Unless you’ve been living under a rock for the last year or so, you’ve probably heard about all the money that’s either already been deployed or is on its way toward funding the energy transition. When there are billions and billions in play, it’s not surprising that groups are coming together to lure capital to not only certain technologies, but also certain geographic regions.
Jane Stricker is the SVP for Energy Transition at the Greater Houston Partnership. She also serves as the Executive Director of the Houston Energy Transition Initiative. Jane and the team at HETI recently released a report from their capital formation working group, which includes some big time banks and investment firms – we’re talking Blackstone, Bank of America, Citigourp, EnCap, JP Morgan and more. The report is all about capital formation and what it will take to turn Houston – yes, Houston, which of course has a long history in oil and gas – into THE destination for climate capital to fund the energy transition.
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(Note: This transcript was created using artificial intelligence. It has not been edited verbatim.)
Colin Hogan 00:14
Hello everyone and welcome to the Modern Money SmartPod. I'm Colin Hogan.
Sean McMahon 00:18
And I'm Sean McMahon.
Colin Hogan 00:20
You know, Sean, while much of the talk about the energy sector in today's financial markets centers on the price of commodities like oil and natural gas, there are also some serious conversations taking place about funding the energy transition.
Sean McMahon 00:35
That's for sure. The push to combat climate change got a big boost from the inflation Reduction Act. So now there are lots of heavy hitter firms that are exploring ways to invest in decarbonisation.
Colin Hogan 00:44
Plus the war in Ukraine has made people really consider the importance of domestic production and energy security. Our guest today is going to share details about one such effort that aims to make Houston the epicenter of climate capital.
Sean McMahon 00:59
Jane Stricker is the Senior Vice President for Energy Transition at the Greater Houston Partnership. She also serves as the executive director of the Houston Energy Transition Initiative - or HETI. Jane and the team at HETI recently released a report from their capital formation group, which includes some big time financial institutions. We're talking Blackstone Bank of America, Citigroup, JP Morgan, and more.
Colin Hogan 01:21
The report is all about capital formation and what it will take to turn Houston which of course has a long history in oil and gas into the destination for climate capital to fund the energy transition. The report is quite extensive. So we're gonna link to it in the show notes, but it will be great to hear some of the key takeaways from Jane. Yes, she and I had a great conversation. So let's get to it. For sure. But first, here's a quick word from the exclusive sponsor of today's episode, MF s Investment Management.
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Sean McMahon 02:27
Hello, everyone, and thank you for joining me today. My guest is Jane Stricker. Jane is the Senior Vice President for Energy Transition at the Greater Houston Partnership. Jane, how you doing today?
Jane Stricker 02:37
I'm good, Sean, thanks for having me.
Sean McMahon 02:39
Great. I just want to dive right in. We're here to talk about the Houston Energy Transition Initiative. What is that?
Jane Stricker 02:45
Well, thanks, Sean. And again, thanks for having me on the show, I'm really excited to be here. And I joined the Greater Houston Partnership in January of this year to lead the Houston Energy Transition Initiative, which is really about leveraging Houston's energy leadership into the energy transition so that we can achieve our goal of and energy abundant and low carbon future. So I work on behalf of a number of energy industry members from the partnership that have come together to fund this work, so that we can help make sure that through the transition, we're taking advantage of all of the opportunities in Houston really leaning into the transition, and finding ways to continue to grow the energy sector through the transition to clean energy.
Sean McMahon 03:30
Well, that sounds great. And we're here today to talk about a report that your group recently released all about the kind of capital formation part of this, we've been hearing a lot about the energy transition, you know, billions and billions, or maybe trillions of dollars that it's going to take to make it a reality. And so this report really kind of focused on how Houston is going to attract the capital needed for this. And I noticed that a lot of the organizations involved are pretty big time organizations, you got Bank of America, Blackstone city, JP Morgan. So I'm curious, how did this working group that put out this paper? How did it come together?
Jane Stricker 03:59
Sure. So we'll go back a step to that formation of that heavy initiative. And Bobby tutor, former chairman of Tudor Pickering, and Holt is the chairman of Houston Energy Transition Initiative. And this is a specific area that he was truly passionate about and really work to get a broad base of the capital formation players in Houston into this conversation. And so he brought in members from investment bank PE firms, VC firms in and around to Houston to really talk about in the same way that during the shale boom, Houston became the epicenter for energy finance. This is sort of that same moment, as we head into the energy transition is we're looking at all of these new pathways for energy development and growth towards a low carbon future. How do we make sure that Houston really is the epicenter of the financing activity associated with that? This is where all of the industry solutions will scale. And so this is the place where all of the investment decisions need to be made. And this is the place where if you're in the investment bank PE VC world, Houston should be the place you think of when you think about energy transaction finance.
Sean McMahon 05:12
Okay, now let's level set for our listeners a little bit here, like what's the current flow of capital into Houston for energy transition initiatives.
Jane Stricker 05:18
So for 2021, and about $15 billion that flowed in. And then if you look at what flowed out of Houston, in terms of the decision makers of the entities that are based here in Houston, that may be making energy transition investments and other places, there's about 25 billion, mostly associated with the oil and gas majors in that the traditional oil incumbent making their investments in energy transition.
Sean McMahon 05:46
Alright, what's the goal? You know, how much capital funding is required to put Houston like you said, make it the epicenter for all the transition for energy capital?
Jane Stricker 05:54
Yeah, so the way we looked at this was the current flow of capital for energy transition in Houston, is roughly about 6% of the total energy spend capital investment in the region. And so if we think about Houston's ability to really lead in the transition, we set a goal for ourselves of somewhere between 10 to 15%, of global energy transition spend for the future. And so if you think about $1.5 trillion per year, by 2040, that roughly translates to about $150 billion of annual energy transition investment in and around the Houston region.
Sean McMahon 06:32
Now, a lot of folks usually associate Houston with oil and gas. But what we're talking about here is some of those majors, you know, obviously, taking a percentage of their investment going towards cleaner energy. So why and how is Houston best position to do this to make this transition?
Jane Stricker 06:45
Yeah, absolutely. I mean, I think if you think about the intersection of all of the assets, the capability, the talent, the funding, all of that, the geology, the engineering, know how all of that has a place here in Houston. And so we are seeing more and more, particularly with the innovation sector around climate tech and clean energy. As those technologies get developed, when they're looking to start scaling those technologies, and really figuring out how to integrate that into our existing energy system, Houston is the place that they come to, and it's the place that they would want to come to this is where sort of energy transition solutions will scale. And so it makes sense, you know, Texas is the largest one producer, we're soon to be the largest solar producer. And we have all of the traditional incumbent assets and capability here. And so as this transition progresses, we'll see more and more particularly in those technologies, like carbon capture, like clean hydrogen, and others, Houston really is the place where all of that will come together. And so we see that as being the biggest opportunity moving forward.
Sean McMahon 07:56
All right, and we're talking about huge sums of money. So what is it going to take to unlock all this capital? On the National Front, we've got the inflation Reduction Act, and that's a big player, you know, you mentioned Texas is already huge, and wind, and I'm sure there's some people looking at offshore wind tracks off the coast. So So what are some of the really kind of key points that that need to happen to get to bring all this? Yeah, I'll put all this money in the water all this money, you know, wherever it's gonna be.
Jane Stricker 08:21
Yeah. So, you know, it comes down to a couple of key things, we need continued development of capability. And that means we need to continue to really drive our university system, our startup ecosystem, our incubators, really, really driving this whole clean tech, climate tech innovation sector, because that's really where the idea of start from and where the technologies will come from. There'll be digital tax, there'll be biotech, and there'll be other energy tech. And all of that really starts with driving the talent capability on the front end. And so we need to have that talent and innovation hub here in Houston. And we have the beginnings of it. But we're sort of at the front end of this energy transition. And we need to really continue to grow that. And then we need projects, you know, we need to be able to bring together all of these different projects. And we're seeing more and more sort of these small clusters, projects coming together, whether it's carbon capture with clean hydrogen development, or offshore wind to create green hydrogen through electrolysis or other projects to decarbonize the the current industry, bringing all of those projects together and really being able to unlock the value of those projects and get long term financing opportunities. And then finally, we need the regulatory support. And so we really need to make sure that as we move forward, Ira is great. And it provides a lot of financing opportunity and a lot of financial incentive to get projects done. But we need to have those regulatory frameworks that really define, you know, all of the permitting processes and the long term asset and infrastructure to build out of these new technologies, so that there can be a level of assurance and a level of certainty in the marketplace that says, Yeah, we know these things are going to have a long life, we know we're going to be able to get the permits to build them and know we're going to be able to maintain those tax credits for the long term. And so having that level of certainty when you're talking about projects that have 20 3040 years of lifespans becomes really, really important.
Sean McMahon 10:26
And you mentioned, you know, the role that universities can play in this an r&d side of it. So is there any kind of portion of these funds or what portion these funds, I should say, is really kind of targeting that? And I said, we're talking about, you know, the local schools in the Houston area, and what are we talking about?
Jane Stricker 10:40
So I, you know, I think from a from a venture capital standpoint, early stage, venture capital is really, really critical, particularly, as you're thinking about founders and entrepreneurship and really bringing that university based research into reality. And so that's a big piece of it. And then we're also working collectively heavy is with the universities to develop a National Science Foundation proposal for $160 million of grant funding, and we're working with universities across Texas. So University of Texas, Texas a&m, rice, U of H, as well as Texas Southern University and Prairie View, a&m, working together between universities and industry to really figure out what are those technologies that are needed for the long term for the energy transition? And how do we make sure that in the universities when they're doing that research, they're doing it sort of with a view of what's the use case? Where will these technologies end up? And how can they help us achieve the goals of providing more energy, but at lower carbon? We'll be right back.
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Sean McMahon 12:19
And now back to our conversation with Jane Stricker from the Houston Energy Transition Initiative.
Yeah, so you mentioned where venture capital comes in. But but some of the other sectors of finance, what are some of the key questions that those companies are asking as they enter this and kind of really kind of try to bring, like you said, all the talent of that area, in with their money from wherever it's coming in? Like, what are their biggest concerns and how those concerns being addressed?
Jane Stricker 12:41
Yeah, I think, you know, really understanding what the end markets look like for these projects. And who's going to be the old ticker for low carbon fuels? And where will the clean hydrogen get used? And how will this get integrated into the current power distribution system? And what is the infrastructure that's going to be needed to attach projects together and really create value for the entire region? I think those are some of the big challenges, that private equity and the larger investors are thinking about when they're trying to figure out where should they invest their dollars? And how do we know for the long term that these projects will be successful. And so really being able to demonstrate an ability to get markets in place really be able to get talent and capability in place and show how these particular technologies these particular solutions can help progress us towards that low carbon future.
Sean McMahon 13:35
Alright, like I mentioned, we're talking about kind of a report that was pushed out just addressing the the capital needs that he's trying to go after to catalyze lift, you seem to be that the epicenter. So you know, and we'll provide a link to that report in the show notes for this episode. But were there any surprises in the findings?
Jane Stricker 13:51
Yeah, I think one of the things that was really most surprising for a lot of people, when they looked at the report was the level of energy transition capital outflows coming out of the incumbent oil and gas industry. I think there's this perception in the marketplace, that somehow the oil and gas majors or the incumbent energy industry is somehow fighting this progression to low carbon solutions or net zero commitments. And really, what we're seeing is, all of these organizations now have low carbon business levels, all of these organizations are now putting ventures arms in place so that they can get in on the front end, investing in these new technologies, and trying to figure out not only how they can create value from them, but then also how they can help scale these technologies and solutions. And ultimately, I think that's the piece that people need to realize is there has to be this integration and collaboration across all sectors of the energy industry. If we're going to be successful, we can't afford to throw away trillions of dollars of existing energy infrastructure and start from scratch. We just We just can't do that. And so you know, there's a place For every energy solution in this long term energy transition pathway, and so seeing how incoming energy is embracing and working with a lot of these new startup ventures, and a lot of these new small scale technology solutions, really, I think is inspiring when you think about how important and how much capital these companies have to be able to invest in energy transition.
Sean McMahon 15:27
Yeah, you know, you're right. I talked to folks who, you know, maybe don't follow the industry as well or don't work in the industry. And when I tell them how much, you know, companies like Shell have invested in, you know, offshore wind or whatever, and they're just blown away. They're like, what, they're still they just think it's a it's a, you know, a war between two things. And it's, you know, there's no crossover funding. So are there any technologies that this organization kind of is preferring, you know, obviously offshore when we talk about, but that's years away, solar stuff can go up faster? You know, you'd mentioned hydrogen and things like that. So I'm sure this group is looking at all the available technologies. But what's the preference? Or I guess, what's kind of the direction they're want to start out first, maybe with near term wins before long term stuff?
Jane Stricker 16:04
Yeah, I think, you know, for Houston, we have to acknowledge the a the source of emissions that we have here in Houston, which are primarily industrial emissions emissions coming from our finding sector and from other industrial activity from the production of hydrogen, Houston produces 44% of the nation's hydrogen today. And so being able to decarbonize those processes and operations, as well as the power sector are really, really important. And they're places where we can leverage the strength of the existing incumbent energy industry. So technologies like carbon capture, use, and storage technologies, like clean hydrogen development, are really, really critical to being able to make significant impact on stationary source emissions in the near term, as we've developed those longer term solutions that are going to take longer to bring on. Ultimately, we're looking at a significant increase in the level of electrification. But we need to understand what does that do to our grid? And how do we make sure that our grid is prepared to handle that much more electrification. And so all of those things are critical elements for us in terms of understanding what the pathways are for energy transition, and where we can really leverage Houston strengths, we do try to not take a winners and losers approach. We aren't here to choose what technologies will win. Our role is to really create an environment where all energy solutions can be successful. So we have sort of three key areas. One, we focus on those technologies where we think Houston has a clear distinct advantage, things like CCUS, like clean hydrogen, like industry, decarbonisation, those are areas where we know Houston, plastics, recycling is another one, we have such a big petrochemicals footprint here. So those areas are ones where we know our leadership should be able to take advantage and really drive this forward. And then we want to create an environment where all the other energy solutions in the region. And that get developed through the innovation pathways can really be successful, by creating a business friendly climate in Texas, for businesses to be successful, by by creating a regulatory environment that enables projects and the building of infrastructure needed to deliver these projects. And so all of those pieces are really important. But we start with those areas where we know we have a leadership position. But then our role is also to help all of those other solutions scale.
Sean McMahon 18:30
And I mentioned, you know, the importance of having a business friendly environment. And I know, you know, statewide in Texas, there's been some headlines lately about, you know, policymakers putting pressure on I think it was UBS and some other groups to make sure they're not turning their back on oil and gas. So does this does Hetty itself kind of take a more agnostic approach to which technologies which energy solution so those financial firms can kind of be a part of this? And kind of hold it up as like, hey, look, we are involved, but it's not, you know, we're not turning our back on on oil and gas, or does anyone from those financial firms talk to you about that?
Jane Stricker 19:04
So, you know, it's a difficult subject. And I think before, before the the Russian invasion of Ukraine, I think we were very much focused only on one side of the coin. And we were, we were focused on the side of the coin around reducing emissions and Net Zero commitments. And I think that's an incredibly important side of the coin, but the other side of the coin around energy security, and being able to continue to provide the energy that the world needs, particularly in the near term, still really, really important. And I think with everything that's happened over the last nine months, there's a recognition that we need to find the balance between the two. And I think even a lot of a large investors are are recognizing that while we do want to have a goal and a pathway to get us to that low carbon future, that also needs to be an energy abundant future and right now, we have to find a balance of being able to drive forward with those new energy technology solutions. while also looking to reduce the emissions associated with those things that we already do today. And so that's why I think Houston is sort of the best of all worlds, because we have sort of this intersection of new energy and traditional energy and infrastructure and financing. And so really, this sort of is that ground zero, where all of the energy transition activity should be led from?
Sean McMahon 20:26
That makes perfect sense. Now, you mentioned hydrogen a couple of times, and the topic of green hydrogen is very hot topic on this show. And so is there any kind of pathway through heavy where it's gonna become a slow transition, even blending hydrogen with gas? So does this lay out any kind of timeframes, you feel like, you know, 15%, blend or 20, or whatever like that? Is that already been discussed?
Jane Stricker 20:46
Yeah, so earlier this year, we published another paper on Houston as the epicenter to a clean hydrogen future. And so that report lays out the pathway is with particular focus on in the Houston Ship Channel area where we have significant stationary source emissions and gray hydrogen production today, leveraging technologies like carbon capture to help transition that to clean hydrogen, we try to move away from this idea of colors. And recognizing that clean hydrogen, you know, we should be measuring by carbon intensity of the hydrogen itself, versus what the the actual sources. But we also recognize that, you know, given the significant amount of wind and solar that we've got in West Texas, there's a huge opportunity for Texas to be a producer of electrolysis based clean hydrogen as well. And so that report really lays out how these different clusters of hydrogen production could come together to really put Texas and Houston in the forefront on hydrogen production for the long term.
Sean McMahon 21:50
Well, we'll be sure to include a link to that report as well. In the show notes, it sounds pretty awesome. All right. Well, one thing I like to do the show, as I like to ask guests for bold predictions, obviously, you're part of a coalition that's pretty bullish on the future of the energy transition as it relates to Houston. So you got any predictions for me on where things will be, you know, in the Houston area and say, three or five years?
Jane Stricker 22:10
Absolutely, I think Houston is going to be the epicenter of energy transition within three to five years, I think you'll find that more and more investment players, whether it be VC or private equity, or investment bank will recognize the opportunity that exists here in Houston, I think the other thing that we'll see is this really interesting intersection of bioscience with chemical engineering, as we develop energy transition solutions. I think having Houston's Medical Center right there alongside of the energy sector will allow us to really start to see some interesting energy solutions coming together. And I think we'll start to see a lot more digital solutions coming into the Houston region as well.
Sean McMahon 22:53
Well, you said the Medical Center like I'm not falling into, how's that connected helped me out.
Jane Stricker 22:57
So it's the combination of bioscience bioengineering and chemical engineering is starting to come together to do genome based energy production. So things like some betta factory where they're using microbes, they're using microbes to do mining. They're using microbes to create clean hydrogen. There is this really interesting intersection between traditional medicine and biology and chemical engineering that I think will will open up some really interesting pathways for us in the area of plastics, recycling, mining and energy transition more broadly. Wow.
Sean McMahon 23:36
I think I gotta get smarter on that. I've never, I've never quite made the connection. All right, well, hey, Jane. I've really enjoyed this conversation. So I appreciate it. And thank you so much for your time.
Jane Stricker 23:46
Yeah, great to be here. I appreciate it.
Sean McMahon 23:49
That's our show for today. But before we get out of here, Colin and I want to say one final thank you to the exclusive sponsor of today's episode: MFS Investment Management.
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