Despite all odds, renewable investment is high globally.
Fritz et. al ’23 [May 19; Thomas Fritz, Mark Pellerin, Leopold Zangemeister, and Christopher Sohn; Partner, Energy and Natural Resources, Co-head of Climate and Sustainability at Oliver Wyman, Europe; Global and Americas Head of Energy and Natural Resources at Oliver Wyman; Principal in Energy and Natural Resources Practice, focusing on Climate and Sustainability at Oliver Wyman; Energy and Natural Resources Principal at Oliver Wyman; Oliver Wyman, “INVESTMENT IN CLEAN ENERGY STARTUPS IS BOOMING,” https://www.oliverwyman.com/our-expertise/insights/2023/may/investment-in-clean-energy-startups-is-booming.html] nikhil
Exhibit 1: Categories of clean energy startups assessed in this analysis
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Avoiding economic pressures
Total global VC funding in clean energy startups has increased dramatically over the last three years, growing more than sixfold from $1.9 billion in 2019 to $12.3 billion in 2022. This is despite a contraction in the broader VC market caused by the rise in interest rates and the subsequent tightening of liquidity. In 2022, overall VC funding across industries fell 53% year-over-year.
In stark contrast to funding for other sectors, such as mobility which saw its VC support drop 62% to $31 billion, investment in clean energy startups increased 10% in 2022 over 2021. While that was slower than the category’s growth between 2019 and 2021, the sustained expansion despite economic pressures reflects the VC market’s expectation that new solutions to facilitate an energy transition will be a top business priority moving forward. [For more data on mobility startup funding, see our Mobility Startup Radar.]
No doubt, green energy has been helped by catalysts like the Inflation Reduction Act (IRA) in the United States and corresponding measures in the European Union, such as the Net Zero Industry Act. Both new laws aim to reduce red tape around regulation and increase subsidies for clean energy solutions, with a significant potential to amplify investor interest in the sector in these regions.
Exhibit 2: Global venture capital investment in clean energy startups
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Funding for clean energy startups is reaching record highs, despite the ripple effects from a host of economic pressures, including COVID-19, mounting geopolitical tensions, a VC liquidity crunch, and rising interest rates
Thomas Fritz, partner, Energy and Natural Resources, co-head of Climate and Sustainability, Europe
The rise in mega investments
The increase in funding has been driven in part by higher-than-average deal sizes, along with individual mega investments of more than $500 million each. The average deal size jumped more than threefold from $17 million to $53 million between 2019 and 2021 and then levelled off in 2022. The larger deals reflect the more mature status of the startups being funded, which have usually already reached development stage.
Battery technology, in particular, has received such large investments. When it comes to batteries, new technology is needed to enable large-scale decentralized storage and expand the availability of renewable energy on a less intermittent basis. In 2022, $5 billion was invested in battery ventures.
Two-thirds of global VC energy funding in 2022 was invested in batteries and renewables. For instance, investment in renewables technology tripled from $1 billion in 2021 to $3 billion in 2022.