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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 department creates a seemingly impossible new permitting criteria for renewable energy.
The Interior Department released a new secretarial order Friday saying it may no longer issue any permits to a solar or wind project on federal lands unless the agency believes it will generate as much energy per acre as a coal, gas, or nuclear power plant.
Hypothetically, this could kill off any solar or wind project going through permitting that is sited on federal lands, because these facilities would technically be less energy dense than coal, gas, and nuclear plants. This is irrespective of the potential benefits solar and wind may have for the environment or reducing carbon emissions – none of which are mentioned in the order.
“Gargantuan, unreliable, intermittent energy projects hold America back from achieving U.S. Energy Dominance while weighing heavily on the American taxpayer and environment,” Interior Secretary Doug Burgum said in a statement included in a press release announcing the move. “By considering energy generation optimization, the Department will be able to better manage our federal lands, minimize environmental impact, and maximize energy development to further President Donald Trump’s energy goals.”
Here’s how this new regime, which I and many in the energy sector are now suddenly trying to wrap their heads around, is apparently going to work: solar and wind facilities will now be evaluated based on their “capacity density,” which is calculated based on the ratio of acres used for a project compared to its power generation capacity. If a project has a lower “capacity density” than what the department considers to be a “reasonable alternative,” then it may no longer be able to get a permit.
“On a technology-neutral basis,” the order states, “wind and solar projects use disproportionate Federal lands relative to their energy generation when compared to other energy sources, like nuclear, gas, and coal.” The document going on to give an example, claiming that data from the U.S. Energy Information Administration shows an advanced nuclear plant uses less federal acreage than an offshore wind farm and “thus, when there are reasonable alternatives that can generate the same amount of or more energy on far less Federal land, wind and solar projects may unnecessarily and unduly degrade Federal lands.” The order also includes a chart comparing the capacity density of wind and solar facilities to conventional nuclear, gas, and coal, as well as geothermal, and claims that these sources are superior as well. The document does not reference hydropower.
There’s also a whole host of other implications in this order. Crucially, does the Interior expect that by choking off the flow of permits, cities and companies will just pony up to build what the Trump administration considers “reasonable alternatives” instead? Is the federal government going to tell communities in Nevada, for example, that they must suddenly build gas plants in the desert instead of solar farms to meet their increasing energy needs?
In any case, much more is coming, as this order simply built off of a separate secretarial order earlier this week commanding staff to prepare a litany of recommendations on ending alleged “preferential treatment” for solar and wind facilities. In other words hold my beer – and hold onto yours, too.
That’s okay for clean energy firms, terrible for manufacturers, and a big risk for everyone.
Over the past few months, you could put together three different — and somewhat conflicting — pictures of the American economy.
For companies exposed to the AI boom, business has been good — excellent, even. The surge in ongoing capital investment into data centers and electricity has been larger than other recent booms, such as the telecom buildout. Electricity demand is soaring, especially in Texas and the Mid-Atlantic. Technology companies have signed power offtake deals with nuclear and hydroelectricity companies. If anything, companies exposed to artificial intelligence are more afflicted by congested supply chains and shortages than by slack demand — see the yearslong waiting lists to get a new transformer or natural gas turbine.
Outside of the AI economy, though, the economy has been a fair bit colder. You might even say it’s been frozen by indecision. When you talk to business leaders, they confess confusion about where things are heading. President Trump’s constantly changing tariffs — and his administration’s mercurial policy shifts — have made it difficult for non-AI-exposed businesses to plan long-term capital investment.
You could hear this view from clean energy manufacturing and traditional fossil firms alike. When I talked to John Henry Harris, the CEO of the medium-duty truck maker Harbinger Motors, for an episode of Heatmap’s Shift Key podcast in June, he told me that his company was just about to shift a production process to Mexico when a last-minute Trump change made it cheaper to keep it in China. Meanwhile, an oil and gas executive recently told the Dallas Federal Reserve: “The Liberation Day chaos and tariff antics have harmed the domestic energy industry. Drill, baby, drill will not happen with this level of volatility.”
But the data contradicted that tepid view. This was the third picture that we were getting of the economy. Through the summer, federal surveys showed an economy that was performing okay. In May, according to the Bureau of Labor Statistics, the U.S. economy added 139,000 jobs; it gained another 147,000 jobs, apparently, in June. The AI boom was clearly contributing to those robust reports. But how could an economy that business leaders otherwise described as difficult be going so well?
Now we can finally square these disparate pictures.
On Friday, the federal government released its newest tranche of job numbers. The headline number was mediocre — the U.S. added a mere 73,000 jobs in July — but the guts of the report were worse. The government revised down its estimate of the May and June reports by a total of 258,000 jobs. With these new numbers in hand, it’s clear that the labor market has essentially stalled out since Liberation Day in April.
The unemployment rate slightly rose to 4.2%, which was in line with what economists predicted.
These new reports clarify that the broader American economy wasn’t actually thriving. Its summer strength was a mirage the whole time. Outside of AI, things are downright frigid. And as President Trump continues to shuffle tariffs and increase trade uncertainty, we can expect conditions to worsen. Trump seems hellbent even on clouding our ability to understand the underlying economy: on Friday afternoon, he fired the Bureau of Labor Statistics commissioner, a career civil servant.
If you squint, you can see a hazy “AI sector” versus “non-AI sector” distinction in the data, even among the energy and decarbonization companies we cover at Heatmap. But it’s not obvious. Contrary to what you might expect when power demand is surging, utility employment was basically flat last month. Heavy and civil engineering construction jobs were up by 6,000, and “nonresidential specialty trade contractors” — a category that can include electricians — gained nearly 2,000 jobs.
But manufacturing lost 11,000 jobs last month, with the motor vehicles industry driving 2,600 of those losses. Mining, quarrying, and oil and gas jobs were down. The Institute of Supply Management report, a private survey of U.S. manufacturing activity, showed the sector shrank in July for the fifth month in a row.
And even though the Department of Government Efficiency’s deferred buyout program for more than 150,000 people has yet to hit, the federal government bled 12,000 jobs.
In a way, the clean energy industry — or at least solar, battery, nuclear, and geothermal developers — might consider themselves lucky. Despite the best efforts of Trump’s officials, and despite the chaos of President Trump’s policies, they have been able to eke through the past few months because of the AI boom. Nearly 70% of all new power-generating capacity added to the U.S. grid in the first quarter of this year came from solar panels, and the government has thrown its weight behind next-generation nuclear and geothermal technologies. A tepid jobs report might even bring some interest rate relief from the Federal Reserve.
But if that AI boom slows down, we should all watch out below.
A conversation with Heather O’Neill of Advanced Energy United.
This week’s conversation is with Heather O’Neill, CEO of renewables advocacy group Advanced Energy United. I wanted to chat with O’Neill in light of the recent effective repeal of the Inflation Reduction Act’s clean electricity tax credits and the action at the Interior Department clamping down on development. I’m quite glad she was game to talk hot topics, including the future of wind energy and whether we’ll see blue states step into the vacuum left by the federal government.
The following conversation has been lightly edited for clarity.
During Trump 1.0 we saw blue states really step into the climate role in light of the federal government. Do you see anything similar taking place now?
I think this moment we’re in – it is a different moment.
How are we handling load growth? How are we making sure consumers are not paying for expensive stranded assets? Thinking about energy affordability? All of those challenges absolutely present a different moment and will result in a different response from state leaders.
But that’s where some of the changes our industry has gone through mean we’re able to meet that moment and provide solutions to those challenges. I think we need aggressive action from state leaders and I think we’ll see that from them, because of the challenges in front of them.
What does that look like?
Every state is different. Take Virginia for example. Five years after we passed the Virginia Clean Economy Act – a big, bold promise of action – we’re not on track. So what are the things we need to do to keep the foot on the accelerator there? This last legislative session we passed the virtual power plant legislation that’ll help tremendously in terms of grid flexibility. We made a big push around siting and permitting reform, and we didn’t quite get it over the finish line but that’s the kind of thing where we made a good foundation.
Or Texas. There’s so much advanced energy powering Texas right now. You had catastrophic grid failure in Hurricane Uri and look at what they’ve been able to build out in response to that: wind, solar, and in the last few years, battery storage, and they just passed the energy waste reduction [bill].
We need to build things and make it easier to build – siting and permitting reform – but it’s also states depending on their environment looking at and engaging with their regional transmission organization.
You saw that last week, a robust set of governors across the PJM region called on them to improve their interconnection queue. It’s about pushing and finding reforms at the market level, to get these assets online and get on the grid deployed.
I think the point about forward momentum, I definitely see what you’re saying there about the need for action. Do you see state primacy laws or pre-emption laws? Like what Michigan, New York, and California have done…
I’m not a siting expert, but the reform packages that work the best include engagement from communities in meaningful ways. But they also make sure you’re not having a vocal minority drowning out the benefits and dragging out the process forever. There are timelines and certainty attached to it while still having meaningful local engagement.
Our industry absolutely has to continue to lean into more local engagement and community engagement around the benefits of a project and what they can deliver for a community. I also think there’s a fair amount of making sure the state is creating that pathway, providing that certainty, so we can actually move forward to build out these projects.
From the federal government’s perspective, they’re cracking down on wind and solar projects while changing the tax credits. Do you see states presenting their own incentives for renewables in lieu of federal incentives? I’ve wondered if that’ll happen given inflation and affordability concerns.
No, I think we have to be really creative as an industry, and state leaders have to be creative too. If I’m a governor, affordability concerns were already front and center for me, and now given what just happened, they’re grappling with incredibly tight state budgets that are about to get tighter, including health care. They’re going to see state budgets hit really hard. And there’s energy impacts – we’re cutting off supply, so we’re going to see prices go up.
This is where governors and state leaders can act but I think in this context of tight state budgets I don’t think we can expect to see states replacing incentive packages.
It’ll be: how do we take advantage of all the flexible tools that we have to help shape and reduce demand in meaningful ways that’ll save consumers money, as well as push on building out projects and getting existing juice out of the transmission system we have today.
Is there a future for wind in the United States?
It is an incredibly challenging environment – no question – for all of our technologies, wind included. I don’t want to sugar-coat that at all.
But I look at the whole picture, and I include wind in this: the technologies have improved dramatically in the past couple of decades and the costs have come down. When you look around at what resources are around to deploy, it’s advanced energy. We’re seeing it continue to grow. There’ll be headwinds, and it’ll be more expensive for all of us. But I look at what our industry and our technologies are able to offer and deliver, and I am confident we’ll continue to see growth.