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The government agency is quietly funding some of the industry’s most exciting early stage companies.
When the George W. Bush administration established the Advanced Research Projects Agency - Energy, better known as ARPA-E, the number one goal for the new agency sounded an ambitious and patriotic note: “To enhance the economic and energy security of the United States through the development of energy technologies.” And from that uncontroversial foundation, a bipartisan bastion of cleantech innovation was born.
I knew I wanted to dig into the critical role that ARPA-E plays in the climate tech funding landscape after Rajesh Swaminathan, a partner at Khosla Ventures, told me that he views the agency as the “least talked about VC in town.” So I reached out to ARPA-E’s director, Evelyn Wang, to learn more.
Of course, ARPA-E isn’t actually a venture capital firm — it provides no-strings-attached funding to promising energy projects rather than aiming for a return on investment. “So a little bit different,” Wang told me. “Our mission is very much focused on energy independence, reducing greenhouse gas emissions, and enhancing energy efficiency.”
The Bush administration established ARPA-E in 2007 with the passage of the America COMPETES Act, which aimed to improve the technological competitiveness of the United States via investments in research and development. But the agency was funded for the first time in 2009, under Obama, as a part of an $800 billion stimulus package in response to the Great Recession. A substantial chunk of that funding — $90 billion — was allocated for clean energy, which the administration would go on to boast amounted to the “largest single investment in clean energy in history.”
Yet whether it’s been Bush or Obama — or Trump or Biden — in the White House, the messaging around ARPA-E has always trended less towards renewables and climate mitigation and more towards energy security and economic competitiveness. As the name suggests, ARPA-E is modeled after the Defense Advanced Research Projects Agency, or DARPA, which was established in 1958 in response to the Soviet’s launch of the Sputnik satellite. DARPA has since helped birth such little-known tech as the entire internet, GPS, automated voice recognition, and self-driving cars.
But while the de facto customer for DARPA-developed tech is always the Department of Defense, the pathway to commercialization for ARPA-E projects mainly relies on private sector interest. In that sense, the goal of ARPA-E is neatly aligned with that of venture capitalists: Get tech to market. Because while scientific learnings are all well and good, Wang said that “ultimately, we need to see these technologies commercialized — to actually be out there — to actually affect the ecosystem and change the energy landscape.”
Since ARPA-E can eschew the profit motive, it’s able to fund high-risk, high-reward projects at the earliest stages, when most investors would be reluctant to take on that level of uncertainty. Yet the inherent risk means the success rate for ARPA-E projects as measured by metrics such as the number of companies it’s spawned (157), exits via mergers, acquisitions or IPOs (30), and additional partnerships with other government agencies (360), can seem low compared to the 1,590 projects that the agency has funded over the past 15 years. A climate tech investor I spoke with on background told me that while they love ARPA-E and are glad it exists, they were expecting more success stories by now.
That’s at least partially because even after a project is funded and proof-of-concept has been demonstrated, there’s often still a ways to go before investors are ready to jump in. “I think when we first stood up ARPA-E, the idea was that at that point, it would be sufficiently de-risked for the private sector to then pick it up and invest,” Wang told me. But frequently, that hasn’t been the case. ARPA-E usually funds projects for one to three years, but often climate tech innovation relies on deeply complex and thus inherently slow advancements in science and engineering — think fusion energy, novel battery development, or direct air capture. Many venture funds have 10 year time horizons, so if investors don’t see a payoff happening in that timeframe, they’ll probably hold back.
The investor I spoke with on background told me that ARPA-E has become more effective in partnership with the Office of Clean Energy Demonstrations, established in 2021 under the Department of Energy, which uses its $25 billion budget to create model buildouts of new technology with private sector partners. Earlier this year, OCED selected six ARPA-E awardees focused on industrial decarbonization to receive a combined total of up to $775 million.
Even so, the investor told me, ARPA-E funding alone still might not be enough to get companies to a place where OCED would be interested. To help close that gap, ARPA-E started a program called SCALEUP, a mouthful of an acronym for The Seeding Critical Advances for Leading Energy (Technologies) with Untapped Potential, in 2019. It provides a small number of ARPA-E projects with follow-on funding to further prove out their concepts — provided they can identify at least one commercialization partner such as a potential customer, end-user, or supplier willing to take a stake in the development of the tech and help it get to market.
So far, Wang says the program has yielded some successes. The list includes LongPath Technologies, which monitors methane emissions and leaks in the oil and gas industry and received a conditional loan last year from the DOE’s Loan Programs Office; Natron Energy, which just opened the first commercial-scale sodium-ion battery production facility in the U.S.; and Sila, a battery materials manufacturer that has raised over $1.3 billion in total, and secured contracts with Mercedes-Benz and Panasonic.
When you look at ARPA-E’s success rate in terms of dollars in and dollars out, though, it starts to look pretty darn efficacious as is. Since 2009, ARPA-E has provided more than $3.8 billion for research and development, leading to over $12.6 billion in private-sector follow-on funding, while the 30 exits to date have yielded a combined market valuation of $22.2 billion. And since it often takes climate tech companies around a decade to mature to the point where they’re ready for an exit event, many of ARPA-E’s companies have yet to reach the acquisition or IPO threshold.
These days, ARPA-E projects are facing a completely different funding landscape than in the 2000s — one ripe with both excitement and cash as well as increasing competition. So while Wang told me that the agency’s goal is always to look for “technological whitespace” in the energy landscape, “it's getting more crowded,” she said. “And I think in that context, we've strategically decided that we should also think about broader vision type efforts.” To that end, ARPA-E has identified three comprehensive focus areas: developing clean primary energy sources such as geothermal, small modular nuclear reactors, fusion and geologic hydrogen; power delivery for non-electrical sources, such as energy transported via hydrogen or heat; and figuring out how to source carbon sustainably, such as via engineered plants and algae.
Now that ARPA-E has been supporting projects for a decade and a half, it’s getting more experimental when it comes to developing novel testbeds for its tech. Exhibit A is the San Antonio International Airport, whichrecently signed a memorandum of understanding with the agency to deploy a series of ARPA-E backed technologies.
Many major airports are actually higher tech than passengers may realize, and given the mounting pressure on the aviation industry to decarbonize, they’re also open to novel sustainability solutions. In San Antonio, the airport is deploying EV chargers from Imagen Energy and sodium-ion battery tech from Natron Energy, both of which could help electrify their ground vehicles, as well as a distributed energy management system from Autogrid, which allows airports to control their virtual power plants, microgrids, EV fleet, and demand response measures. Other tech, such as hybrid-electric planes from Ampaire, could be integrated into the airport in the future.
That’s a lot of technology development for not many headlines. And when a company raises a major round or goes public, sometimes you have to dig deep to discover their ARPA-E origins. Hence, the “least talked about VC in town” comment. In some sense, Wang says, this is intentional.
“When we think about success, if our teams, our companies are successful, and they shine, then we shine,” she told me, and maybe that’s the way it should continue to be. Because while advertising government investment in anything seen as “clean” or “green” can immediately draw both partisan praise and ire, funding for ARPA-E has been steadily creeping up nearly every year since 2015. And yes, that includes the Trump era, even though the former president seemingly wanted to axe the agency altogether. Congress, it turned out, was not on board with that plan.
“Our mission is about energy independence and bolstering our economy and I think everyone agrees with this mission,” Wang told me. “Everyone,” of course, will always be an overstatement. But perhaps Wang is right that the agency does function better as a behind-the-scenes player. As she put it, speaking of the companies the agency funds, “It’s more about them, right? And how that affects the ecosystem, and helps our nation in terms of what we need to do as a country, and how that sets an example for the world.”
Editor’s note: This story initially misstated the size of the American Recovery and Reinvestment Act and the amount of funding allocated to clean energy.
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When I reached out to climate tech investors on Tuesday to gauge their reaction to the Senate’s proposed overhaul of the clean energy tax credits, I thought I might get a standard dose of can-do investor optimism. Though the proposal from the Senate Finance committee would cut tax credits for wind and solar, it would preserve them for other sources of clean energy, such as geothermal, nuclear, and batteries — areas of significant focus and investment for many climate-focused venture firms.
But the vibe ended up being fairly divided. While many investors expressed cautious optimism about what this latest text could mean for their particular portfolio companies, others worried that by slashing incentives for solar and wind, the bill’s implications for the energy transition at large would be categorically terrible.
“We have investments in nuclear, we have investments in geothermal, we have investments in carbon capture. All of that stuff is probably going to get a boost from this, because so much money is going to be flowing out of quote, unquote, ‘slightly more established’ zero emissions technologies,” Susan Su, a climate tech investor at Toba Capital, told me. “So we’re diversified. But for me, as a human being, and as somebody that cares about climate change and cares about having an abundant energy future, this is very short-sighted.”
Bigger picture aside, the idea that the Senate proposal could lead to more capital for non-solar, non-wind clean energy technologies was shared by other investors, many of whom responded with tentative hope when I asked for their thoughts on the bill.
“The extension of the nuclear and geothermal tax credits compared to the House bill is really important,” Rachel Slaybaugh, a climate tech investor at DCVC, told me. The venture firm has invested in the nuclear fission company Radiant Nuclear, the fusion company Zap Energy, and the geothermal startup Fervo Energy. As for how Slaybaugh has been feeling since the bill’s passage as well as the general sentiment among DCVC’s portfolio companies, she told me that “it's mostly been the relief of like, thank you for at least supporting clean, firm and bringing transferability back.”
Indeed, the proposed bill not only fully preserves tax credits for most forms of zero-emissions power until 2034, but also keeps tax credit transferability on the books. This financing mechanism is essential for renewable energy developers who cannot fully utilize the tax credits themselves, as it allows them to sell credits to other companies for cash. All of this puts nascent clean, firm technologies on far more stable footing than after the House’s version of the bill was released last month.
Carmichael Roberts of Breakthrough Energy Ventures echoed these sentiments via email when he told me, “the Senate proposal is a meaningful improvement over the House version for clean energy companies. It creates more predictability and a clearer runway for emerging technologies that are not yet fully commercial.” Breakthrough invests in multiple fusion, geothermal, and long-duration energy storage startups.
Amy Duffuor, co-founder and general partner at Azolla Ventures, also acknowledged in an email that it’s “encouraging” that the Senate has “seen the way forward on clean firm baseload power.” However, she issued a warning that the unsettled policy environment is leading to “material risks and uncertainties for start-ups reliant on current tax incentives.”
Solar and wind are by far the most widely deployed and cost-competitive forms of renewable energy. So while they now mainly exist outside the remit of venture firms, there are numerous climate-focused startups that operate downstream of this tech. Think about all the software companies working to optimize load forecasting, implement demand response programs, facilitate power purchase agreements, monitor grid assets, and so much more. By proxy, these startups are now threatened by the Senate’s proposal to phase out the investment and production tax credits for solar and wind projects beginning next year, with a full termination after 2027.
“I think solar and wind will survive. But it's going to be like 80% of the deals don't pencil for a long time,” Ryan Guay, co-founder and president of the software startup Euclid Power, told me. Euclid makes data management and workflow tools for renewable project developers, so if the tax credits for solar and wind go kaput, that will mean less business for them. In the meantime though, Guay expects to be especially busy as developers rush to build projects before their tax credit eligibility expires.
As Guay explained to me, it’s not just the rescission of tax credits that he believes will kill such a large percent of solar and wind projects. It’s the combined impact of those cuts, the bill’s foreign entity of concern rules restricting materials from China, and Trump’s tariffs on Chinese-made components. “You’re not giving the industry enough time to actually build that robust domestic supply chain, which I agree needs to happen,” Guay told me. “I’m all for the security of the grid, but our supply chains are already very constrained.”
Many investors also expressed frustration and confusion over why Senate Republicans, and the Trump administration at large, would target incentives for solar and wind — the fastest growing domestic energy sources — while touting an agenda of energy dominance and American leadership. Some even used the president’s own language around energy issues to deride the One Big Beautiful Bill’s treatment of solar and wind as well as its repeal of the electric vehicle tax credits.
“The rollbacks of the IRA weaken the U.S. in key areas like energy dominance and the auto industry, which is rapidly becoming synonymous with the EV industry,” Matt Eggers, a managing director at the climate-tech investment firm Prelude Ventures, wrote to me in an email. “This bill will still ultimately cost us economic growth, jobs, and strategic positioning on the world stage.”
“The only real question is, are we going to double down on the future and on American dynamism?” Andrew Beebe, managing director at Obvious Ventures, asked in an emailed response. “Or are we going to cling to the past by trying to hold back a future of abundant, clean, and affordable energy?”
Su wanted to focus on the bigger picture too. While the Senate’s proposal gives tax credits for solar and wind a much longer phaseout period than the House’s bill — which would have required projects to start construction within 60 days of the bill’s passage and enter service by 2028 — Su still doesn’t think the Senate’s version is much to celebrate.
“The specific changes that came through in the Senate version are really kind of nibbling at the edges and at the end of the day, this is a huge blow for our emissions trajectory,” Su told me. She’s always been a big believer that there’s still a significant amount of cutting edge innovation in the solar and wind sectors, she told me. For example, Toba is an investor in Swift Solar, a startup developing high-efficiency perovskite solar cells. Nixing tax credits that benefit the solar industry will hit these smaller players especially hard, she told me.
With the Senate now working to finalize the bill, investors agreed that the current proposal is certainly not the worst case scenario. But many did say it was worse than they had — perhaps overly optimistically — been holding out for.
“To me, it's really bad because it now has a major Senate stamp of approval,” Su told me. The Senate usually tempers the more extreme, partisan impulses of the House. Thus, the closer a bill gets to clearing the Senate, the closer it usually is to its final form. Now, it seems, the reconciliation bill is suddenly feeling very real for people.
“At least back between May 22 and [Monday], we didn't know what was going to get amended, so there was still this window of hope that things could change more dramatically." Su said. Now that window is slowly closing, and the picture of what incentives will — and won’t — survive is coming into greater focus.
Rob and Jesse talk with John Henry Harris, the cofounder and CEO of Harbinger Motors.
You might not think that often about medium-duty trucks, but they’re all around you: ambulances, UPS and FedEx delivery trucks, school buses. And although they make up a relatively small share of vehicles on the road, they generate an outsized amount of carbon pollution. They’re also a surprisingly ripe target for electrification, because so many medium-duty trucks drive fewer than 150 miles a day.
On this week’s episode of Shift Key, Rob and Jesse talk with John Henry Harris, the cofounder and CEO of Harbinger Motors. Harbinger is a Los Angeles-based startup that sells electric and hybrid chassis for medium-duty vehicles, such as delivery vans, moving trucks, and ambulances.
Rob, John, and Jesse chat about why medium-duty trucking is unlike any other vehicle segment, how to design an electric truck to last 20 years, and how President Trump’s tariffs are already stalling out manufacturing firms. 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.
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Here is an excerpt from our conversation:
Robinson Meyer: What is it like building a final assembly plant — a U.S. factory — in this moment?
John Harris: I would say lots of people talk about how excited they are about U.S. manufacturing, but that's very different than putting their money where their mouth is. Building a final assembly line, like we have — our team here is really good, that they made it feel not that hard. The challenge is the whole supply chain.
If we look at what we build here in-house at Harbinger, we have a final assembly line where we bolt parts together to make chassis. We also have two sub-component assembly lines where we take copper and make motors, and where we take cells and make batteries. All three of those lines work pretty well. We're pumping out chassis, and they roll out the door, and we sell them to people, which is great. But it’s all the stuff that goes into those, that's the most challenging. There's a lot of trade policy at certain hours of the day, on certain days of the week — depending on when we check — that is theoretically supposed to encourage us manufacturing.
But it's really not because of the volatility. It costs us an enormous amount to build the supply chain, to feed these lines. And when we have volatile trade policy, our reaction, and everyone else's reaction, is to just pause. It’s not to spend more money on U.S. manufacturing, because we were already doing that. We were spending a lot on U.S. manufacturing as part of our core approach to manufacturing.
The latest trade policy has caused us to spend less money on U.S. manufacturing — not more, because we're unclear on what is the demand environment going to be, what is the policy going to be next week? We were getting ready to make major investments to take certain manufacturing tasks in our supply chain out of China and move them to Mexico, for example. Now we’re not. We were getting ready to invest in certain kinds of automation to do things in house, and now we're waiting. So the volatility is dramatically shrinking investment in US manufacturing, including ours.
Meyer: And can you just explain, why did you make that decision to pause investment and how does trade policy affect that decision?
Harris: When we had 25% tariffs on China, if we take content out of China and move it to Mexico, we break even — if that. We might still end up underwater. That's because there's better automation in China. There's much higher labor productivity. And — this one is always shocking to people — there’s lower logistics costs. When we move stuff from Shenzhen to our factory, in many cases it costs us less than moving shipments from Monterey.
Mentioned:
CalStart’s data on medium-duty electric trucks deployed in the U.S.
Here’s the chart that John showed Rob and Jesse:
Courtesy of Harbinger
It draws on data from Bloomberg in China, the ICCT, and the Calstart ZET Dashboard in the United States.
Jesse’s case for EVs with gas tanks — which are called extended range electric vehicles
On xAI, residential solar, and domestic lithium
Current conditions: Indonesia has issued its highest alert level due to the ongoing eruption of Mount Lewotobi Laki-laki • 10 million people from Missouri to Michigan are at risk of large hail and damaging winds today • Tropical Storm Erick, the earliest “E” storm on record in the eastern Pacific Ocean, could potentially strengthen into a major hurricane before making landfall near Acapulco, Mexico, on Thursday.
The NAACP and the Southern Environmental Law Center said Tuesday that they intend to sue Elon Musk’s artificial intelligence company xAI over alleged Clean Air Act violations at its Memphis facility. Per the lawsuit, xAI failed to obtain the required permits for the use of the 26 gas turbines that power its supercomputer, and in doing so, the company also avoided equipping the turbines with technology that would have reduced emissions. “xAI’s turbines are collectively one of the largest, or potentially the largest, industrial source of nitrogen oxides in Shelby County,” the lawsuit claims.
The SELC has additionally said that residents who live near the xAI facility already face cancer risks four times above the national average, and opponents have argued that xAI’s lack of urgency in responding to community concerns about the pollution is a case of “environmental racism.” In a statement Tuesday, xAI responded to the threat of a lawsuit by claiming the “temporary power generation units are operating in compliance with all applicable laws,” and said it intends to equip the turbines with the necessary technology to reduce emissions going forward.
Shares of several residential solar companies plummeted Tuesday after the Senate Finance Committee declined to preserve related Inflation Reduction Act investment tax credits. As my colleague Matthew Zeitlin reported, Sunrun shares fell 40%, “bringing the company’s market cap down by almost $900 million to $1.3 billion,” after a brief jump at the end of last week “due to optimism that the Senate Finance bill might include friendlier language for its business model.”
That never materialized. Instead, the Finance Committee’s draft proposed terminating the residential clean energy tax credit for any systems, including residential solar, six months after the bill is signed, as well as the investment and production tax credits for residential solar. SolarEdge and Enphase also suffered from the news, with shares down 33% and 24%, respectively. You can read Matthew’s full analysis here.
Chevron announced Tuesday that it has acquired 125,000 net acres of the Smackover Formation in southwest Arkansas and northeast Texas to get into domestic lithium extraction. Chevron’s acquisition follows an earlier move by Exxon Mobil to do the same, with lithium representing a key resource for the transition from fossil fuels to renewable energy sources “that would allow the company to pivot if oil and gas demands wane in the coming decades,” Bloomberg writes.
“Establishing domestic and resilient lithium supply chains is essential not only to maintaining U.S. energy leadership but also to meeting the growing demand from customers,” Jeff Gustavson, the president of Chevron New Energies, said in a Tuesday press release. The Liberty Owl project, which was part of Chevron’s acquisition from TerraVolta Resources, is “expected to have an initial production capacity of at least 25,000 tonnes of lithium carbonate per year, which is enough lithium to power about 500,000 electric vehicles annually,” Houston Business Journal reports.
The Federal Emergency Management Agency prepared a memo titled “Abolishing FEMA” at the direction of Homeland Security Secretary Kristi Noem, describing how its functions can be “drastically reformed, transferred to another agency, or abolished in their entirety” as soon as the end of 2025. While only Congress can technically eliminate the agency, the March memo, obtained and reviewed by Bloomberg, describes potential changes like “eliminating long-term housing assistance for disaster survivors, halting enrollments in the National Flood Insurance Program, and providing smaller amounts of aid for fewer incidents — moves that by design would dramatically limit the federal government’s role in disaster response.”
In May, FEMA’s acting administrator, Cameron Hamilton, was fired one day after defending the existence of the department he’d been appointed to oversee when testifying before the House Appropriations subcommittee. An internal FEMA memo from the same month described the agency’s “critical functions” as being at “high risk” of failure due to “significant personnel losses in advance of the 2025 Hurricane Season.” President Trump has, on several occasions, expressed a desire to eliminate FEMA, as recommended by the Project 2025 playbook from the Heritage Foundation. The March “Abolishing FEMA” memo “just means you should not expect to see FEMA on the ground unless it’s 9/11, Katrina, Superstorm Sandy,” Carrie Speranza, the president of the U.S. council of the International Association of Emergency Managers, told Bloomberg.
The Spanish government on Tuesday released its report on the causes of the April 28 blackout that left much of the nation, as well as parts of Portugal, without power for more than 12 hours. Ecological Transition Minister Sara Aagesen, who heads Spain’s energy policy, told reporters that a voltage surge in the south of Spain had triggered a “chain reaction of disconnections” that led to the widespread power loss, and blamed the nation’s state-owned grid operator Red Eléctrica for “poor planning” and failing to have enough thermal power stations online to control the dynamic voltage, the Associated Press reports. Additionally, Aagesen said that utilities had preventively shut off some power plants when the disruptions started, which could have helped the system stay online. “We have a solid narrative of events and a verified explanation that allows us to reflect and to act as we surely will,” Aagesen went on, responding to criticisms that Spain’s renewable-heavy energy mix was to blame for the blackout. “We believe in the energy transition and we know it’s not an ideological question but one of this country’s principal vectors of growth when it comes to re-industrialisation opportunities.”
Metrograph
“It seems that with the current political climate, with the removal of any reference to climate change on U.S. government websites, with the gutting of environmental laws, and the recent devastating fires in Los Angeles, this trilogy of films is still urgently relevant.” —Filmmaker Jennifer Baichwal on the upcoming screenings of the Anthropocene trilogy, co-created with Nicholas de Pencier and photographer Edward Burtynsky between 2006 and 2018, at the Metrograph in New York City.