From America it seems that for climate technology startups ‘it’s going to be a tough six months’ says PicthBook and as the industry adjusts to a new energy policy regime under newly elected President Donald Trump, ‘there will be a chill in the air for project funding and major fundraising for companies in the firing line’. The conservative action plan, Project 2025, would frown upon Democratic climate policies; we wrote about it here.
Over the past period, returns in the sector have declined, despite Biden’s policies such as the Inflation Reduction Act (IRA) of 2022, which earmarked about $1 trillion for the energy transition, late-stage and growth-stage companies have raised a total of $5 billion in venture capital this year, compared to $14.8 billion raised in 2023, according to the third-quarter 2024 Carbon & Emissions Tech Report. The state of VC funding for climate technology looks very different from a few years ago, most likely because low interest rates had previously driven elevated activity by generalist funds bullish on the energy transition.
Against this backdrop, in parallel, the latest news from the technology sector in recent months has been about big tech moving towards nuclear power. The first to point in the direction of nuclear power was Amazon in March this year, purchasing a nuclear-powered data centre from Talen Energy. This was followed in October by Microsoft, which together with Constellation Energy signed an agreement to restore a unit of the Three Mile Island plant in Pennsylvania, site of one of the worst nuclear accidents. And in the same month, Alphabet (Google) also declared that it had signed the world’s first agreement with the start-up Kairos Power to purchase energy from small modular reactors (SMRs) to meet the need for electricity supply by artificial intelligence.
Here, the climate tech sector’s poorest returns come at a time of great need: data centres are devouring energy due to the strong growth in demand for artificial intelligence and the cloud. The energy consumption of US data centres could thus roughly triple between 2023 and 2030, requiring nearly 47 gigawatts of new generation capacity, according to Goldman Sachs, the same people who previously assumed that natural gas, wind and solar power would fill the gap.
It is precisely the turn of Microsoft and Google towards nuclear power that has caused the share prices of companies active in the nuclear energy sector to skyrocket in the last period. The Financial Times emphasises how these agreements represent a real ‘rebirth’ of the nuclear industry after the collapse of confidence following the Fukushima disaster in 2011.
For the first time, the need to power increasingly energy-intensive data centres and reduce dependence on fossil fuels is driving technology giants to invest in advanced nuclear solutions.
However, this could prove to be an opportunity, like Trump’s own victory. Indeed, the reliance on nuclear energy could lead policies to invest in different solutions, pushing more on clean tech. It should not be forgotten that Trump will find it difficult to get rid of the Inflation Reduction Act, despite the fact that as a candidate he promised to do so and at the same time pushed for new oil exploration. Indeed, many ‘conservatives have seen a disproportionate influx of clean energy investment and jobs into their constituencies’, writes the Guardian, and indeed, that the green transition will require more jobs than it will lose has long been known according to the International Energy Agency. Moreover, this prospect of less federal support for new climate technologies is already motivating some investors to step in to fill the gap: for example, the European Investment Fund (EIF) has committed €50 million to the World Fund, dedicated to the development of climate technologies. This commitment joins that of over 200 other investors, including PwC Germany, Ecosia and the UK Environment Agency’s pension fund. “The last time Trump was in power, there was an acceleration of private capital pouring into certain climate areas to make up for gaps that the government was retreating from, and I expect the same thing to happen again,” says Philip Krim, co-founder and CEO of Montauk Climate. “We think of this as an opportunity to get in where the capital is starting to dry up.” Indeed, some investors see Trump’s return as an opportunity, despite governance-related macroeconomic uncertainty. ‘Politics goes up and down. It’s like a rollercoaster,” explained David Miller, co-founder and managing partner of Clean Energy Ventures. “A good investment strategy is to invest at a low price when things seem less certain and sell at a high price.”
But what we are seeing in the growth of clean energy would be about geopolitical changes. Energy policies and climate goals, while influential, would no longer be the only factors driving clean energy growth. As stated in IMPact’s Monthly Macroeconomic Outlook. Today, ‘control of clean technologies has become the subject of geopolitical and industrial competition between different economic areas, primarily China, the United States and Europe’.
To get a better overview, we spoke with Dario Mangilli, head of sustainability at IMPact.
- How are the US, China and Europe competing for primacy in clean technologies, and what industrial and geopolitical strategies are they adopting?
Although energy policies and climate goals remain influential factors, today the growth of investment in clean technologies is increasingly driven by geopolitical and industrial competition between different economic areas, primarily China, the United States and Europe. The experience of recent years has shown how quickly dependencies can turn into vulnerabilities, a lesson that also applies to clean energy supply chains, which are characterised by high geographic and market concentration. Dominating both production and demand for clean energy technologies today is China. Of the 17 million electric vehicles sold in 2024, 10 million were sold in the Chinese market, accounting for over 50% of the cars sold in the country. More than 60% of the global photovoltaic capacity installed in 2023 is Chinese. China’s share in the global production of all six major clean technologies, by value, is now around 70%. For example, China’s largest solar photovoltaic production plant, under construction in Shanxi province, could alone produce enough modules to cover virtually all EU demand. In response to Chinese dominance, in the last two years the US has introduced the Inflation Reduction Act (IRA), Europe the Green Deal Industrial Plan and Japan the Green Transformation Plan.
- What scenarios lie ahead for the cleantech sector with Donald Trump’s victory? And to what extent could the Inflation Reduction Act survive a change of presidency, and what role could private capital play to offset any federal cuts?
Donald Trump’s return to the White House represents a significant unknown for the global clean technology landscape, but it is unlikely to result in a drastic downsizing of the sector’s growth prospects. In the US context, it remains difficult to imagine that Trump’s ideological opposition to the climate issue will be such that it will erode economic interests from existing renewable energy funding. An example of this is the recent lobbying by Republican congressmen to maintain the Inflation Reduction Act tax credits, which have had a significant employment impact especially in traditionally Republican states.
- In the light of macroeconomic and political uncertainty, what opportunities open up for the stock market and private investors in the climate technology and clean energy sector?
Looking at the growth prospects of the market, the opportunities are considerable. According to data from the International Energy Agency (IEA), the size of the global market for the six major clean energy technologies – solar PV, wind, electric vehicles (EVs), batteries, electrolysers and heat pumps – has grown almost fourfold since 2015, exceeding $700 billion by 2023, equivalent to half the global natural gas market. Under current policies, the value of key clean technology markets is set to triple by 2035, exceeding $2 trillion, a level equivalent to the current global oil market . Il commercio di tecnologie pulite vale già ad oggi 200 miliardi di euro all’anno . Il contributo principale viene dalle auto elettriche, che ne rappresentano il 20%. Il fotovoltaico solare è la seconda tecnologia più commerciata . Il valore del mercato globale di queste tecnologie dovrebbe raggiungere i 575 miliardi di dollari entro il 2035.
Over the past three years, listed financial markets have gone from unbridled optimism to cosmic pessimism in pricing cleantech stocks, in the face of a structural growth trajectory of technologies instrumental to decarbonisation processes. While the industrial strategies of Europe, the United States and China will inevitably have significant implications for investors in the coming years, it remains difficult today to understand what the net effects will be: rising production costs and industrial decoupling are opening up new scenarios, characterised by high uncertainty and destined to influence the global economic landscape during the course of 2025. It will remain crucial to monitor the ability of individual cleantech companies to defend their margins and to carefully assess whether it will be stimuli on the cleantech supply curve or inflationary pressures on the demand curve, resulting from protectionist measures and re-shoring processes, that will dominate.
- Is the return to nuclear power by tech giants like Google and Microsoft a temporary solution or a trend that will redefine the future of the energy transition?
It is not a temporary solution, but a structural trend. In the Net Zero scenarios outlined by international organisations such as the International Energy Agency (IEA), nuclear power plays a crucial role. Specifically, according to the IEA’s Net Zero Emissions Scenario (NZE), global nuclear capacity is expected to grow significantly by 2050, contributing around 12-15% of the global energy mix. This implies an increase in installed capacity from about 400 GW today to over 800 GW by 2050, through the upgrading of existing plants and the development of new technologies, such as small modular reactors (SMRs). It is not technically possible today to imagine more electrified and decarbonised energy systems without the use of nuclear energy. Germany, which decided to exit nuclear power following the Fukushima accident, now finds itself with coal still as its main source of electricity.
- How is the growing geopolitical competition influencing research and development in climate technologies? Could the control of clean technologies become a strategic weapon in international relations?
Controlling the value chains and market for clean technologies means not only gaining international leadership in decarbonisation strategies, but also ensuring greater energy security, increased employment capacity and a more competitive energy price in a fragmented and vulnerable international geopolitical scenario. Research and development in climate technologies will see public and private budgets grow structurally. The countries that will invest the most in new climate technologies will be those with the greatest industrial competitiveness. And this does not only apply to mitigation climate technologies, but also to those instrumental in developing adaptive capacity in the face of the inevitable worsening impacts of climate change in the coming years. It is certain that the climate crisis will worsen and the effects will be material for all sectors. Investing in adaptation and resilience technologies will be crucial to protect key sectors from the destructive effects of climate change. A representative example can be found by looking at the investments big tech companies and governments are making in weather forecasting: being able to more accurately predict extreme events will become a source of competitive advantage for entire sectors. (Photo by CHUTTERSNAP on Unsplash)
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