Climate Tech Experienced a Surge in Funding Due to Rising Energy Prices in 2020

Investor demand for technology to reduce reliance on fossil fuels soared last year as energy costs rose, providing a bright spot amid a meltdown in global markets.
According to a report published Wednesday by BloombergNEF, a clean energy research group, investment in climate tech by venture capital and private equity swelled to $59 billion in 2022, a 4% increase from 2021. Funding for transportation, including electric vehicles, and companies focusing on clean energy including solar and wind led the 1,182 deals in the period.
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Last year was a tough one for global markets, with both bonds and equities posting their worst year in a decade. However, climate tech had a robust showing, even with a roughly 30% drop in overall US VC funding from 2021 to 2022, according to preliminary data from research firm PitchBook. This was due in part to Russia's invasion of Ukraine, which pushed oil prices into the triple digits, and to economies reopening from Covid lockdowns, which lifted energy consumption and prices.
Climate-tech startups are focused on providing resources or improving the efficiency of resource consumption, according to BloombergNEF analyst and report author Mark Daly. He said that in a year when energy and commodity prices spiked, this boosted the value proposition of climate-tech startups.
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Decarbonization startups received more funding last year than they have so far in 2021. This increase in funding indicates a growing interest in these types of businesses and their potential to help reduce greenhouse gas emissions. Decarbonization startups are working on a variety of innovative solutions to climate change, and with more support, they could help make a significant impact.
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According to a recent report, there is plenty of capital available for climate-related investments in the coming years. In 2022 alone, 60 climate-focused investment funds raised a total of $24 billion. This suggests that there is strong investor interest in this area and that there is ample opportunity for further investment in the years to come.
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The median deal size expanded last year, growing to $10 million from $7 million in 2021. Among the companies that raised $1 billion or more were InterEnergy Holdings, a clean energy project developer operating in Latin America and the Caribbean, and Rubicon Carbon, which offers carbon reduction and removal services.
Climate tech is often seen as a field for fast-growing startups, but Daly noted that some investments last year didn’t necessarily require a step into little-tested approaches to tackling a warming planet. “These were late-stage deals where there’s very little technology risk, and it’s just about scaling, manufacturing,” he said.
According to Antoine Vagneur-Jones, head of trade and supply chains at BloombergNEF, companies in the United States attracted 38% of funding for clean tech innovation last year, the most of any region. This is due in part to incentives from US President Joe Biden’s landmark climate law, the Inflation Reduction Act. These incentives have encouraged investments in clean tech innovation both domestically and abroad.
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The incentives have been successful in attracting investment in a variety of sectors related to the energy transition, including battery factories, photovoltaic manufacturing, hydrogen, and carbon capture and storage.
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However, China led the way in electric vehicle and other low-carbon transport investment, accounting for 49% of the total. This was followed by the US at 19%. EV maker GAC Aion New Energy Automobile raised $2.6 billion, while Sunwoda Electronic Co. raised $1.2 billion.
Not every sector gained ground last year. Overall, funding for startups declined by roughly 17% in the fourth quarter compared to the same period a year earlier. The agriculture sector posted the biggest full-year funding decline of any sector in 2022, falling by 55%. This was due to investors flocking to tech companies that stand to benefit from new policy environments in the US and Europe that are accelerating decarbonization. Funding for alternative fuels declined throughout the year, and money for the mobility sector dried up. BloombergNEF noted that the largest ride-hailing companies, like Uber Technologies Inc. and Lyft Inc., now trade publicly and their shares suffered last year.