🌎 Overheard at CERAweek

Touted as the “Davos of Energy,” CERAweek’s steamy downtown Houston setting couldn’t be more opposite of the glitzy ski resort. But it’s the place to be for energy executives in early March.

CTVC was (cowboy) boots on the ground this week as energy experts from the public and private spheres descended on Texas to discuss what comes next with energy security, transition, and access on the big stage. The conference has long been frequented by energy heads of states and oil execs, less so by climate tech founders or VCs.

Last year at CERAweek, the war in Ukraine put a spotlight on energy security. This year, in the wake of the IRA, the energy transition took center-stage with corporate execs, investors, and founders alike racing to figure out how to cash in on $369B of credits (“transition” was mentioned 237 times compared to “security” mentioned 86 times in this year’s agenda). On the innovation side of the conference (Innovation Agora), the sentiment shifted from decarbonization as “doing good” (and greenwashing) to brass tacks for implementation and sprouting signs of real partnership.

CERAweek 2023 at a glance

• Record-setter. 8,000 record attendees at the 41st CERAweek (up 60% from 5,000 last year)
• Who’s who in O&G. Key majors like Petronas, Chevron, Aramco, Exxon, and Oxy made their presence known, appearing the most on banners, stages, and name tags.
• Newcomers. While most attendees were still corporates this year, the conversations also gave more time to newcomers—innovators, project developers, investors, and project financiers were all there—bringing together the key players around the table needed to scale clean energy deployment.

TLDR; IRA was a tipping point and real-world clean energy projects and deployment now have line-of-sight. The challenges up next? Permitting and project development.

5 Key Themes

💨 Climate outcome over climate technology

• Carbon abatement and cost outcomes. Chatter at CERAweek focused on prioritizing carbon abatement and cost outcomes over cherry picking specific clean energy technology winners.
• Tech-neutral, carbon-first. With no one-size-fits-all solution, there needs to be tech-neutral, carbon-first legislation (and mindsets) to get climate tech to the exponential part of the deployment curve.

🔥 Hot Topics: Hydrogen and CCS

• Hydrogen and CCS. Despite the “no tech winner mindset,” hydrogen and CCS were the topics du jour at CERA, with 264 mentions of hydrogen and 52 references on the agenda.
• Clean molecules vs clean electrons. No surprise that hydrogen and CCUS are top-of-mind for an industry that cares more about molecules than electrons (read O&G cos). These technologies are the low-hanging fruit that slot in the easiest for O&G’s led energy transition, leveraging the same talent (chemical engineers), business models (producing, transporting, selling gas & fuels), and physical infrastructure (wells, refineries, pipelines) or add new capabilities to existing operations (CCS retrofits).

Hydrogen

• Ditch the rainbow. Discussions moved away from colors and focused on carbon intensity, mirroring the IRA 45V methodology. Carbon intensity is the metric motivating the market, rather than green vs blue vs turquoise vs gold, etc.
• A useful roadmap. For a nascent clean hydrogen industry, start with the existing market (i.e. ammonia) then build up to the promise land of transport and other applications once costs begin to fall.

CCUS

• Permitting, again. It’s the same interconnection story and challenges—point-source carbon capture tech is relatively mature, but the permitting backlog for storage and sequestration is holding up progress.
• Class VI wells are EPA-specified wells used for geological sequestration and require extensive characterization monitoring, financial, and reporting standards to prove permanence and safety.
• S > U. CCUS conversations focused more on the S than the U, likely driven by the less advantageous economics of utilization created by the IRA (e.g. $85 per ton for storage and $50 per ton for utilization).

🏭 Up next: First projects and the cost curve

• Climate tech in tween-phase. Climate tech is going through a sort of awkward puberty. It no longer has the early safety of the lab, and is starting to face the tween growing pains—going through its “firsts” when it comes to deploying projects. With most technologies past the elementary R&D phase and IRA support providing the vital policy nutrition, tech providers and developers zoomed in on permitting and projects.
• First deployments for existing technologies. Rather than spending dollars on new technologies, the emphasis was on scaling existing technologies to first and second commercial deployment—build the first, then refine and remove the bells and whistles from there.
• “Hubs, hubs, hubs” were also on the bingo card. Building these early climate tech projects in hubs at incumbent energy/ industrial ecosystems—from Houston to Saudi Arabia—leverage worker know-how, existing infrastructure, and nearby buyer markets to bring tech like hydrogen and CCUS down the cost curve faster. Corporates like Chevron and Oxy as well as governments like US DOE made a big splash for new and expanded hydrogen and carbon hubs as a test-bed to deploy initial real-world demonstrations of these technologies, including:

Chevron’s expanded carbon sequestration capacity at the Bayou Bend CCS project in Texas.

Advanced Clean Energy Storage Hub in Delta, Utah, the first utility industrial-scale renewable energy hub in the US.

A potential Gulf Coast Hydrogen Hub, along with Chevron, Shell, Exxon, and others.

• First projects in new markets. Innovators have also taken to building their first projects in emerging countries where they can find more flexible project financing and fewer permitting and regulatory hurdles.

Lanzatech is building a first of a kind bagasse to ethanol project in India, which has a viability gap funding program providing capital support for projects bridging between conventional and new technology, as well as a relatively swift approval process (e.g. fewer labor constraints and requirements i.e. apprentices).

💸 Who picks up the tab: Financing and deployment

• Corporate and concessionary capital split the check. Venture isn’t built for high capex, slow-moving project timelines, so who picks up the pilot to demonstration project financing tab? The general consensus at CERAweek was that corporates should cover those checks with patient capital, supported by some concessionary capital (e.g. Catalyst) that can afford the high-risk, low-return ratio of FOAK project investment.
• Renewables are the poster child for forging a path to bankability. Scaling more nascent climate tech will require commercial-level tech readiness as well as consistent cash flows from offtakers and strong supply chain partners. Avoiding “death by a thousand pilots” and moving into demonstrations and commercial production could be aided by corporate support, especially for the manufacturing, engineering, and project development challenges hardtech faces.
• Bridge to traditional infra-style projects. A bridge from tech viability into real-world deployments will require developers and companies alike to understand how to structure projects that have traditional infrastructure-type of risk profiles (e.g. de-risked rate of return, consistent cash flows from an offtaker, well-established supply chains to limit execution risk from delays).

🛑 Red Tape: Permitting and NIMBYs

• Permitting is the primary culprit. On top of financing, permitting is a primary culprit slowing down deployment.
• Case in point: Class VI wells. Even though a few thousand Class II wells for enhanced oil recovery have already been permitted and built, getting approval for a Class VI well takes at least two years and heaps of analysis required by the EPA. The agency’s backlog of Class VI wells grew from just a handful to 40 since the IRA passed and there’s still an invisible backlog behind that of hundreds of new CCS projects.
• So far, only two CCS projects have gotten approval for Class VI wells. North Dakota and Wyoming are the only states with primacy that have taken over this process from the EPA, but permitting at the state level has yet to move much quicker.
• Not in my backyard. These projects face the same adage of public acceptance: not in my backyard. Companies want to employ geological storage, but some are looking to transport CO2 to other countries to avoid NIMBYism.

Climate founders key in

We asked a few climate founders also in attendance about their take on this year’s CERAweek.

What was a key takeaway or learning for you from this year’s CERAweek?

“The level of interest, engagement, and government support for the energy transition is at an all-time high. This is great to see. Houston as a city is trying hard to become the global leader in clean energy innovation, with significant resources and dedicated groups towards new idea incubation.”  -Gaurab Chakrabarti, Solugen

“The oil and gas industry leaders in the executive conference showed no intention to meaningfully contribute to decarbonization; they kept referring to decades of oil and gas ahead of us, the need for an ‘orderly’ and ‘just’ transition and the efforts they were all making to reduce scope one emissions (meaningless), but not scope three emissions (significant).”           -Carlos Araque, Quaise

“We're seeing a lot more knowledge, engagement and prospective collaboration in CCS.” -Brent Lewis, Carbon America

“It’s time for startups to start delivering on their promises. Slide decks are no longer sufficient.” -Rob Hanson, Monolith

“Most of the O&G industry is focused on Blue Hydrogen (from NG + Carbon Capture). This is probably right in the short term due to scale, but I don’t think they realize what’s coming in terms of cost and scale for Renewable (Green) Hydrogen.” -Raffi Garabedian, Electric Hydrogen.

What was different from CERAweeks in the past?

“Much more vibrant and well attended than last year.” -Carlos

“A lot more people in Agora (the ‘new energies’) section of the conference.”   -Raffi

“US DOE was everywhere, helping clean energy startups apply for funds to scale their businesses.” -Gaurab

“It’s starting to look like a holistic energy system, which is where we need to mature to. There’s also less code switching, like going from oil and gas speak to climate speak. It’s all the same.” -Janice Tran, Kanin Energy.

What wasn’t talked about (that should have been)?

“Not enough ‘radical’ change is discussed. Most of the innovation is incremental and the messaging is around a ‘balanced’ energy transition from fossil based to renewables. We need to move much faster if we are going to save the planet.” -Gaurab

“The elephant in the room is still scale. The O&G people get it, but I don’t think the climate tech folks have really internalized the scale of the challenge and the associated constraints to making an impact.” -Raffi

“Where in the world are we going to get enough clean energy from to power the transition ahead? For all the progress we make with transmission, clean hydrogen, electrification, clean steel, clean cement, direct air capture and sequestration etc etc etc, it will all fall flat if the energy we need to power these innovations is not available at the multi-terawatt scale implied.” -Carlos

Bonus: Mutton Bustin’

And it’s no Houston conference without some Rodeo. Here’s a bonus video of “mutton bustin’” — aka 5-year-olds clinging on to racing sheep to see who can hold on the longest.