Climate Tech Investment in US Rebounds Strongly in 2024

US investment in climate technology has had a strong return in 2024, powered by supportive federal policies and revived investor appetite for clean energy technologies. The climate tech space has seen six consecutive months of growth in investments, a strong recovery after a fleeting dip, according to a latest report by Silicon Valley Bank (SVB). This expansion is heavily driven by legislative incentives such as the CHIPS and Science Act and the Inflation Reduction Act, whose provisions have made clean energy projects more economically viable.

Large rises in venture capital investment in clean energy startups, carbon capture, and green manufacturing technology can be attested to by the report. More interestingly, climate tech funds initiated between 2020 and 2024 have fared better in the broader VC market with improved rates of return. While the broader venture capital ecosystem is still risk-averse, the climate tech world is seeing growing interest, especially in the case of early-stage firms. These earlier-stage firms have demonstrated more resilience than later-stage firms in the past three years, indicating investor confidence in fresh, growth-driven innovations.

The ongoing energy transformation in the US is also occurring at a highly accelerated pace. An estimate is that by the year 2030, over 50% of the nation's electricity supply will be coming from renewable resources. This is also paving the way for ancillary technologies such as energy storage devices, demand response systems, and high-order grid transmitting systems. The shift also includes national goals towards reducing emissions and establishing a clean energy grid.

As great news is the norm, there is also emerging evidence of increased challenges. More than half a million US climate tech startups will need more money by 2026, and the majority are already working with tighter budgets. The financial burden on these startups highlights the imperative for continued support funding to maintain pace and innovation momentum in the sector. Particularly, hardware-focused climate tech startups have seen their growth rate slow dramatically—58% in 2021 to a paltry 19% in 2023. In contrast, software-focused startups are faring better, maybe because they require less money and have shorter deployment times.

Market report statistics show that 382 deals have been finalized so far in 2024 with a value of over $7 billion. That represents a 15% increase compared to last year and close to double investment prior to the COVID-19 pandemic. The direction is a reflection of the fact that the climate tech sector is not only recovering but also changing, with new players taking over investor focus and capital movement.

As the market grows, investors increasingly are looking to opportunities that provide solution options instead of electrification and emission reduction goals. Prospects such as clean fuel, dispatchable renewable energy, and new carbon capture technology are priorities of attention. Incentive programs driven by policy and emerging market demand can ensure this direction in the upcoming years if startups manage to overcome the funding constraints sufficiently.

Overall, the US climate technology investment environment is showing clear indications of re-activation and overhauling. Investor appetite and policy support on the books, the sector appears poised to keep growing, especially if seed-stage agitators can keep gathering momentum. Nevertheless, the necessity for steady capital and strict cost control still lies at the center of keeping the sector in flywheel.

Source: Silicon Valley Bank Report
Credits: Jithin Joshey Kulatharayil, KnowESG Senior Content Writer