Today, the words “venture” and “tech” and “entrepreneur” almost exclusively conjure up notions of the software industry. But there is a rapidly growing segment of the venture community that is rather more physical than virtual: climate tech and energy transition. According to PWC, 20 to 25% of all venture capital is now being directed into this very important and critical segment. And this is justified, given that reaching equilibrium with Planet Earth is perhaps humanity’s greatest challenge of the 21st, and probably 22nd, centuries.
With April being Earth month, it’s therefore a good time for this guest blogger to reflect on climate tech and the energy transition, and to share some wisdom I’ve gained as an entrepreneur and executive in the space.
A physical challenge
The world consumes almost 700 quadrillion BTUs of primary energy per day, most of which comes from fossil fuels (oil, natural gas, coal). Replacing those sources of energy with cleaner ones can only take place in the physical world, meaning that the transition to cleaner energy sources is a physical challenge more than anything. Certainly, software solutions will greatly aid the energy transition – from carbon accounting platforms, to optimizing battery cycles, and in thousands of other ways. But fundamentally this transition needs to happen in the real world. Physical systems – large and small – must be built everywhere on earth to replace the current physical systems we rely on for power and energy. Power plants, chemical plants, refineries; generators, cars, lawn mowers; and many more industrial, commercial, and personal- machines must be replaced or upgraded to run more cleanly. And resource industries – currently dominated by fossil fuels – must evolve to accommodate new ways of sourcing different key raw materials, such as lithium and a slew of rare earth minerals.
To make that happen, tens of thousands of non-software “entrepreneurs” and their “technology ventures” will be needed over the next century. And our traditional notions of software-focused entrepreneurs and startups, and our traditional models of venture capital investing only in scalable software businesses, need to change to accommodate mechanical, electrical, and nuclear engineering, geology, mining, land, and many other disciplines.
If you have an idea of how to help the energy transition, even if it has nothing to do with software, don’t be afraid to pursue it as a startup founder.
Focus on scale
Replacing most of the earth’s primary energy needs with clean sources and eliminating 55 gigatons of CO2e emissions annually is as big a challenge as humanity has ever faced. Scale matters immensely, and the innovations and solutions that work at very large scales will be the ones that make the difference. Large physical systems, or modular products that can be manufactured at scale, are what’s needed. So as you consider your next venture – as a founder, investor, employee, or other stakeholder – take time to understand if the technology or solution involved is one that can make an impact at scale.
Work with nature
Something I’ve learned the hard way during my time in the oil and gas industry is that you have to work with nature. Trying to engineer solutions that fundamentally work against natural processes are physically challenging and very expensive, and they will never win – nature and/or economics will.
As you consider a particular energy transition opportunity, ask yourself these questions:
- How well does it rely on processes that harness natural forces efficiently?
- Is it so complicated a technology that it might only work on paper under ideal conditions?
- Does the technology appropriately address all the steps required to make it an effective and economic solution?
For instance, direct carbon capture is a large segment of the energy transition space. There are many novel technologies under development for grabbing CO2 out of the atmosphere. But collecting CO2 is only the first step of the carbon capture process. That CO2 then needs to be compressed, transported, and stored – and these latter steps are often (i) not considered and (ii) may entirely negate the benefit a particular carbon capture solution provides.
Make sure to think through all these aspects as you prioritize your opportunities.
The existing energy industries should play a leading role in the energy transition.
Much of the activity in energy transition to date has been led by the venture community, coming at the problem with a software-style VC investing mindset – while the oil and gas industry (much to its detriment in my opinion) often stands on the sidelines.
As I mentioned above, the bulk of the energy transition must occur in the real world, and what industry is better placed to re-engineer our physical energy infrastructure than it’s the current energy industries.
They have so much to offer on all fronts:
- engineering large process systems
- constructing large-scale projects
- in-depth understanding of geology (which is as important for accessing geothermal, hydrogen, helium, and rare earth mineral resources as it is for oil and gas)
- complicated joint venture accounting practices
- complicated land and legal mechanisms for sharing natural resources such as land and subsurface rights
The list goes on.
If you currently work in a fossil-fuel industry, see that as an advantage rather than a disqualification for pursuing energy transition. You have more to offer than you may think.
But during this Earth Month, consider how you can help use the basic principles of innovation, entrepreneurship and science to solve this difficult problem. It is going to take all of us!
About the Author
Matthew Ciardiello is a career entrepreneur, executive, and principal investor in the energy industry with experience across the whole energy value chain. He currently serves as the Co-founder & CEO of TerraStor Energy Corporation, a developer of grid-scale energy storage systems utilizing advanced compressed air energy storage (ACAES) technology. Previously, he has served as the founder and CEO of Poplar Resources, and worked for Magellan Petroleum, Mubadala, Arcapita, and Compass Partners. He graduated from Harvard with an A.B. in Classics and is a CFA charterholder. He currently lives in Fort Worth, Texas, with his family and is active on several non-profit boards.