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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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On the budget debate, MethaneSAT’s untimely demise, and Nvidia
Current conditions: The northwestern U.S. faces “above average significant wildfire potential” for July • A month’s worth of rain fell over just 12 hours in China’s Hubei province, forcing evacuations • The top floor of the Eiffel Tower is closed today due to extreme heat.
The Senate finally passed its version of Trump’s One Big Beautiful Bill Act Tuesday morning, sending the tax package back to the House in hopes of delivering it to Trump by the July 4 holiday. The excise tax on renewables that had been stuffed into the bill over the weekend was removed after Senator Lisa Murkowski of Alaska struck a deal with the Senate leadership designed to secure her vote. In her piece examining exactly what’s in the bill, Heatmap’s Emily Pontecorvo explains that even without the excise tax, the bill would “gum up the works for clean energy projects across the spectrum due to new phase-out schedules for tax credits and fast-approaching deadlines to meet complex foreign sourcing rules.” Debate on the legislation begins on the House floor today. House Speaker Mike Johnson has said he doesn’t like the legislation, and a handful of other Republicans have already signaled they won’t vote for it.
The Environmental Protection Agency this week sent the White House a proposal that is expected to severely weaken the federal government’s ability to rein in planet-warming pollution. Details of the proposal, titled “Greenhouse Gas Endangerment Finding and Motor Vehicle Reconsideration,” aren’t clear yet, but EPA Administrator Lee Zeldin has reportedly been urging the Trump administration to repeal the 2009 “endangerment finding,” which explicitly identified greenhouse gases as a public health threat and gave the EPA the authority to regulate them. Striking down that finding would “free EPA from the legal obligation to regulate climate pollution from most sources, including power plants, cars and trucks, and virtually any other source,” wrote Alex Guillén at Politico. The title of the proposal suggests it aims to roll back EPA tailpipe emissions standards, as well.
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So long, MethaneSAT, we hardly knew ye. The Environmental Defense Fund said Tuesday that it had lost contact with its $88 million methane-detecting satellite, and that the spacecraft was “likely not recoverable.” The team is still trying to figure out exactly what happened. MethaneSAT launched into orbit last March and was collecting data about methane pollution from global fossil fuel infrastructure. “Thanks to MethaneSAT, we have gained critical insight about the distribution and volume of methane being released from oil and gas production areas,” EDF said. “We have also developed an unprecedented capability to interpret the measurements from space and translate them into volumes of methane released. This capacity will be valuable to other missions.“ The good news is that MethaneSAT was far from the only methane-tracking satellite in orbit.
Nvidia is backing a D.C.-based startup called Emerald AI that “enables AI data centers to flexibly adjust their power consumption from the electricity grid on demand.” Its goal is to make the grid more reliable while still meeting the growing energy demands of AI computing. The startup emerged from stealth this week with a $24.5 million seed round led by Radical Ventures and including funding from Nvidia. Emerald AI’s platform “acts as a smart mediator between the grid and a data center,” Nvidia explains. A field test of the software during a grid stress event in Phoenix, Arizona, demonstrated a 25% reduction in the energy consumption of AI workloads over three hours. “Renewable energy, which is intermittent and variable, is easier to add to a grid if that grid has lots of shock absorbers that can shift with changes in power supply,” said Ayse Coskun, Emerald AI’s chief scientist and a professor at Boston University. “Data centers can become some of those shock absorbers.”
In case you missed it: California Governor Gavin Newsom on Monday rolled back the state’s landmark Environmental Quality Act. The law, which had been in place since 1970, required environmental reviews for construction projects and had become a target for those looking to alleviate the state’s housing crisis. The change “means most urban developers will no longer have to study, predict, and mitigate the ways that new housing might affect local traffic, air pollution, flora and fauna, noise levels, groundwater quality, and objects of historic or archeological significance,” explainedCal Matters. On the other hand, it could also mean that much-needed housing projects get approved more quickly.
Tesla is expected to report its Q2 deliveries today, and analysts are projecting a year-over-year drop somewhere from 11% to 13%.
Jesse teaches Rob the basics of energy, power, and what it all has to do with the grid.
What is the difference between energy and power? How does the power grid work? And what’s the difference between a megawatt and a megawatt-hour?
On this week’s episode, we answer those questions and many, many more. This is the start of a new series: Shift Key Summer School. It’s a series of introductory “lecture conversations” meant to cover the basics of energy and the power grid for listeners of every experience level and background. In less than an hour, we try to get you up to speed on how to think about energy, power, horsepower, volts, amps, and what uses (approximately) 1 watt-hour, 1 kilowatt-hour, 1 megawatt-hour, and 1 gigawatt-hour.
Shift Key is hosted by Jesse Jenkins, a professor of energy systems engineering at Princeton University, and Robinson Meyer, Heatmap’s executive editor.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, YouTube, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Here is an excerpt from our conversation:
Jesse Jenkins: Let’s start with the joule. The joule is the SI unit for both work and energy. And the basic definition of energy is the ability to do work — not work in a job, but like work in the physics sense, meaning we are moving or displacing an object around. So a joule is defined as 1 newton-meter, among other things. It has an electrical equivalent, too. A newton is a unit of force, and force is accelerating a mass, from basic physics, over some distance in this case. So 1 meter of distance.
So we can break that down further, right? And we can describe the newton as 1 kilogram accelerated at 1 meter per second, squared. And then the work part is over a distance of one meter. So that kind of gives us a sense of something you feel. A kilogram, right, that’s 2.2 pounds. I don’t know, it’s like … I’m trying to think of something in my life that weighs a kilogram. Rob, can you think of something? A couple pounds of food, I guess. A liter of water weighs a kilogram by definition, as well. So if you’ve got like a liter bottle of soda, there’s your kilogram.
Then I want to move it over a meter. So I have a distance I’m displacing it. And then the question is, how fast do I want to do that? How quickly do I want to accelerate that movement? And that’s the acceleration part. And so from there, you kind of get a physical sense of this. If something requires more energy, if I’m moving more mass around, or if I’m moving that mass over a longer distance — 1 meter versus 100 meters versus a kilometer, right? — or if I want to accelerate that mass faster over that distance, so zero to 60 in three seconds versus zero to 60 in 10 seconds in your car, that’s going to take more energy.
Robinson Meyer: I am looking up what weighs … Oh, here we go: A 13-inch MacBook Air weighs about, a little more than a kilogram.
Jenkins: So your laptop. If you want to throw your laptop over a meter, accelerating at a pace of 1 meter per second, squared …
Meyer: That’s about a joule.
Jenkins: … that’s about a joule.
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Music for Shift Key is by Adam Kromelow.
If the Senate reconciliation bill gets enacted as written, you’ve got about 92 days left to seal the deal.
If you were thinking about buying or leasing an electric vehicle at some point, you should probably get on it like, right now. Because while it is not guaranteed that the House will approve the budget reconciliation bill that cleared the Senate Tuesday, it is highly likely. Assuming the bill as it’s currently written becomes law, EV tax credits will be gone as of October 1.
The Senate bill guts the subsidies for consumer purchases of electric vehicles, a longstanding goal of the Trump administration. Specifically, it would scrap the 30D tax credit by September 30 of this year, a harsher cut-off than the version of the bill that passed the House, which would have axed the credit by the end of 2025 except for automakers that had sold fewer than 200,000 electric vehicles. The credit as it exists now is worth up to $7,500 for cars with an MSRP below $55,000 (and trucks and sports utility vehicles under $80,000), and, under the Inflation Reduction Act, would have lasted through the end of 2032. The Senate bill also axes the $4,000 used EV tax credit at the end of September.
“Long story short, the credits under the current legislation are only going to be on the books through the end of September,” Corey Cantor, the research director of the Zero Emission Transportation Association, told me. “Now is definitely a good time, if you’re interested in an EV, to look at the market.”
The Senate applied the same strict timeline to credits for clean commercial vehicles, both new and used. For home EV chargers, the tax credit will now expire at the end of June next year.
While EVs were on the road well before the 2022 passage of the Inflation Reduction Act, what the new tax credit did was help build out a truly domestic electric vehicle market, Cantor said. “You have a bunch of refreshed EV models from major automakers,” Cantor told me, including “more affordable models in different segments, and many of them qualify for the credit.”
These include cars produceddomestically by Kia,Hyundai, and Chevrolet. But of course, the biggest winner from the credit is Tesla, whose Model Y was the best-selling car in the world in 2023.
Tesla shares were down over 5.5% in Tuesday afternoon trading, though not just because of Congress. JPMorgan also released an analyst report Monday arguing that the decline in sales seen in the first quarter would accelerate in the second quarter. President Trump, with whom Tesla CEO Elon Musk had an extremely public falling out last month, suggested on social media Monday night that the government efficiency department Musk himself formerly led should “take a good, hard, look” at the subsidies Musk receives across his many businesses. Trump also said that he would “take a look” at Musk’s United States citizenship in response to reporters’ questions about it.
Cantor told me that he expects a surge of consumer attention to the EV market if the bill passes in its current form. “You’ve seen more customers pull their purchase ahead” when subsidies cut-offs are imminent, he said.
But overall, the end of the subsidy is likely to reduce EV sales from their previously expected levels.
Harvard researchers have estimated that the termination of the EV tax credit “would cut the EV share of new vehicle sales in 2030 by 6.0 percentage points,” from 48% of new sales by 2030 to 42%. Combined with other Trump initiatives such as terminating the National Electric Vehicle Infrastructure program for publicly funded chargers (currently being litigated) and eliminating California’s waiver under the Clean Air Act that allowed it to set tighter vehicle emissions standards, the share of new car sales that are electric could fall to 32% in 2030.
But not all government support for electric vehicles will end by October 1, even if the bill gets the president’s signature in its current form.
“It’s important for consumers to know there are many states that offer subsidies, such as New York, and Colorado,” Cantor told me. That also goes for California, New Jersey, Nevada, and New Mexico. You can find the full list here.
Editor’s note: This story has been edited to include a higher cost limit for trucks and SUVs.