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Venture capital (VC) investment in clean energy startups declined globally in 2023 for the first time since alternative energy technologies began attracting serious VC money in 2015. But the 6% dip was minimal compared with last year’s 38% plunge in total global VC investment across all sectors as high interest rates, inflation, and slowing economic growth took their toll on market liquidity.

Along with economic conditions, the lure of artificial intelligence (AI) startups also dampened the fervor for sustainable energy among VC investors, especially in North America and Europe, where funding dropped 21% and 29%, respectively. In stark contrast, VC investment in Asia Pacific, and particularly in China, doubled in 2023 over 2022 levels.

Our 2024 “Clean Energy Startup Radar is based on an analysis of early-stage investment data from Crunchbase. The report tracks VC investment in the sector to identify trends, promising technologies, and new business models, as well as investor opportunities and risks.

In 2023, investment in clean energy startups totaled $11.6 billion, down from $12.3 billion in 2022 — the high point for investment in the sector. By comparison, AI attracted a stunning $50 billion last year, soaking up much of the limited capital available. The drop in clean energy investments mirrors a similar decline in the corporate sense of urgency around climate, despite new regulations and mounting weather events related to a changing climate. 

Exhibit 1: Global venture capital investment in clean energy startups
US $ billions
In 2023, clean energy's growth story was interrupted for the first time with a decrease in VC funding. However, the sector remains stronger than most other startup areas, which were hit harder by the overall VC market's steep decline
Thomas Fritz, partner, Energy and Natural Resources, co-head of Climate and Sustainability, Europe

China’s bet on the low-carbon economy

While that may have been true in North America and Europe where high interest rates plagued capital flows into riskier assets like venture capital, it did not seem to be the case in Asia where VC investment last year rose to $3.6 billion over 2022’s $1.7 billion. This was driven by a sizable Chinese investment (primarily Chinese investors investing in China), totaling $1.7 billion.

Chinese investment in 2023, which centered around battery storage (75% of investment), renewable energy (10%), and energy efficiency (5%), accounted for approximately half of the total for the region. But the focus on energy transition businesses is not new for China, which has become the global leader in solar photovoltaics and batteries in recent years and boasts the largest electric-vehicle market in the world.

Make no mistake, North America and primarily the United States still dominate the clean energy startup space, with an annual investment of $5.5 billion — $4 billion of which is from the US. But in 2023, Asia Pacific surpassed Europe in clean energy venture capital investment. 

Exhibit 2: Global venture capital investment in clean energy startups by world region
US $ billions
Asian startups stood out in 2023, with double the funding compared to the previous year. Growth is primarily driven by China, which is taking on the role of innovator rather than replicator of clean energy technologies
Matthias Witzemann, partner, Energy and Natural Resources and head of Climate and Sustainability, Germany and Austria

Uneven investment pattern across Europe

Europeans didn’t experience the decline in VC clean energy funding equally. The 29% drop in investment in 2023 was largely driven by declines in three countries: Germany, the United Kingdom, and Sweden. For example, Germany saw a 63% decrease, with even bigger declines in the UK (86%) and Sweden (83%). The likely reason is fewer startups even asked for funding because of the market’s tightness, and those that did tended to show lower valuations than in prior years. Further, more mature clean energy startups, especially in Germany, often can access other, less risky types of funding such as debt financing.

France stood out as the strongest VC market in the region, with investments rising 67% to $1 billion from $600 million the year before. The French investment demonstrates strong investor confidence in the potential of clean energy, healthier capital markets, and a favorable regulatory environment.

At the same time, VC investments in smaller countries also rose in 2023, driven primarily by Lithuania, Denmark, Luxembourg, Finland, Austria, and the Czech Republic. Investments were primarily in sectors mainstreaming green energy, carbon analytics, and renewables.

But in the case of many of these countries, there is only one company per country receiving the funding. Of the smaller countries mentioned, only Denmark has two companies that received funding.

Exhibit 3: Venture capital investment in clean energy startups based in Europe
US $ billions
There has been a steady increase in the number of startups developing innovative tools for emissions data collection, analytics and carbon accounting. This reflects the rising importance of calculating carbon footprints and the increasing pressure on companies to address their environmental impact
Leopold Zangemeister, principal, Energy and Natural Resources

Big increases for hydrogen and battery storage

Low-carbon hydrogen energy — that is, green and blue hydrogen — and battery storage are the rising stars of the sector, even in a year of waning investment in clean energy startups. Investor attention in 2023 shifted away from the former industry darling, carbon capture and storage.

VC investment in low-carbon hydrogen technology rose more than two-fold, from around $600 million in 2022 to $1.5 billion in 2023. This upward trend reflects the increasing recognition of the potential of hydrogen as a clean energy solution. The increase is largely driven by some major investments in a single-digit number of startups in North America, accounting for two-thirds of global startup investment in hydrogen. North American alternative energy investment has been bolstered considerably since 2022 by the Inflation Reduction Act.

Battery technology and storage solutions rose 8% in 2023. Technology innovations, a wide range of applications, and viable business cases are likely key drivers of this continued growth. Battery storage allows intermittent renewable energy like solar and wind to develop more stable pricing.

Although on a much smaller scale, startups developing carbon analytics and accounting tools and services also saw a steady rise. There are an increasing number of startups developing tools for carbon footprint analysis and carbon accounting, often as software-as-a-service. The upward trajectory of these startups highlights the demand for innovative solutions in managing and reducing emissions as part of climate change mitigation strategies.

At the same time, investment decreased in long-term climate change mitigation solutions such as carbon capture and storage and energy from fusion. The high capital expenditure requirements, long investment horizons, and regulatory uncertainty likely rendered the technology less attractive to VCs in 2023.

Startups focused on mainstreaming green energy also experienced a drop in investment in 2023, likely caused by a softened focus on energy efficiency due to lower energy price pressures for private and business customers.

Smaller funding rounds for clean energy

The decline in clean energy startup funding is reflected by a drop in the size of the average funding per round. Average funding per round dropped 36% in 2023 to $34 million. This is likely caused by a decrease in large individual investments in ventures dependent on extensive research and development, long-term opportunities, and generally lower valuations in the sector.

The relative absence of large investments also implies a strategic preference for smaller investments, which enable available funds to be stretched over longer periods of time as new sources of funding have become scarcer and VCs are trying to make the money last longer. 

Exhibit 4: Average funding amount per round
US $ millions

Seizing the clean energy investment opportunity

With venture capital investors pulling back from green energy startups in Europe and North America, a window of opportunity opens for established players to claim more ground in the clean energy space. Established players can access longer-term funding using a range of financing methods and draw upon their own operational capabilities.

Experienced energy companies can seize the moment in three ways. First, they can drive innovation in their own pilots and research and development (R&D) to gain ground on disruptive startups. Second, they also can partner with startups to combine innovative power with the ability to fund operations and tap into existing operational capabilities. Finally, they can take advantage of lower valuations to acquire and integrate startups into their own operations.

About this insight

Our annual “Clean Energy Startup Radar”offers an overview of VC investment in innovative startups that use high-tech, digital, and artificial intelligence capabilities to enable and accelerate the energy transition. Clean energy firms in this analysis work in renewables, hydrogen and fusion, electrical grids and storage, carbon capture, emissions analytics and more.

Using data provided by Crunchbase and starting with all available startups, researchers derive a final sample of companies using both algorithmic and manual filtering.

The “Radar” tracks venture capital investment in the sector to identify trends, promising technology and new business models. The analysis reveals opportunities and risks for clean energy investors, particularly established companies. 

Exhibit 5: Categories of clean energy startups assessed in this analysis