With the year 2022 withdraw, investors make no secret that they are looking for safe investments. In a challenging market with higher interest rates, that’s no surprise, but what might surprise investors is where those quality investments lie. More and more climate technology.
The sector has had a crazy 2021, and while 2022 may not surpass those peaks, it hasn’t been a bad year at all. Venture capitalists have invested $24.9 billion in climate tech startups to date, compared with $31.9 billion invested in 2021, according to PitchBook data. While many observers see 2021 as an exceptional year, it’s possible that this year’s drop could be more unusual given the industry’s potential. Five years from now, PitchBook expects climate technology to become a $1.4 trillion market.
While venture capitalists like to say that their investment decisions are not influenced by political and geopolitical developments, it is likely that next year’s trading flows will be driven by the very same thing. there.
The trends that start to take hold this year will really take their toll on the market. The year started with Russia’s decision to invade Ukraine, and it took an unlikely but welcome turn this summer with passed the Inflation Reduction Act (IRA). Together, those two developments have done more to shape the recent climate technology landscape than any other.
So, with more and more investors wanting to dip their toes into the climate world, let’s take a look at where they might be putting their money into the operation.
Renewable energy management and deployment software
Russia’s invasion of Ukraine prompted many countries to embargo the aggressor’s oil and gas. It also sends them looking for alternatives. While renewables cannot replace that kind of demand in a few months, the self-imposed shortfall has led many economies to reconsider their reliance on fossil fuels. That has sparked growing interest in wind and solar power, and more importantly, large batteries to ensure those intermittent sources can provide uninterrupted power, stabilize the power grid.
The IRA reinforces the strong position of renewables. The law extended tax credits — which expire at the end of this year — to 2032, giving developers space to propose and launch new projects at scale. The result is Deloitte expectation IRA to promote up to 550 gigawatts of clean energy at utility scale by the end of the decade.
As renewable projects grow more complex — made possible in part by batteries — developers will need software and platforms to manage them. Over the next year, I expect we will see increasing investor interest in startups with software solutions focused on renewable energy and grid-scale batteries.
Live air capture
In addition to renewables, the IRA enhances carbon capture projects through enhanced tax credits. While all forms of carbon capture benefit from this, I suspect investors will pay the most attention to direct air capture, rather than carbon dioxide absorption from the airflow. waste, they will suck directly from the atmosphere. The IRA offers a tax credit of up to $180/ton, a significant increase from the $50/ton previously offered.
