and upfront capital outlay.

Texas investment firms and family offices are, however, accustomed to investing in complex energy projects with longer development timelines. This complexity presents a high barrier to entry for competitors, which significantly increases the upside potential that risk-capital investors seek should the innovation find market traction. At the same time, up-front capital requirements have decreased considerably, making hardware more appealing to investors.

2. Visionary partnership

Attracting investors and demonstrating early-stage traction differs for hardware companies because of the lengthy pre-revenue R&D process. Software innovators can launch with a minimum viable product, gain a few early customers, and then grow incrementally. By contrast, energy hardware technology must be fully developed from launch. Each Enoda PRIME exchanger, from the first unit sold, represents a piece of critical infrastructure on which households will rely for their electricity supply for its 30-year lifespan. For venture investors who focus on software, it’s easy to assess the health of a software company based on well-established metrics related to customer growth and the cost of customer acquisition.

Hardware investing requires investors to have a much deeper understanding of the problem being solved and assess the quality of the solution objectively rather than rely on early customers for a minimum viable product. Texas investors have been quick to understand the problems that the energy industry must solve around energy balancing and keeping the frequency of a system stable in order to grow renewable energy. Why the keen insight? Because that problem is being solved today by gas power plants. A visionary investor with many years of deep industry perspective is far more likely to appreciate that than a VC firm looking across many industries based on a standard set of metrics.

Visionary partnership is precisely what energy startups need because it’s important not to evaluate the company as it is today but what it will be in five years. Hardware startups need visionary investor partners who understand the importance of parallel pathing fundamental innovation, product development and delivery, and customer development to grow and succeed. Hardware startups succeed only when they can do these things simultaneously—and require investors who can imagine a possible future and understand the path to reach it.

Changing the way investment works

Many energy startups are worthy inheritors of Houston’s bold entrepreneurial spirit that led to technological innovations like deep-sea drilling and hydraulic fracturing. They will continue to need equally bold investors who recognize the world of opportunities at their doorstep.

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Paul Domjan is the founder and chief policy and global affairs officer at Enoda. Derek Jones and Paul Morico are partners at Baker Botts.

Texas gets a gold star when it comes to projected wind power capacity. Photo via Getty Images

Texas ranks among the leading states for projected wind power capacity

We're No. 1

A new report ranks Texas in the top three states that are blowing away nationwide wind power capacity projections.

Texas, Wyoming, and Iowa are standing out in terms of wind power capacity, according to a report from Texas Real Estate Source, a Texas real estate, travel, and lifestyle website, that analyzed all 50 states and ranked them by total projected capacity, capacity per capita, and capacity per square mile.

Nationwide wind power capacity is projected to grow exponentially in the coming years, with Texas, Wyoming, and Iowa leading the charge. With 44,974 megawatts of projected wind power capacity, Texas leads the country in terms of volume. Wyoming, meanwhile, leads the nation in projected wind power capacity per capita with 6,679 MW serving a population of 581,381, and Iowa takes first place in projected wind power capacity per square mile.

"As renewable energy continues to command center-stage attention and massive financial investment, wind power has proven to be an indispensable tool in the clean energy toolbox," reads the report.

In its top spot, Texas' projected wind power capacity is more than triple the capacity of second place, Oklahoma, but the Lone Star State falls to ninth place in the ranking of capacity per capita with 1.5 kilowatts.

“It’s no surprise to see Texas significantly outpacing the nation in installed and projected wind power capacity," says a spokesperson from Texas Real Estate Source. "The combination of boundless land, favorable wind patterns, and highly-respected research institutions has made it the perfect place for wind power adoption. It’s revealing, however, to see the per capita and per square mile rankings: they give us a more complete picture of which states are at the forefront of wind power development.”

A few other states to take note of in the report are California and Arkansas. California ranks No. 7 when it comes to total projected wind power capacity but only is No. 24 in the per capita ranking. And, considering the state has only 104 MW currently under construction, California doesn't seem to be keeping up with its population.

Arkansas, meanwhile, has 180 MW currently under construction — previously having a projected zero MW of wind power capacity. Once this is done, Arkansas will outperform 17 other states.

When it comes to wind power jobs, the Lone Star State is making some moves on that front too, according to another report. The SmartAsset study found that 2.23 percent of workers in the Houston area hold down jobs classified as “green.” Per the Department of Energy, Texas tallied almost 25,500 wind energy jobs in 2021.

Energy sources are often categorized as renewable or not, but perhaps a more accurate classification focuses on the type of reaction that converts energy into useful matter. Photo by simpson33/Getty Images

How is energy produced?

ENERGY 101

Many think of the Energy Industry as a dichotomy–old vs. new, renewable vs. nonrenewable, good vs. bad. But like most things, energy comes from an array of sources, and each kind has its own unique benefits and challenges. Understanding the multi-faceted identity of currently available energy sources creates an environment in which new ideas for cleaner and more sustainable energy sourcing can proliferate.

At a high level, energy can be broadly categorized by the process of extracting and converting it into a useful form.

Energy Produced from Chemical Reaction

Energy derived from coal, crude oil, natural gas, and biomass is primarily produced as a result of bonds breaking during a chemical reaction. When heated, burned, or fermented, organic matter releases energy, which is converted into mechanical or electrical energy.

These sources can be stored, distributed, and shared relatively easily and do not have to be converted immediately for power consumption. However, the resulting chemical reaction produces environmentally harmful waste products.

Though the processes to extract these organic sources of energy have been refined for many years to achieve reliable and cheap energy, they can be risky and are perceived as invasive to mother nature.

According to the 2022 bp Statistical Review of World Energy, approximately 50% of the world’s energy consumption comes from petroleum and natural gas; another 25% from coal. Though there was a small decline in demand for oil from 2019 to 2021, the overall demand for fossil fuels remained unchanged during the same time frame, mostly due to the increase in natural gas and coal consumption.

Energy Produced from Mechanical Reaction

Energy captured from the earth’s heat or the movement of wind and water results from the mechanical processes enabled by the turning of turbines in source-rich environments. These turbines spin to produce electricity inside a generator.

Solar energy does not require the use of a generator but produces electricity due to the release of electrons from the semiconducting materials found on a solar panel. The electricity produced by geothermal, wind, solar, and hydropower is then converted from direct current to alternating current electricity.

Electricity is most useful for immediate consumption, as storage requires the use of batteries–a process that turns electrical energy into chemical energy that can then be accessed in much the same way that coal, crude oil, natural gas, and biomass produce energy.

Energy Produced from a Combination of Reactions

Hydrogen energy comes from a unique blend of both electrical and chemical energy processes. Despite hydrogen being the most abundant element on earth, it is rarely found on its own, requiring a two-step process to extract and convert energy into a usable form. Hydrogen is primarily produced as a by-product of fossil fuels, with its own set of emissions challenges related to separating the hydrogen from the hydrocarbons.

Many use electrolysis to separate hydrogen from other elements before performing a chemical reaction to create electrical energy inside of a contained fuel cell. The electrolysis process is certainly a more environmentally-friendly solution, but there are still great risks with hydrogen energy–it is highly flammable, and its general energy output is less than that of other electricity-generating methods.

Energy Produced from Nuclear Reaction

Finally, energy originating from the splitting of an atom’s nucleus, mostly through nuclear fission, is yet another way to produce energy. A large volume of heat is released when an atom is bombarded by neutrons in a nuclear power plant, which is then converted to electrical energy.

This process also produces a particularly sensitive by-product known as radiation, and with it, radioactive waste. The proper handling of radiation and radioactive waste is of utmost concern, as its effects can be incredibly damaging to the environment surrounding a nuclear power plant.

Nuclear fission produces minimal carbon, so nuclear energy is oft considered environmentally safe–as long as strict protocols are followed to ensure proper storage and disposal of radiation and radioactive waste.

Nuclear to Mechanical to Chemical?

Interestingly enough, the Earth’s heat comes from the decay of radioactive materials in the Earth’s core, loosely linking nuclear power production back to geothermal energy production.

It’s also clear the conversion of energy into electricity is the cleanest option for the environment, yet adequate infrastructure remains limited in supply and accessibility. If not consumed immediately as electricity, energy is thus converted into a chemical form for the convenience of storage and distribution it provides.

Perhaps the expertise and talent of Houstonians serving the flourishing academic and industrial sectors of energy development will soon resolve many of our current energy challenges by exploring further the circular dynamic of the energy environment. Be sure to check out our Events Page to find the networking event that best serves your interest in the Energy Transition.


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Lindsey Ferrell is a contributing writer to EnergyCapitalHTX and founder of Guerrella & Co.

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Eyeing demand growth, ERCOT calls for energy investments across Texas

report

With the Electric Reliability Council of Texas forecasting a big spike in demand for electricity over the next five to seven years, the operator of Texas’ massive power grid is embracing changes that it says will yield a “tremendous opportunity” for energy investments across the state.

The council, known as ERCOT, now estimates an extra 40,000 megawatts of growth in demand for electricity by 2030 compared with last year’s outlook. According to ERCOT data, 40,000 megawatts of electricity would power roughly 8 million Texas homes during peak demand.

ERCOT has been under intense scrutiny in the wake of recent summertime and wintertime debacles involving power emergencies or outages. The organization manages 90 percent of Texas’ power supply.

“As a result of Texas’ continued strong economic growth, new load is being added to the ERCOT system faster and in greater amounts than ever before,” Pablo Vegas, president and CEO of ERCOT, says in a news release. “As we develop and implement the tools provided by the prior two [legislative sessions], ERCOT is positioned to better plan for and meet the needs of our incredibly fast-growing state.”

Meeting the increased demand will create opportunities for energy investments in Texas, says ERCOT. These opportunities will undoubtedly lie in traditional energy production as well as in renewable energy segments such as solar, wind, and “green” hydrogen.

Some of the opportunities might be financed, at least in part, by the newly established Texas Energy Fund. The fund, which has been allotted $5 billion for 2025-26, will provide loans and grants for construction, maintenance, modernization, and operation of power-generating facilities in Texas.

ERCOT is also working with partners to develop tools aimed at improving grid reliability and market efficiency.

ERCOT says changes in its operations that’ll be required to fulfill heightened demand for power will position the nonprofit organization “as a significant component of the economic engine driving the national economy.”

Katy-based US Silica agrees to go private in $1.85B acquisition by asset management firm

M&A move

U.S. Silica has agreed to go private in an all-cash acquisition by Apollo Global Management, a New York asset management firm that primarily invests in alternative assets. The deal values the industrial minerals company at about $1.85 billion.

In a Friday announcement, U.S. Silica said that shareholders would receive $15.50 in cash for each share owned as of the deal's closing. Once the deal closes, U.S. Silica's stock will no longer be listed on the New York Stock Exchange.

Founded in the late 1800s, U.S. Silica produces commercial silica used in the oil and gas industry and other industrial applications. It operates 26 mines and processing facilities and two additional exploration stage properties.

The Katy, Texas-based company is still set to operate under the U.S. Silica name and brand, and will continue to be led by its current CEO Bryan Shinn. In a prepared statement, Shinn said that partnering with Apollo will give U.S. Silica “significant resources, deep industry expertise and enhanced flexibility as a private company."

U.S. Silica said that the transaction — which has been unanimously approved by its board of directors — is expected to close in the third quarter, subject to regulatory approval and other customary conditions.

The agreement also includes a 45-day “go-shop” period that allows U.S. Silica to seek out other proposals until June 10.

Shares of U.S. Silica Holdings Inc. climbed nearly 20 percent Friday morning, shortly after the company reported net income of $13.7 million for its first quarter. The commercial silica producer posted revenue of $325.9 million in the period.

Apollo Global Management's stock was up about 0.18 percent.

From events to a new climate-focused report, here are 3 things to know in Houston energy transition news

take note

Editor's note: Dive headfirst into the new week with three quick things to catch up on in Houston's energy transition: a roundup of events not to miss, a new study puts a dollar sign to Texas' disasters per capita, and three organizations are teaming up for an August event.

When it comes to weather-related events, Texas is expensive

Texas — home to everything from tornadoes to hurricanes — cracks the top 10 of a new report ranking states based on impact from weather-related events.

SmartAsset's new report factored in a myriad of data from the Federal Emergency Management Agency to identify which states face the most financial risk due to various weather events. In the report, the states were ranked by the total expected annual financial losses per person. Texas ranked at No. 10. In Texas, the total expected annual loss per person is estimated as $283.15. Click here to see that figure broken down.

3 organizations in Houston receive funding for DOE-backed programming

Later this year, a Wells Fargo Foundation-backed event that's co-administered by the United States Department of Energy's National Renewable Energy Laboratory will feature programming from three Houston organizations.

The Wells Fargo Innovation Incubator, a $50 million program, announced its eighth cycle of IN2 Channel Partner Strategic Awards. The program is distributing $767,000 across 15 organizations within the Channel Partner network to create impactful workshops at the upcoming Camp Cleantech event in August at CSU Spur in Denver, Colorado.

Houston-based Rice Alliance Clean Energy Accelerator, as well as Activate Global and Greentown Labs, which each have Houston locations, have been named among the awards recipients. The organizations will present workshops aimed at providing critical tools and insights for clean tech startups. Read more about the event and grants.

Events not to miss

Put these Houston-area energy-related events on your calendar.

  • Center for Houston’s Future and the Houston Energy Transition Initiative present a panel and attendee Q&A on Wednesday, May 1, from 9 to 11 a.m. at Partnership Tower 701 Avenida de las Americas, Suite 900. The program will be on the National Petroleum Council’s new report on hydrogen: “Harnessing Hydrogen: A Key Element of the U.S. Energy Future.” Register.
  • Offshore Technology Conference returns to Houston May 6 to 9. Register.
  • Greentown Houston's next Transition on Tap, a monthly networking event, is Wednesday, May 8. Register.
  • The University of Houston is hosting a professional-level course focused on hydrogen. The course is open for registration now, and the orientation event will take place on May 15. Learn more.