Funding Friday: Climate Tech’s Pivot to Data Centers Continues

I’ve said it before and I’ll say it again. It feels like overnight, every climate tech startup has suddenly become a data center startup. They’re either supplying power to hyperscalers, optimizing their operations, or divining ever more creative ways for them to circumvent the backlogged interconnection queue. Nearly all of the companies I highlight this week are helping data centers get up and running as quickly (not to mention cleanly) as possible, whether that was their original mission or not.

We’ve got Arbor, an energy startup built on rocket engine tech targeting data center customers as it signs a major power deal with GridMarket; power electronics startup Scalvy raising capital to bring its power electronics to server racks; renewable energy company and U.K. utility Octopus Energy acquiring a controlling stake in another VPP company that promises to help data centers come online faster; and data center developer Crusoe cutting two major battery deals at the CERAWeek energy conference.

In an attempt at balance, I’ve also included two pieces of non-data center news: A big fundraise for a fossil fuel industry-backed climate investment firm, and a report on a scrappy artificial intelligence startup, Everstar, which is partnering with the federal government to accelerate licensing for new nuclear reactors.

Arbor Secures 5-Gigawatt Deal with GridMarket to Power Data Centers With Rocket Tech

The energy company Arbor recently signed a deal with GridMarket, a company that helps facilitate the design and deployment of distributed energy projects for data centers and other industrial users, worth somewhere “in the single-digit billions of dollars,” Techcrunch reports. The nonbinding agreement will see Arbor providing up to 5 gigawatts of zero-carbon power to GridMarket beginning in 2029, contingent on its ability to hit manufacturing milestones.

Like so many other energy businesses, Arbor has adapted its strategy in response to the data center boom. Founded by SpaceX alums in 2021, the company developed a small, highly efficient turbine inspired by advances in rocket engine turbomachinery that gasifies biomass and combusts the resultant syngas with pure oxygen to generate electricity. The waste CO2 is then transported via pipeline for permanent storage. Because biomass has already sequestered carbon from the atmosphere, the process counts as carbon negative. But to meet soaring data center electricity demand, Arbor has now evolved its strategy to burn natural gas, too — making data center deployments easier to finance and build, while allowing projects to scale beyond the inherent fuel limitations of waste biomass.

Theoretically, Arbor’s data center customers could switch between different fuel sources if they so wish. “We see fuel flexibility as really important,” Arbor’s CEO Brad Hartwig told me earlier this month. “You can actually start at zero-emissions and then later go carbon negative. So we expect that will actually be a pretty compelling and central part of our offering, is this ability to not be locked into one fuel source.”

Arbor’s natural gas-fueled turbines will still be low-carbon because of the sequestered emissions, but not fully neutral due to unavoidable methane leaks in the natural gas supply chain. The 3D-printed machines ship as pre-assembled, 25-megawatt units, which can be combined into larger systems as needed. By 2030, the company aims to deliver over a gigawatt of new power capacity annually — still only a fifth of the total capacity outlined in its deal with GridMarket.

Scalvy Lands $13.9 Million to Bring Distributed Power to AI Infrastructure and Beyond

Like Arbor, distributed power company Scalvy wasn’t founded with data centers in mind. Its initial mission was to build modular powertrain electronics for electric vehicles, but the company has since pivoted to managing power flow on data center server racks. While power electronics typically take up their own shelves, Scalvy’s small, distributed units can work within the racks themselves to convert the AC power coming off the grid to DC directly at the load point, conserving space and thus allowing for higher-density computing.

Scalvy’s push into the booming AI data center market is looking like a wise move, as it announced an oversubscribed $13.9 million Series A funding round this week, which included participation from some climate tech venture firms such as Azolla Ventures and Climate Capital. The company hasn’t abandoned its roots, though, as it still lists electric mobility and energy storage among its priorities.

The value proposition is essentially the same across all these industries, Mohamed Badawy, Scalvy’s co-founder and CEO, explained in a statement — higher power without sacrificing space, cost, or system design. The startup will use this new capital to accelerate product certification, run field tests, and begin deployments with real-world customers. While Scalvy hasn’t disclosed any names, Azolla Ventures’ Matthew Nordan told me last year that the company has an agreement in place with a major data center operator that, as he put it, is “one of the large names that you would expect.”

Big Oil-Backed Climate Investment Secures $450 Million for Missing Middle Financing

About a decade ago, a multinational consortium of 12 oil and gas majors including ExxonMobil, Chevron, Saudi Aramco, and Shell, started the venture firm Climate Investment with a mission to back the next generation of infrastructure, which they supposedly believe will be “climate-based.” It can be hard to take the fossil fuel industry seriously on things like this, as the biggest companies in the space continually walk back their climate commitments and investments. But this week, Climate Investment announced a new commitment to climate initiatives — a $450 million growth fund intended to scale-up decarbonization technologies and help them bridge the dreaded “missing middle,” the gap in climate financing between a company’s early-stage funding rounds and its commercial deployment.

This is the firm’s second fund. The first — a $1 billion vehicle — focused primarily on carbon capture and storage as well as methane abatement across the natural gas value chain. This second fund, however, suggests a shift in priorities. Its four initial investments span AI-enabled infrastructure modeling, data center cooling systems, offshore geospatial data collection, and vapor recovery tech for oilfield emissions control.

To date, Climate Investment has backed more than 40 companies that it says have delivered over 150 million metric tons of cumulative emissions reductions.

Octopus Energy Leans Into the U.S. Market With a Majority Stake in Uplight

Renewables-focused Octopus Energy has extended its tentacles across the U.K. to become the state’s largest energy supplier. Now it’s looking to further expand its footprint in the U.S., where it’s currently confined to Texas’ deregulated electricity market. With its recent acquisition of a majority stake in the distributed energy resource platform Uplight, Octopus is now positioned to become a key partner for a whole host of U.S. utilities seeking innovative ways to manage the rapid growth in data center-driven electricity demand.

Uplight, last valued at $1.5 billion in 2021, builds platforms for utilities and energy providers that aggregate distributed energy resources into so-called virtual power plants. VPPs respond in real-time to grid demands by ramping these distributed resources up or down, coordinating them to operate like traditional power plants while also shifting energy to off-peak hours as needed. If data center operators can finance or otherwise support the buildout of VPP infrastructure in their communities, they can essentially bring their own capacity to the market, making it faster to get online by avoiding the need to build additional energy infrastructure.

Octopus now has access to Uplight’s 85 utility partners and 8.5 gigawatts of distributed energy resources. Also participating in the deal was Schneider Electric, a previous investor that will remain a minority partner in Uplight, although the deal amount and other financial details have not been disclosed.

Crusoe Cuts Big Battery Deals With Form Energy and Redwood Materials for Data Center Buildout

Data center developer Crusoe — which is reportedly eyeing a pre-IPO fundraise — cut two big deals at the CERAWeek conference this week. The first is a contract with Form Energy to buy 120 megawatts of its iron-air batteries, which would provide 12 gigawatt-hours of multi-day battery storage for AI data centers starting in 2027. Form — which has raised $1.4 billion to date — is on a tear recently, having just announced that it’s going to build a 30-gigawatt-hour battery for a Google data center in Minnesota.

Second, Crusoe announced an expansion of its existing partnership with the battery recycling-turned-energy storage company Redwood Materials, which recently raised a $425 million Series E round following its pivot to using second-life EV batteries for data center power. Redwood is already operating its first microgrid pilot in partnership with Crusoe in Nevada, where a 12-megawatt battery system with 63 megawatt-hours of energy storage supplies four of Crusoe’s modular, off-grid, and renewable-powered data centers.

Having deemed this initial deployment a success, Crusoe now plans to add an additional 20 modular data centers onsite, increasing the total compute capacity by nearly sevenfold.

Taken together, these two deals underscore just how far Crusoe has come from its original model of utilizing stranded natural gas from oilfields — which would otherwise be flared — to power bitcoin-mining operations.

Crusoe didn’t disclose terms for either deal.

AI Startup Everstar Teams Up With DOE, National Labs, and Microsoft to Accelerate Nuclear Licensing

Everstar, a startup building AI software to help nuclear companies speed up their regulatory timelines, announced a collaboration with the Department of Energy, multiple national labs, and Microsoft as a part of DOE’s Genesis Mission, a program designed to leverage advanced AI and other tools to accelerate scientific discoveries, including how energy systems are designed, tested, and deployed.

To demonstrate its capabilities, Everstar converted a required DOE safety analysis document into Nuclear Regulator Commission licensing documents in a single day — a process that typically takes a team four to six weeks. “We’re often looking at like 5,000- to 10,000-page documents submitted ad nauseam, until you reach 2 million pages to get approval,” Everstar’s CEO and founder Kevin Kong told me. Licensing applications are the first problem the startup has trained its models to handle, but it aims to extend into other areas of the nuclear value chain such as streamlining reactor design, plant operations, and manufacturing workflows.

“The ultimate goal of the company is to reduce costs of building American reactors on American soil by an order of magnitude, so we’ve got a much longer journey ahead of us,” Kong told me.