The energy transition is facing significant political challenges. Congressional Republicans are moving to eliminate tax credits for clean energy, and the Trump administration is threatening to cancel billions of dollars in grants. However, there are signs that this setback may not be as catastrophic as the headlines suggest.
Investor sentiment remains strong, as evidenced by the size of two new funds. More founders are also pouring into the sector. The conclusion is that people and organizations are betting their money and time that the energy transition is here to stay.
This week, Brookfield announced it had raised twenty billion dollars for its second energy transition fund. The infrastructure investor has already deployed five billion dollars of that capital into renewable power projects and developers focusing on solar, wind, and battery storage. Perhaps more notable is that Brookfield raised thirty-three percent more money for this fund than it did for its first transition fund in 2021. That period was characterized by zero percent interest rates and a frothy economy that led some to speculate clean energy was entering a bubble. This second, larger fund being raised in a less exuberant period suggests that limited partners see durable growth ahead.
Also this week, Energy Impact Partners announced it closed its third flagship fund with one point three six billion dollars in commitments, which is about forty percent larger than its previous fund. EIP is a venture fund that invests after early stage startups prove their mettle. The median size of a round it invests in is twenty-six million dollars. Already, EIP has deployed about a quarter of its new fund to companies like GridBeyond, which helps manage distributed energy resources, and Quilt, a consumer-facing heat pump manufacturer.
Climate tech has seen an uptick in new founders entering the sector over the past five years, driven by a changing climate that became too hard to ignore for many. Not all of those startups have survived, which is the nature of early stage ventures, but enough have succeeded that investors see opportunity in funding the next stage of their growth.
Investing trends from the past decade remain strong. Since 2014, large limited partners like pension funds and endowments have committed nearly one trillion dollars to the energy transition. While climate tech venture capital firms are on track to raise about as much as last year, they are outpacing the broader venture world by securing a larger percentage of commitments. This year, they have raised three point eight percent of all venture capital, nearly double their share in 2020.
In the United States, there are near-term headwinds. The Trump administration is openly opposed to the idea of an energy transition and is actively working to undermine the progress that has been made. As a result, the International Energy Agency has revised its forecast for renewable adoption in the U.S. downward, predicting that the rollout between now and 2030 will be forty-five percent lower than the agency predicted last year.
Despite this, renewable capacity worldwide is expected to double by 2030, led by solar installations in China, India, the European Union, and Sub-Saharan Africa. The International Energy Agency is not the only organization predicting the transition will continue. Analysts at DNV expect that renewables will provide sixty-five percent of the world’s electricity by 2040 and nearly all of it by 2060. They state this will not be enough to hit net-zero carbon emissions by 2050. But few transitions are without their ups and downs, and the momentum appears to favor more renewable energy, not less.