Withdrawal from 2022, it is no secret that investors are looking for safe investments. In a challenging market with high interest rates, that’s no surprise, but it can raise eyebrows where investors think those quality investments are bogus. It’s on the rise in climate technology.
The sector was He had a crazy 2021, and while 2022 didn’t top those heights, he didn’t have a bad year either. So far, venture capitalists have invested $24.9 billion in climate technology startups, compared to $31.9 billion in 2021, according to Pitchbook data. Many observers Even if you think 2021 is an outlier, perhaps this year’s dip is unusual in terms of the sector’s potential. Five years from now, PitchBook expects climate technology to be a $1.4 trillion market.
As much as venture capitalists like to say their investment decisions are unfettered by political and geopolitical developments, next year’s deal flow may be driven by just that.
The trends that started to take hold this year will sink their teeth into the market. The year began with Russia’s decision to invade Ukraine, and this winter took an unlikely but welcome turn with the passage of the Inflationary Reduction Act (IRA). Together, these two developments have done more to shape the recent climate technology landscape than any other.
So with more investors dipping their toes into the climate world, let’s take a look at where they’re putting their money to work.
Software to deploy and manage renewable energy
Russia’s invasion of Ukraine has led many countries to impose sanctions on the offensive’s oil and gas. He also sent them to find an alternative. While renewables won’t be able to replace that demand in a few months, the self-imposed shortage has caused many economies to reconsider their reliance on fossil fuels. This has led to increased demand for wind and solar power, and most importantly, large batteries to ensure those intermittent sources provide constant and stable electricity to the grid.
The IRA further strengthened its strong position on renewable energy. The law extends the tax credits — due at the end of the year — through 2032, giving developers room to propose and implement new projects on a larger scale. As a result, Deloitte expects IRA to promote up to 550 gigawatts of utility-scale clean energy by the end of the decade.
As renewable projects grow more sophisticated — thanks in part to batteries — developers need software and platforms to manage them. In the coming year, I expect to see growing investor interest in software solutions startups focused on renewables and grid-scale batteries.
Direct air intake
In addition to renewables, the IRA also includes carbon capture projects through enhanced tax credits. While all forms of carbon capture benefit from this, I suspect investors will pay more attention to direct air capture, which pulls carbon dioxide directly from the atmosphere rather than from the exhaust stream. The IRA offers a tax credit of up to $180 per metric ton, a significant increase from the $50 per metric ton previously offered.
