2022 was a significant year for education, regulation, and putting funding where funds were due. Supply chain disruptions still present from the pandemic, human rights violations in key oil-producing states and the war in Ukraine, all hammered home the idea that how energy has been sourced, produced and used can not remain the same and will increasingly put lives at risk. Additionally, climate and clean energy solutions have proven there are more effective and resilient ways for communities to be powered and run than the status quo.
As we make our way into 2023, we find ourselves moving out of the Age of Innovation and into the Age of Adoption: a time when dues must be paid, states must be bought in to effect real change, and consumers and corporations must act in the best interest of humans and the planet – because it finally makes monetary sense to do so.
Below, we share some of the trends we believe will impact the future of climate and energy over the next year. What trends do you predict will take hold in 2023? Drop us a line to continue the conversation.
1. Sustainable Alternatives Disrupt the Status Quo
How we build, travel, and eat are all about to change. 2023 will see a tremendous boom in the sustainable materials industry.
Building materials, previously underrepresented in climate tech coverage, will be a big part of the conversation in 2023. Currently, cement – the main ingredient in concrete – is responsible for 8% of our global greenhouse gas emissions. Luckily, climate tech companies are on the case. Prometheus Materials, for example, is providing the construction industry with microalgae-based bio-concrete that can replace traditional concrete. Their product is ultra-low carbon, uses less water than traditional cement, and has mechanical, physical, and thermal properties comparable to or, in some cases, superior to traditional portland cement-based concrete. Similarly, Sublime Systems is developing technology to produce decarbonized cement that is a drop-in replacement for portland cement electrochemically and from a variety of abundant calcium sources; they are the first company to eliminate fossil fuel emissions by avoiding both the use of limestone and fossil-fueled kilns in cement production. Concrete manufacturer Glenwood Mason is also making concrete greener by mineralizing recycled CO2 from CarbonQuest into its product. CarbonQuest captures CO2 directly from buildings, liquefies it, and then sells the “Sustainable CO2” to local companies that utilize it for manufacturing purposes. This creates a circular carbon economy, while also reducing emissions from the building sector (responsible for 40% of U.S. emissions annually).
Say goodbye to how we fly. An industry that currently accounts for 9% of emissions in the U.S., aviation was a key focus of the Inflation Reduction Act. With $297M allocated for new grants to support sustainable aviation technologies and fuels, efforts to advance sustainable aviation fuel (SAF) are sure to skyrocket in 2023. Some strategies are focused on using natural materials to create aviation fuel, such as seaweed and wood. Others involve using captured CO2. Twelve, for example, has developed E-Jet, a carbon-neutral fuel made from electrified CO2 with 90% lower lifecycle emissions than traditional jet fuel. The company is already working with major airlines to help them meet climate targets by using E-Jet.
Lastly, 2023 will also see a big appetite for sustainable food and food system health. For example, some companies are looking into using seaweed-derived feedstock to enable cows to release less methane, as cattle used for food are the second largest methane source in the U.S. Others are changing the way we make the chemicals that go into food and other products that we use every day. DMC Biotechnologies, for instance, is producing sustainable bio-based chemicals used in consumer products, including food and nutritional supplements, with lower carbon emissions than conventional ingredients. Their first product, L-Alanine, reduces emissions by 90% compared to the conventional fossil-based incumbent. As this year’s COP27 showcased a renewed focus on food systems, it’s likely that we’ll see more attention on sustainable food alternatives in the new year.
It’s time to change the status quo. Fortunately, we are ringing in the new year with a myriad of sustainable alternative solutions to the most carbon-intensive industries.
– Ariel Marantz, Account Supervisor & Onboarding Specialist
2. Climate Venture Deals Will Remain Hot
Climate tech continues to be one of the hottest sectors in venture investing, and both climate investors and founders believe the capital will continue to funnel in throughout 2023. Global climate tech venture capital had approximately 3,300+ funding rounds delivering $70.1B of investments. In the U.S. specifically, more capital was invested into climate tech in 2022 than over the entire cleantech boom (2006-2011). More than a quarter of total venture investments over the first three quarters of 2022 were put into climate-tech startups according to PWC. At the current rate of investment, by the end of 2023, the U.S. will have invested over $100B in climate tech since 2006.
Well-known funds like Fifth Wall, SOSV, Energy Impact Partners, Temasek Holdings, Breakthrough Energy Ventures, among others continue to lead the industry in deal flow, and companies like Terawatt, Twelve, Moxion Power and Summit Ridge Energy are part of a growing list of startups raising record amounts of capital. As of early January 2023, there are 83 climate tech unicorns around the world that are now collectively valued at over $180B. On average, 2022 saw a new climate tech unicorn arise every two weeks.
As for the 2023 outlook, investors remain bullish on the growth potential but do also note that the slowest days of capital deployment may be ahead of us. Investors specifically noted that they can see mid-stage, Series B/C companies getting glossed over as early-stage companies and late-stage growth investments remain the most attractive investments for funds. While slow intervals of time may arise occasionally, investors do expect the urgency of the climate crisis to ultimately keep countries, companies and individuals heavily invested in less expensive, sustainable and reliable energy solutions that will continue to fuel the growth in climate tech.
As for specific trends within climate tech investment to look out for, expect a continued investment focus on decarbonizing transportation and heavy industry, improving efficiency in buildings and processes, and clean energy generation and storage. Another sub-sector to keep an eye on is carbon management tech, especially around reducing waste and electrifying industrial processes. Overall, it is an exciting time for the climate tech and venture relationship.
– JJ Zakheim, Business Development Analyst
3. The Race for Dominance in Green Hydrogen
Governments around the world have already begun heavily investing in green hydrogen, and in 2023, we’ll start seeing those funds put into action.
In the U.S., recent climate policy has paved the way for a “boom” in electrolyzer production, like the $8B in funding for Regional Clean Hydrogen Hubs from the Department of Energy and tax credit incentives of $3/kilogram for clean and domestically produced hydrogen from the Inflation Reduction Act. The War in Ukraine and the consequential rising cost of fuel have further galvanized investment and interest in green hydrogen solutions, with $73B in private and public funding committed as a result of the conflict, largely by the Global North.
Manufacturers within the U.S. and Europe currently out-compete China on electrolyzer efficiency, with manufacturers like Ohmium powering a shift towards decarbonization through green hydrogen with one of the most effective and efficient electrolyzers on the market. In 2023 we will be watching to see whether U.S. and European companies will maintain their edge, given the influx of governments from around the world betting big to meet global demand, like India announcing a commitment of $2.3B to strengthen its green hydrogen market earlier this month.
Scale, dominance and investment will be key this year for green hydrogen, and with governments competing to be the top producers, funds have already started pouring in.
– Theresa Vallejo, Marketing Manager
4. The Year of the Battery Hustle
If 2022 was the year of the battery, 2023 is the year of the battery hustle. In order to meet the prodigious demand for large-scale battery storage, energy storage companies are in a mad rush to complete their orders on time. Welcome to 2023 – the era of energy storage has arrived. Even before the Inflation Reduction Act and its climate-focused economic incentives came into play, utilities, large businesses, and renewable energy providers were already on board for the momentous shift.
According to the U.S. Energy Information Administration (EIA), power utilities in the U.S. could triple their battery storage capacity by 2025. Developers and power plant owners have plans to increase utility-scale battery storage from 7.8 gigawatts (GW) in October this year to 30 GW by the end of 2025. Whether the supply chains are ready to meet that demand is another question.
While there is currently much attention on diversifying the battery supply chain for critical minerals, we need a parallel path of development and investment in innovative technologies that avoid the critical mineral and disposal challenges associated with lithium ion, the predominant battery chemistry. ESS Inc. believes iron flow batteries (IFBs) are the answer. Relying on safe and nontoxic battery chemistry, IFBs are inherently lower impact in terms of materials sourcing, manufacturing and lifespan and are substantially reusable or recyclable at end of life. Iron flow technology also has the lowest lifecycle carbon footprint of any competing storage technology and is capable of providing up to 12 hours of long-duration energy storage, which better complements the generation profile of renewable energy.
As the energy transition proceeds ahead at a rapid pace, one thing is clear; the success of an energy storage company is highly correlated with the health and reliability of its manufacturing and procurement process. BESS systems are reliant on lithium carbonate, an Energy Management System (EMS), access to the grid, inverters, and Balance of Plant (BoP).
As demand for batteries extends into various regions of the world, diverse landscapes, climates, energy requirements, and geopolitical environments come into play, and flexibility will be critical.
The next one to three years will mark a critical transition for the integration of battery storage and renewable energy, with energy storage playing a critical role as the linchpin of the energy transition.
– Amy Silber, Account Supervisor
5. High-Tech Solutions for Climate-Smart Agriculture
With the world’s global population reaching a milestone of 8 billion people in 2022, it’s no surprise that in 2023 and beyond we’re going to continue to see more innovation in the AgTech space. We’re seeing such innovations from our client, Kula Bio, who is helping farmers reduce their environmental impacts and increase crop yields through the use of their sustainable biofertilizer, a solution for alleviating concerns about nitrogen run-off. As the sector discovers ways to increase food production to sustainably feed our growing population, we can expect to see more high-tech solutions to solve the most pressing agricultural challenges, including labor shortages, disrupted supply chains, and climate change.
Labor is one of the highest operating expenses for farmers and most farms are experiencing labor shortages. The average age of farmers in the U.S. is 60 years old. With the aging population and a lack of young farmers, we can ask ourselves: who is going to grow our food? The AgTech sector is already beginning to solve this problem with high-tech solutions including robotics and automation. Drones, robotic harvesters and seeders, and autonomous tractors are increasingly replacing traditional farming processes. We expect to see more of such tech adoptions geared towards increasing productivity and labor efficiency.
COVID-19 brought to light supply chain disruptions and the ongoing war in Ukraine continues to press global supply chains resulting in significant spikes in food prices. With these stressors affecting global supply chain patterns, we’re starting to see a shift towards more localized food systems. Vertical farming technologies are allowing cities to grow crops like leafy greens, mushrooms, and some fruiting and vining crops like strawberries and tomatoes. With consumers demanding fresher, local products, in 2023 we can expect to see more high-tech farming methods like vertical farms sprouting up in cities globally.
We’re seeing billions of dollars of investments in AI, IoT, and machine learning in the agriculture sector. These smart technologies are being used in a variety of ways to increase agricultural efficiencies through the collection of real-time data. Precision agriculture combines visual mapping and sensors that monitor various environmental factors including soil monitoring, pest detection, and smart irrigation. We can expect to see the scope of these smart technologies expand as part of the climate mitigation and adaptation strategy.
– Briana Zagami, Account Supervisor
6. Quenching the Thirst for Climate Tech Innovation to Address the Water Crisis
It’s no secret that the water industry has faced serious challenges for decades given its outdated infrastructure and practices. Neglecting water infrastructure is costing Americans their health and digging into their wallets. Severe drought, which caused an Arizona suburb’s taps to run dry this month, and dangerous water pollution, like that in Flint Michigan, are both signs of what’s to come if the water crisis isn’t regarded as a priority for public and private investment this year. In 2021, economic losses from droughts jumped 63% versus the 20-year average. A 2022 report from the CDP and Planet Tracker found that listed companies could face losses of at least $225B from water-related risks.
Promising new technologies like wastewater recycling, desalination plants, UV water filtration, nanofiltration, and rainwater harvesting systems are coming to the rescue to address the water crisis. For example, Epic Cleantec is shifting the paradigm of water treatment with on-site water recycling that can safely recycle up to 95% of a building’s wastewater. Also, earlier this year, water solutions provider Gradiant acquired AI technology company Synauta to accelerate the use of digital twin technology in water, reimagining how facilities are designed and operated to ultimately enhance resilience and protect against climate-related events.
The water crisis is multifaceted; but no matter the cause – aging infrastructure, extreme weather, urbanization – or the challenge – flooding, drought, lack of clean drinking water – the water crisis will not be solved without ample investment in, and public support for, new innovations.
– Galilea Matias, Associate Account Executive