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VC funding has plummeted so far in 2023. It has also moved to new kinds of startups.
Venture capital investments in climate tech startups have plummeted 40% this year compared with the first half of 2022, according to a report out on Friday from Climate Tech VC, a market intelligence platform that tracks the space.
The trend is in part a reflection of a larger downturn across the broader startup landscape, which one prominent investor predicted earlier this year would lead to a “Mass Extinction Event” that “will make the ‘08 financial crisis look quaint.” Startups in all sectors are struggling to fundraise, thanks to macro conditions like the Federal Reserve raising interest rates to fight inflation and the related collapse of Silicon Valley Bank.
But the picture may not be quite as dire for climate solutions, which saw less of a decline than overall VC funding, which was down more than 50% in the first quarter of the year, compared to 2022, according to Pitchbook. Some areas, like startups working to cut emissions from buildings and heavy industry, are even seeing a boost, likely due to incentives in the Inflation Reduction Act. So far it’s more of a great reshuffling than a Great Recession.
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“I wouldn't say this is the second coming of clean tech 1.0,” Kim Zou, the co-founder of Climate Tech VC, told me. She was referencing a period in the early 2000s when venture capitalists poured billions into green technology companies and lost more than half of their money. “It's not that all of a sudden, it's a sharp drop off. It's actually that 2021, 2022, one could say that period was a bit of an abnormal peak,” she said.
Helen Lin, a partner at the VC firm At One Ventures, agreed that what’s happening is more of a market correction and a “return to fundamentals” than a calamity. In 2021, as the country was coming out of the worst of the COVID-10 pandemic, there was “a little bit of a bubble forming,” she told me. Lin said company valuations were overly optimistic and investors got a little sloppy, letting go of key metrics for later stage investments like revenue.
“It feels like when you're in one of those kiddie swimming pools and all the kids are thrashing about all at once, and there is all this frothy noise in the water, that's basically how it felt,” she said. “All these kids jumped in the pool because VC looked easy in 2021, there were deals everywhere.”
While overall funding for climate technology startups is down, interest in the sector is clearly not drying up. There was actually an increase in the number of deals made in the first six months of this year compared with last year by about 8%. But most of those deals were at the seed stage, where total funding also grew by 20%. Meanwhile, growth stage funding dropped a significant 64% — twice as high as the drop in growth VC across the economy.
Courtesy of Climate Tech VC
To Zou, that reflects one of the primary challenges with climate technology, which is that companies face a much sharper “valley of death” than in other sectors. Many of the solutions needed are hard technologies that require a lot more capital to get past the proof-of-concept stage. Companies may have to build factories and work out new supply chains, both of which are expensive undertakings.
There’s also been a shift in the types of climate technologies VCs are funding. In 2021, investors made their big bets in electric vehicles and batteries with companies like Rivian and Northvolt raising more than $2 billion each. Now, VCs seem to be less interested in the end-products that directly reduce emissions, like EVs, and more interested in early stage companies that could enable more EVs to get deployed, like those specializing in mining, EV charging optimization, and fleet management.
Lin said that similarly, while enthusiasm for alternative protein companies has cooled slightly after industry leaders Beyond Meat and Impossible reported declining revenues last year, that’s not the full story. There’s still a lot of interest in funding innovative alternative protein startups, but more as a “functional ingredient” to supply to other food companies, rather than as a consumer product.
Investor interest in carbon management startups may also be shuffling around. VC funding in the sector has so far dried up by more than 50% after a big increase last year. Claire Nelson, co-founder of the carbon mineralization startup Cella, which just closed a seed funding round of $3.3 million, told me that investments seem to be shifting from the technologies that capture carbon to the support infrastructure, like carbon transportation and storage. Cella is developing novel injection and monitoring methods for carbon sequestration.
Courtesy of Climate Tech VC
On the flipside, the report notes that startups working to cut emissions from the built environment, like heat pump companies, and from heavy industries, like cement and steel, saw a 7% increase in funding, likely due to new government subsidies in both the E.U. and the U.S. targeting those sectors.
The impact of climate tech funding is more than a financial concern. The International Energy Agency estimates that nearly half of the emissions reductions required to reach net-zero by 2050 will have to come from technologies that aren’t yet commercially available. VC firms don’t just provide the capital for startups to get off the ground, but they also provide a support system for scientists who may have never scaled a business in their lives, said Lin.
“You need people that know how to be the connective tissue between people who speak the language of science, and people who speak the language of scaling up a business in a commercial way,” she told me. “These are all the day-to-day tasks that we work on in a very real way with our portfolio companies.”
Historically, the latter half of the year has been when most VC is deployed, so time will tell if the report truly does reflect a market correction, or foretells a more worrisome trend.
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Republicans are taking over some of the most powerful institutions for crafting climate policy on Earth.
When Republicans flipped the Senate, they took the keys to three critical energy and climate-focused committees.
These are among the most powerful institutions for crafting climate policy on Earth. The Senate plays the role of gatekeeper for important legislation, as it requires a supermajority to overcome the filibuster. Hence, it’s both where many promising climate bills from the House go to die, as well as where key administrators such as the heads of the Department of Energy and the Environmental Protection Agency are vetted and confirmed.
We’ll have to wait a bit for the Senate’s new committee chairs to be officially confirmed. But Jeff Navin, co-founder at the climate change-focused government affairs firm Boundary Stone Partners, told me that since selections are usually based on seniority, in many cases it’s already clear which Republicans are poised to lead under Trump and which Democrats will assume second-in-command (known as the ranking member). Here’s what we know so far.
This committee has been famously led by Joe Manchin, the former Democrat, now Independent senator from West Virginia, who will retire at the end of this legislative session. Energy and Natural Resources has a history of bipartisan collaboration and was integral in developing many of the key provisions in the Inflation Reduction Act — and could thus play a key role in dismantling them. Overall, the committee oversees the DOE, the Department of the Interior, the U.S. Forest Service, and the Federal Energy Regulatory Commission, so it’s no small deal that its next chairman will likely be Mike Lee, the ultra-conservative Republican from Utah. That’s assuming that the committee's current ranking member, John Barrasso of Wyoming, wins his bid for Republican Senate whip, which seems very likely.
Lee opposes federal ownership of public lands, setting himself up to butt heads with Martin Heinrich, the Democrat from New Mexico and likely the committee’s next ranking member. Lee has also said that solving climate change is simply a matter of having more babies, as “problems of human imagination are not solved by more laws, they’re solved by more humans.” As Navin told me, “We've had this kind of safe space where so-called quiet climate policy could get done in the margins. And it’s not clear that that's going to continue to exist with the new leadership.”
This committee is currently chaired by Democrat Tom Carper of Delaware, who is retiring after this term. Poised to take over is the Republican’s current ranking member, Shelley Moore Capito of West Virginia. She’s been a strong advocate for continued reliance on coal and natural gas power plants, while also carving out areas of bipartisan consensus on issues such as nuclear energy, carbon capture, and infrastructure projects during her tenure on the committee. The job of the Environment and Public Works committee is in the name: It oversees the EPA, writes key pieces of environmental legislation such as the Clean Air Act and Clean Water Act, and supervises public infrastructure projects such as highways, bridges, and dams.
Navin told me that many believe the new Democratic ranking member will be Sheldon Whitehouse of Rhode Island, although to do so, he would have to step down from his perch at the Senate Budget Committee, where he is currently chair. A tireless advocate of the climate cause, Whitehouse has worked on the Environment and Public Works committee for over 15 years, and lately seems to have had a relatively productive working relationship with Capito.
This subcommittee falls under the broader Senate Appropriations Committee and is responsible for allocating funding for the DOE, various water development projects, and various other agencies such as the Nuclear Regulatory Commission.
California’s Dianne Feinstein used to chair this subcommittee until her death last year, when Democrat Patty Murray of Washington took over. Navin told me that the subcommittee’s next leader will depend on how the game of “musical chairs” in the larger Appropriations Committee shakes out. Depending on their subcommittee preferences, the chair could end up being John Kennedy of Louisiana, outgoing Senate Minority Leader Mitch McConnell of Kentucky, or Lisa Murkowski of Alaska. It’s likewise hard to say who the top Democrat will be.
Inside a wild race sparked by a solar farm in Knox County, Ohio.
The most important climate election you’ve never heard of? Your local county commissioner.
County commissioners are usually the most powerful governing individuals in a county government. As officials closer to community-level planning than, say a sitting senator, commissioners wind up on the frontlines of grassroots opposition to renewables. And increasingly, property owners that may be personally impacted by solar or wind farms in their backyards are gunning for county commissioner positions on explicitly anti-development platforms.
Take the case of newly-elected Ohio county commissioner – and Christian social media lifestyle influencer – Drenda Keesee.
In March, Keesee beat fellow Republican Thom Collier in a primary to become a GOP nominee for a commissioner seat in Knox County, Ohio. Knox, a ruby red area with very few Democratic voters, is one of the hottest battlegrounds in the war over solar energy on prime farmland and one of the riskiest counties in the country for developers, according to Heatmap Pro’s database. But Collier had expressed openness to allowing new solar to be built on a case-by-case basis, while Keesee ran on a platform focused almost exclusively on blocking solar development. Collier ultimately placed third in the primary, behind Keesee and another anti-solar candidate placing second.
Fighting solar is a personal issue for Keesee (pronounced keh-see, like “messy”). She has aggressively fought Frasier Solar – a 120 megawatt solar project in the country proposed by Open Road Renewables – getting involved in organizing against the project and regularly attending state regulator hearings. Filings she submitted to the Ohio Power Siting Board state she owns a property at least somewhat adjacent to the proposed solar farm. Based on the sheer volume of those filings this is clearly her passion project – alongside preaching and comparing gay people to Hitler.
Yesterday I spoke to Collier who told me the Frasier Solar project motivated Keesee’s candidacy. He remembered first encountering her at a community meeting – “she verbally accosted me” – and that she “decided she’d run against me because [the solar farm] was going to be next to her house.” In his view, he lost the race because excitement and money combined to produce high anti-solar turnout in a kind of local government primary that ordinarily has low campaign spending and is quite quiet. Some of that funding and activity has been well documented.
“She did it right: tons of ground troops, people from her church, people she’s close with went door-to-door, and they put out lots of propaganda. She got them stirred up that we were going to take all the farmland and turn it into solar,” he said.
Collier’s takeaway from the race was that local commissioner races are particularly vulnerable to the sorts of disinformation, campaign spending and political attacks we’re used to seeing more often in races for higher offices at the state and federal level.
“Unfortunately it has become this,” he bemoaned, “fueled by people who have little to no knowledge of what we do or how we do it. If you stir up enough stuff and you cry out loud enough and put up enough misinformation, people will start to believe it.”
Races like these are happening elsewhere in Ohio and in other states like Georgia, where opposition to a battery plant mobilized Republican primaries. As the climate world digests the federal election results and tries to work backwards from there, perhaps at least some attention will refocus on local campaigns like these.
And more of the week’s most important conflicts around renewable energy.
1. Madison County, Missouri – A giant battery material recycling plant owned by Critical Mineral Recovery exploded and became engulfed in flames last week, creating a potential Vineyard Wind-level PR headache for energy storage.
2. Benton County, Washington State – Governor Jay Inslee finally got state approvals finished for Scout Clean Energy’s massive Horse Heaven wind farm after a prolonged battle over project siting, cultural heritage management, and bird habitat.
3. Fulton County, Georgia – A large NextEra battery storage facility outside of Atlanta is facing a lawsuit that commingles usual conflicts over building these properties with environmental justice concerns, I’ve learned.
Here’s what else I’m watching…
In Colorado, Weld County commissioners approved part of one of the largest solar projects in the nation proposed by Balanced Rock Power.
In New Mexico, a large solar farm in Sandoval County proposed by a subsidiary of U.S. PCR Investments on land typically used for cattle is facing consternation.
In Pennsylvania, Schuylkill County commissioners are thinking about new solar zoning restrictions.
In Kentucky, Lost City Renewables is still wrestling with local concerns surrounding a 1,300-acre solar farm in rural Muhlenberg County.
In Minnesota, Ranger Power’s Gopher State solar project is starting to go through the public hearing process.
In Texas, Trina Solar – a company media reports have linked to China – announced it sold a large battery plant the day after the election. It was acquired by Norwegian company FREYR.