Clean-Energy Funding Stayed Strong in Weak Market

Startups have privately raised about $47.5 billion in equity, down from roughly $55 billion in the previous year but also well ahead of the pace from a few years ago, according to PitchBook. Funding for clean-energy projects and companies slowed less in both categories than it did for the broader market. 

Several big deals came in the last few weeks of the year:

Porsche AG

-backed battery-materials company Group14 Technologies raised $214 million from investors including

Microsoft Corp.

at a valuation north of $3 billion. Private-equity firm

EQT

AB put $245 million into battery-recycling company Cirba Solutions. Carbon-capture technology startup Svante raised $318 million from backers including

Chevron Corp.

,

3M Co.

and

United Airlines Holdings Inc.

The new climate spending from Washington has made more renewable technologies cost-competitive with fossil fuels. That has given businesses confidence in putting money into the sector despite rising rates and a slowing economy. 

“People will be surprised by the scale of announcements that get made over the next 12 months,” said

Jigar Shah,

director of the Energy Department’s Loan Programs Office. His agency, which recently approved a $2.5 billion loan to a

General Motors Co.

joint venture for battery manufacturing, has more firepower under the climate legislation. He said the impact of the funding will take time to develop, adding, “I don’t think those announcements will turn into capital deployment for a few years.”

The climate legislation, part of the Inflation Reduction Act, cemented tax credits for a slew of clean-energy technologies for a decade. It includes billions of dollars in additional government spending. 

“The price signal is just huge with how much funding is being provided,” said PJ Deschenes, a managing director at investment bank

Nomura Holdings Inc.

focused on the sector. He expects another active year of companies raising money privately. Some of the funding could return to public markets if the outlook for stocks and newly public companies improves, he said. 

Companies have announced billions of dollars of domestic clean-energy manufacturing projects since the legislation’s passage. Private funds managed by investment firms such as

Brookfield Asset Management Ltd.

and

TPG Inc.

are also sitting on billions of dollars in dedicated climate money.

“There is so much capital on the sidelines to put to work within climate and it has to go somewhere,” said Sophie Bakalar, a partner at Collaborative Fund focused on early-stage clean-energy investments. The firm invested in startups including geothermal heat-pump company Dandelion Energy and clean-fertilizer maker Kula Bio this year. 

Investors have soured on some startups that raised lots of cash but are at risk of running out of money.

Faraday Future Intelligent Electric Inc.

and

Canoo Inc.

are among the electric-vehicle upstarts that went public through special-purpose acquisition companies in recent years but have warned they won’t survive the next 12 months unless they can raise more cash.

Bankers say funding is available for companies that are seen as more competitive. Publicly traded companies such as

Freyr Battery

and solar infrastructure company

Shoals Technologies Group Inc.

have raised money by selling shares in recent weeks. 

Major energy producers including Chevron,

BP

PLC and

Shell

PLC spent billions of dollars on renewable-fuel companies in 2022. Most large companies have venture funds that are also pouring money into climate startups. 

The Inflation Reduction Act is seen as particularly beneficial for nascent areas such as biogas, hydrogen and carbon capture that need tax credits to become more economical. Startups such as clean-hydrogen producer Monolith attracted private-sector investment in the last half of the year.

Many companies are waiting for more details about how new programs like a government green investment fund will work before making new commitments.

“I don’t see an end in sight here given the impetus from the federal government,” said

Todd Alexander,

a partner at Norton Rose Fulbright LLP focused on the sector. “This area is not heavily correlated with the rest of the economy.”

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com