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A slew of sector-specific issues — including, surprisingly, the methodical rollout of the Inflation Reduction Act — have recently made for a bumpy ride.
A hiccup?
A speed bump?
A snag?
Whatever you want to call it when investors become harder to reach, suppliers drive a harder bargain, and new hires get delayed, the climate-tech and renewables industries seem to be experiencing it.
Since the year began, the pace of new investment in climate-tech and renewables companies has slowed. High interest rates are starting to make some projects unattractive. And a slew of sector-specific issues — including Silicon Valley Bank’s collapse and, surprisingly, the methodical rollout of the Inflation Reduction Act — are causing leaders across climate-related companies to tap the brakes.
“I do think it’s a softening of the market,” Tim Latimer, the CEO of Fervo Energy, a Houston-based geothermal startup, told me. “Without a doubt, it’s more difficult and it takes longer to close funding rounds today than it did 12 or 24 months ago.”
“There’s definitely been a little bit of a slowdown,” Jorge Vargas, the cofounder and CEO of Aspen Power Partners, a renewables developer, said.
Last quarter, venture-capital investment in climate-tech startups dropped to its lowest level since the spring of 2020, according to Pitchbook data. The total value of deals fell 36% since the previous quarter and is down 51% since 2021’s all-time high.
In raw totals, there were only 279 climate-tech deals completed in the first three months of the year — the lowest level since 2019, according to Pitchbook.
“People made a variety of bets over the past 36 months as capital — which was long overdue — came into climate tech,” Latimer said. “Now people are being a little bit more discerning about which companies and teams are hitting their milestones.”
“It’s nowhere near as pronounced as what we’ve seen in the tech space,” he added.
The industry clearly isn’t in crisis yet. New climate-focused venture funds are still opening. By any measure, climate-tech startups are having an easier time fundraising now than they did in the late 2010s, when less than $2 billion flowed into the space in some quarters, Pitchbook data shows.
Still, the pullback has caused some of the very youngest companies to delay hiring or reduce their headcount, Latimer said. At least one climate-tech unicorn has made a similar move. Last week, Arcadia, a climate-data and software provider last valued at $1.5 billion in December, laid off about 9% of its employees. The company had “almost 700” employees late last year.
“This painful but necessary decision was reached after carefully weighing Arcadia’s market-leading position against the uncertain outlook for the economy,” Gabriel Madway, the company’s vice president of communications, told me in a statement.
But Arcadia is an unusual climate-tech firm in some respects: Founded in 2014, it is nearing its 10th birthday, a de facto make-or-break moment for venture-funded companies. Most climate-tech startups are younger and have spent less of their investment. And the market for climate-curious engineers, programmers, and project managers is still brisk, by all reports. Climate-tech job boards such as Climatebase still show hundreds of open positions.
“Valuations were good enough in ‘21 and ‘22 that people raised fairly sizable [investment] rounds, and people have positioned their company so they have 18 months of runway,” Latimer, the Fervo CEO, said.
If leaders see a slowdown, that “means you would’ve grown 10x and now you’re growing 3x,” he told me. “If you zoom out on a five-year time horizon, it’s nothing. It’s at most a blip.”
Clay Dumas, a partner at the climate-focused fund Lower Carbon Capital, doubted that climate tech was in a serious moment of crisis. “While investors are catching their breath post-[Silicon Valley Bank], the tailwinds for climate tech are only gathering strength,” he told me in an email.
Whatever you want to call it — a blip? a breather? a gurgle? — most executives agreed that companies are dealing with two sector-specific sources of uncertainty beyond the broader, economy-wide fears of a recession. The largest might surprise environmental advocates: It’s President Joe Biden’s flagship climate law, the Inflation Reduction Act.
On paper, the Inflation Reduction Act, or IRA, should be good for anyone in the climate business. Since the act — initially forecast to spend $374 billion on climate — was passed last year, banks have fallen over themselves to publish new and engorged estimates of its impact. The law will pay out more than $800 billion, Credit Suisse analysts insisted in October. No, it will spend $1.2 trillion, and unleash another $3 trillion in private investment, a Goldman Sachs team replied last month.
No matter the topline number, just about everyone agrees the law will ultimately transform companies that work on climate change.
But for now, companies find themselves in a limbo where the law has been passed, and their suppliers and customers know the climate economy is about to boom — but the money hasn’t started to flow.
Although the Department of the Treasury and the IRS have set up programs for electric vehicles, they have yet to publish guidelines for some of the law’s most important tax credits, including those meant to boost the clean hydrogen industry or support renewables projects in low-income areas. The Department of Energy and the Environmental Protection Agency, which oversee some of the law’s largest targeted programs, are still setting up those opportunities or inviting organizations to apply for them.
That is making it hard for companies that will benefit from those programs to prepare for the future. “Not knowing when the incentives will hit the market makes it hard to do planning,” Andy Frank, the CEO of the home-weatherization company Sealed, told me. This could leave startups and companies less well staffed and less ready to take advantage of the IRA’s programs when they actually launch.
“If the whole goal of the IRA is to unlock private capital, the longer there is uncertainty as to what things will look like, then the longer private capital will sit on the sidelines,” Frank said. “On the other hand, if they announce rules tomorrow that are really crappy … then private capital will also sit on the side lines.”
The outlook was slightly different in renewables world, Vargas, the CEO of the renewable developer Aspen Power, said.
“We speak about a windfall, and everyone is excited, but it hasn’t trickled into the economics of projects. This stuff is barely scraping by,” Vargas, who used to lead Morgan Stanley’s solar financing office, said.
“The cost of building projects has increased because of [the] IRA,” he said. “After all the adders were announced — all the vendors, all the construction, they raised their prices. It’s just a passthrough.”
Latimer, the Fervo CEO, was more upbeat.
“We know that the IRA will be a generationally defining investment opportunity for anyone working in the clean energy sector,” he said. “But for specific technologies, for how fast and how quickly and how much capital they’ll need to scale up, we don’t know yet. The whole industry is waiting for more guidance on the law interpretation.”
At the same time, parts of the broader climate industry are just getting over a Silicon Valley Bank-shaped speed bump.
Silicon Valley Bank, or SVB, collapsed in March after suffering a run fueled by panicky investors. The bank was “an integral part of the early-stage climate tech community,” Gabriel Kra, a climate-focused venture capitalist, told me at the time. But the bank was particularly important for financing community solar projects, a type of large-scale solar farm that collectively benefits a pool of individuals, companies, or nonprofits. The bank said that it had financed 62% of all community-solar projects nationwide.
“Three to five years ago, SVB was one of the only shops in town,” Jeff Cramer, the president and chief executive of the Coalition for Community Solar, told me. “Now there are more banks that are comfortable with community solar.”
Still, the bank’s collapse problem set back Vargas’s company, Aspen Power. In early March, Aspen Power was in the final stages of closing a new lending arrangement with SVB. It also kept one of its cash accounts there.
Then SVB fell apart. “We thought, ‘Oh my God, we’re so screwed,’” Vargas told me, although he added that the firm had cash at another bank and was never in serious danger of missing payroll. Within days, the federal government stepped in to guarantee SVB’s depositors, and Aspen Power eventually opened a new lending facility with another bank.
The entire episode “slowed us down about three weeks,” he said.
“If you add in the SVB collapse and you add in uncertainty around [the IRA’s] business credits … there’s a bit of a hold” across the community solar industry, Cramer said. “It doesn’t mean that there’s uncertainty in those projects generally. It’s simply a matter of timeline that when it makes sense for those projects to energize.”
“If you go out three, four, years, I don’t think it will change the amount of [solar] capacity or number of customers overall,” he said.
A bit of a hold — a three-week delay — these things might seem like a hiccup, but they can be more destabilizing for companies that depend on a steady flow of new renewable projects coming online. The question for climate-tech and renewables companies — and the American economy — is whether the past month’s wobbles are the start of something more serious, or whether they’ll be forgotten by the summer. Dumas, the climate-focused venture capitalist, was optimistic.
“Profit motive, national security, cultural and corporate attitudes, plus more than a trillion dollars in government spending and AI-boosted discovery are all accelerating adoption of new products and technologies that [will] win,” he told me. “They’re better, faster, closer, [and] cheaper, on top of being lower carbon.”
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The agency provided a list to the Sierra Club, which in turn provided the list to Heatmap.
Officials at the Environmental Protection Agency remain closed-lipped about which grants they’ve canceled. Earlier this week, however, the office provided a written list to the Sierra Club in response to a Freedom of Information Act request, which begins to shed light on some of the agency’s actions.
The document shows 49 individual grants that were either “canceled” or prevented from being awarded from January 20 through March 7, which is the day the public information office conducted its search in response to the FOIA request. The grants’ total cumulative value is more than $230 million, although some $30 million appears to have already been paid out to recipients.
The numbers don’t quite line up with what the agency has said publicly. The EPA published three press releases between Trump’s inauguration and March 7, announcing that it had canceled a total of 42 grants and “saved” Americans roughly $227 million. In its first such announcement on February 14, the agency said it was canceling a $50 million grant to the Climate Justice Alliance, but the only grant to that organization on the FOIA spreadsheet is listed at $12 million. To make matters more confusing, there are only $185 million worth of EPA grant cuts listed on the Department of Government Efficiency’s website from the same time period. (Zeldin later announced more than 400 additional grant terminations on March 10.)
Nonetheless, the document gives a clearer picture of which grants Administrator Lee Zeldin has targeted. Nearly half of the canceled grants are related to environmental justice initiatives, which is not surprising, given the Trump administration’s directives to root out these types of programs. But nearly as many were funding research into lower-carbon construction materials and better product labeling to prevent greenwashing.
Here’s the full list of grants, by program:
A few more details and observations from this list:
In the original FOIA request, Sierra Club had asked for a lot more information, including communications between EPA and the grant recipients, and explanations for why the grants — which in many cases involved binding contracts between the government and recipients — were being terminated. In its response, EPA said it was still working on the rest of the request and expected to issue a complete response by April 12.
Defenders of the Inflation Reduction Act have hit on what they hope will be a persuasive argument for why it should stay.
With the fate of the Inflation Reduction Act and its tax credits for building and producing clean energy hanging in the balance, the law’s supporters have increasingly turned to dollars-and-cents arguments in favor of its preservation. Since the election, industry and research groups have put out a handful of reports making the broad argument that in addition to higher greenhouse gas emissions, taking away these tax credits would mean higher electricity bills.
The American Clean Power Association put out a report in December, authored by the consulting firm ICF, arguing that “energy tax credits will drive $1.9 trillion in growth, creating 13.7 million jobs and delivering 4x return on investment.”
The Solar Energy Industries Association followed that up last month with a letter citing an analysis by Aurora Energy Research, which found that undoing the tax credits for wind, solar, and storage would reduce clean energy deployment by 237 gigawatts through 2040 and cost nearly 100,000 jobs, all while raising bills by hundreds of dollars in Texas and New York. (Other groups, including the conservative environmental group ConservAmerica and the Clean Energy Buyers Association have commissioned similar research and come up with similar results.)
And just this week, Energy Innovation, a clean energy research group that had previously published widely cited research arguing that clean energy deployment was not linked to the run-up in retail electricity prices, published a report that found repealing the Inflation Reduction Act would “increase cumulative household energy costs by $32 billion” over the next decade, among other economic impacts.
The tax credits “make clean energy even more economic than it already is, particularly for developers,” explained Energy Innovation senior director Robbie Orvis. “When you add more of those technologies, you bring down the electricity cost significantly,” he said.
Historically, the price of fossil fuels like natural gas and coal have set the wholesale price for electricity. With renewables, however, the operating costs associated with procuring those fuels go away. The fewer of those you have, “the lower the price drops,” Orvis said. Without the tax credits to support the growth and deployment of renewables, the analysis found that annual energy costs per U.S. household would go up some $48 annually by 2030, and $68 by 2035.
These arguments come at a time when retail electricity prices in much of the country have grown substantially. Since December 2019, average retail electricity prices have risen from about $0.13 per kilowatt-hour to almost $0.18, according to the Bureau of Labor Statistics. In Massachusetts and California, rates are over $0.30 a kilowatt-hour, according to the Energy Information Administration. As Energy Innovation researchers have pointed out, states with higher renewable penetration sometimes have higher rates, including California, but often do not, as in South Dakota, where 77% of its electricity comes from renewables.
Retail electricity prices are not solely determined by fuel costs Distribution costs for maintaining the whole electrical system are also a factor. In California, for example,it’s these costs that have driven a spike in rates, as utilities have had to harden their grids against wildfires. Across the whole country, utilities have had to ramp up capital investment in grid equipment as it’s aged, driving up distribution costs, a 2024 Energy Innovation report argued.
A similar analysis by Aurora Energy Research (the one cited by SEIA) that just looked at investment and production tax credits for wind, solar, and batteries found that if they were removed, electricity bills would increase hundreds of dollars per year on average, and by as much as $40 per month in New York and $29 per month in Texas.
One reason the bill impact could be so high, Aurora’s Martin Anderson told me, is that states with aggressive goals for decarbonizing the electricity sector would still have to procure clean energy in a world where its deployment would have gotten more expensive. New York is targetinga target for getting 70% of its electricity from renewable sources by 2030, while Minnesota has a goal for its utilities to sell 55% clean electricity by 2035 and could see its average cost increase by $22 a month. Some of these states may have to resort to purchasing renewable energy certificates to make up the difference as new generation projects in the state become less attractive.
Bills in Texas, on the other hand, would likely go up because wind and solar investment would slow down, meaning that Texans’ large-scale energy consumption would be increasingly met with fossil fuels (Texas has a Renewable Portfolio Standard that it has long since surpassed).
This emphasis from industry and advocacy groups on the dollars and cents of clean energy policy is hardly new — when the House of Representatives passed the (doomed) Waxman-Markey cap and trade bill in 2009, then-Speaker of the House Nancy Pelosi told the House, “Remember these four words for what this legislation means: jobs, jobs, jobs, and jobs.”
More recently, when Democratic Senators Martin Heinrich and Tim Kaine hosted a press conference to press their case for preserving the Inflation Reduction Act, the email that landed in reporters’ inboxes read “Heinrich, Kaine Host Press Conference on Trump’s War on Affordable, American-Made Energy.”
“Trump’s war on the Inflation Reduction Act will kill American jobs, raise costs on families, weaken our economic competitiveness, and erode American global energy dominance,” Heinrich told me in an emailed statement. “Trump should end his destructive crusade on affordable energy and start putting the interests of working people first.”
That the impacts and benefits of the IRA are spread between blue and red states speaks to the political calculation of clean energy proponents, hoping that a bill that subsidized solar panels in Texas, battery factories in Georgia, and battery storage in Southern California could bring about a bipartisan alliance to keep it alive. While Congressional Republicans will be scouring the budget for every last dollar to help fund an extension of the 2017 Tax Cuts and Jobs Act, a group of House Republicans have gone on the record in defense of the IRA’s tax credits.
“There's been so much research on the emissions impact of the IRA over the past few years, but there's been comparatively less research on the economic benefits and the household energy benefits,” Orvis said. “And I think that one thing that's become evident in the last year or so is that household energy costs — inflation, fossil fuel prices — those do seem to be more top of mind for Americans.”
Opinion modeling from Heatmap Pro shows that lower utility bills is the number one perceived benefit of renewables in much of the country. The only counties where it isn’t the number one perceived benefit are known for being extremely wealthy, extremely crunchy, or both: Boulder and Denver in Colorado; Multnomah (a.k.a. Portland) in Oregon; Arlington in Virginia; and Chittenden in Vermont.
On environmental justice grants, melting glaciers, and Amazon’s carbon credits
Current conditions: Severe thunderstorms are expected across the Mississippi Valley this weekend • Storm Martinho pushed Portugal’s wind power generation to “historic maximums” • It’s 62 degrees Fahrenheit, cloudy, and very quiet at Heathrow Airport outside London, where a large fire at an electricity substation forced the international travel hub to close.
President Trump invoked emergency powers Thursday to expand production of critical minerals and reduce the nation’s reliance on other countries. The executive order relies on the Defense Production Act, which “grants the president powers to ensure the nation’s defense by expanding and expediting the supply of materials and services from the domestic industrial base.”
Former President Biden invoked the act several times during his term, once to accelerate domestic clean energy production, and another time to boost mining and critical minerals for the nation’s large-capacity battery supply chain. Trump’s order calls for identifying “priority projects” for which permits can be expedited, and directs the Department of the Interior to prioritize mineral production and mining as the “primary land uses” of federal lands that are known to contain minerals.
Critical minerals are used in all kinds of clean tech, including solar panels, EV batteries, and wind turbines. Trump’s executive order doesn’t mention these technologies, but says “transportation, infrastructure, defense capabilities, and the next generation of technology rely upon a secure, predictable, and affordable supply of minerals.”
Anonymous current and former staffers at the Environmental Protection Agency have penned an open letter to the American people, slamming the Trump administration’s attacks on climate grants awarded to nonprofits under the Inflation Reduction Act’s Greenhouse Gas Reduction Fund. The letter, published in Environmental Health News, focuses mostly on the grants that were supposed to go toward environmental justice programs, but have since been frozen under the current administration. For example, Climate United was awarded nearly $7 billion to finance clean energy projects in rural, Tribal, and low-income communities.
“It is a waste of taxpayer dollars for the U.S. government to cancel its agreements with grantees and contractors,” the letter states. “It is fraud for the U.S. government to delay payments for services already received. And it is an abuse of power for the Trump administration to block the IRA laws that were mandated by Congress.”
The lives of 2 billion people, or about a quarter of the human population, are threatened by melting glaciers due to climate change. That’s according to UNESCO’s new World Water Development Report, released to correspond with the UN’s first World Day for Glaciers. “As the world warms, glaciers are melting faster than ever, making the water cycle more unpredictable and extreme,” the report says. “And because of glacial retreat, floods, droughts, landslides, and sea-level rise are intensifying, with devastating consequences for people and nature.” Some key stats about the state of the world’s glaciers:
In case you missed it: Amazon has started selling “high-integrity science-based carbon credits” to its suppliers and business customers, as well as companies that have committed to being net-zero by 2040 in line with Amazon’s Climate Pledge, to help them offset their greenhouse gas emissions.
“The voluntary carbon market has been challenged with issues of transparency, credibility, and the availability of high-quality carbon credits, which has led to skepticism about nature and technological carbon removal as an effective tool to combat climate change,” said Kara Hurst, chief sustainability officer at Amazon. “However, the science is clear: We must halt and reverse deforestation and restore millions of miles of forests to slow the worst effects of climate change. We’re using our size and high vetting standards to help promote additional investments in nature, and we are excited to share this new opportunity with companies who are also committed to the difficult work of decarbonizing their operations.”
The Bureau of Land Management is close to approving the environmental review for a transmission line that would connect to BluEarth Renewables’ Lucky Star wind project, Heatmap’s Jael Holzman reports in The Fight. “This is a huge deal,” she says. “For the last two months it has seemed like nothing wind-related could be approved by the Trump administration. But that may be about to change.”
BLM sent local officials an email March 6 with a draft environmental assessment for the transmission line, which is required for the federal government to approve its right-of-way under the National Environmental Policy Act. According to the draft, the entirety of the wind project is sited on private property and “no longer will require access to BLM-administered land.”
The email suggests this draft environmental assessment may soon be available for public comment. BLM’s web page for the transmission line now states an approval granting right-of-way may come as soon as May. BLM last week did something similar with a transmission line that would go to a solar project proposed entirely on private lands. Holzman wonders: “Could private lands become the workaround du jour under Trump?”
Saudi Aramco, the world’s largest oil producer, this week launched a pilot direct air capture unit capable of removing 12 tons of carbon dioxide per year. In 2023 alone, the company’s Scope 1 and Scope 2 emissions totalled 72.6 million metric tons of carbon dioxide equivalent.