Key takeaways

• US Securities and Exchange Commission (SEC) approved new climate disclosure laws: The US climate disclosure mandate was approved in March, two years after it was proposed. However, the new law takes a step back, excluding Scope 3 emissions and limiting climate reporting to those with a material impact. It requires all US-listed companies to disclose information on their material Scope 1 and/or Scope 2 emissions. 

• Funding hit three-year high, led by Northvolt’s USD 5 billion green loan: Next-gen Climate and Energy startups raised USD 7.5 billion in Q1 2024 (2.3x QoQ and 4.2x YoY). Around 76% of funding (USD 5.7 billion) stemmed from battery energy storage, including Northvolt’s USD 5 billion green loan to expand its manufacturing and recycling facilities. Hydrogen (USD 885 million; 1.7x QoQ and 4.2x YoY) and Conservation Tech startups (USD 113 million; 5.4x QoQ and 20.4x YoY) also attracted record funding. The CMS and CCUS industries showed early signs of recovery alongside regulatory tailwinds.

• First-ever ethanol-to-SAF plant and first-ever commercial e-fuel plant unveiled: We observed 36 product updates in Q1 2024 (compared with 37 in Q4 2023). Notable world firsts included LanzaJet opening the first ethanol-to-sustainable aviation fuel (SAF) plant and Infinium unveiling the first commercial-scale electrofuels (e-fuels) plant. Biofuel startups such as Infinium, LanzaJet, and Twelve focused on advancing commercial production facilities, while several others made product advancements (Type One Energy, Syzygy Plasmonics, and Dimensional Energy) and launched operations in new geographies (Energy Vault, Minesto, and Carbon Clean Solutions). After a surge in climate disclosure product launches last quarter in anticipation of new SEC regulations, the CMS space had a notably quiet quarter.

• Collaborations were prominent in Alternative Energy, EOMS, and Hydrogen: We observed 70 partnerships in Q1 2024 (compared with 105 in Q4 2023). Alternative energy collaborations increased (Q1: 18 vs. Q4: 15), with biofuel, battery energy storage, and third-generation renewable energy companies focusing on advancing commercial activities. Hydrogen mobility partnerships were also notable, with ZeroAvia continuing to pioneer aircraft development, while EOMS companies formed several partnerships to strengthen national grids. CMS and CCUS partnerships were limited, following a lot of collaboration activity last quarter. 

• There were only two M&A deals in Q1 2024 (compared with six in Q4 2023). Conservation X Labs, a provider of AI-powered wildlife monitoring tools, merged with Wild Me, a non-profit that develops AI tools for wildlife conservation, to combine their strengths in AI. ONYX Insight, a provider of wind turbine performance analytics, was acquired by Macquarie Capital.

• Hydrogen activity is set to accelerate, while battery energy storage and biofuels remain hotspots: The US Department of Energy (DOE) and EU Commission have together committed USD 14 billion+ over the last six months to develop clean hydrogen production. Such government funding and heightened VC activity, along with supportive legislation (US 45V Hydrogen Production Tax Credit and EU Clean Hydrogen Acts), create an environment conducive to developing green hydrogen production as well as support technologies such as fuel cells and hydrogen-based transportation.

• Meanwhile, battery manufacturers are consistently attracting high levels of funding (both VC and government), which is now being invested in large-scale battery capacity expansion and battery technology innovation. Similarly, several biofuel companies, including LanzaJet, Infinium, Twelve, and Braya Renewable Fuels have either begun operations or are in the process of building large-scale production facilities in 2024. 

• New SEC climate disclosure ruling likely to spark interest in carbon-related industries: In the lead-up to the approval of the highly anticipated SEC climate disclosure rule, carbon-related industries saw a flurry of partnerships and product development. Both the CCUS and CMS industries also gained record funding in 2022 (CCUS: USD 2.6 billion and CMS: USD 1.9 billion) after the mandate was proposed in March 2022. The newly mandated disclosure of Scope 1 and Scope 2 emissions by public companies in the US is likely to require further investment and technological advancement in both industries.

Regulations: SEC approves climate reporting requirements; hydrogen and third-generation renewables garner government interest

Analyst Take: The US SEC passed the first US-wide climate disclosure mandate, two years after it was proposed, but what we see in effect is a relatively watered-down version of the original proposal. Most notable is the omission of Scope 3 emissions, which focus on value chain accountability and typically make up the largest portion of a company's carbon footprint (~80%–90%). This omission fails to provide a fully transparent picture of a company’s operations and is also a deviation from the legislation and standards in the EU and the International Financial Reporting Standards (IFRS), both of which require Scope 3 reporting. The SEC cited widespread opposition to the proposed adoption of Scope 3–due to compliance costs and data reliability concerns—as the reason for removing the rule.

Additionally, both the US and Europe continue to encourage the adoption of renewable energy technologies. Continued financial support for hydrogen comes on the back of the introduction of the 45V Hydrogen Production Tax Credit in the US and the EU adopting two delegated acts defining renewable hydrogen. This is reflected in the notable uptick in VC funding and industry activity this quarter. Moreover, the US DOE’s exploration and funding of geothermal energy is new and further expands the scope for energy diversification. Meanwhile, the UK’s investment to build the first high-tech high-assay low-enriched uranium (HALEU) nuclear fuel program signals a step away from dependence on Russia, a move reminiscent of the REPowerEU program that aimed to reduce reliance on Russian fossil fuels. 

• SEC approved climate reporting requirements: In March 2024, the SEC voted to approve the requirement for public companies (large accelerated filers and accelerated filers) to disclose information on material Scope 1 emissions and/or Scope 2 emissions. Notably, the final ruling 1) only requires the disclosure of climate-related risks that are deemed to have a material impact (investment decision), 2) does not require disclosure of Scope 3 emissions, and 3) requires companies to disclose capitalized costs, expenditures expensed, charges, and losses incurred from severe weather events and physical climate risks. The rules will be subject to a 60-day public comment period in the Federal Register before being finalized.

• US DOE and EU Commission announced over USD 8 billion in funding for hydrogen projects 
  • In February 2024, the EU Commission approved a third Important Project of Common European Interest (IPCEI) to support hydrogen infrastructure and boost the supply of renewable hydrogen. The IPCEI Hy2Infra project was developed by seven member states: France, Germany, Italy, the Netherlands, Poland, Portugal, and Slovakia. These countries will collectively provide EUR 6.9 billion (~USD 7.4 billion) in public funding, expected to unlock EUR 5.4 billion (~USD 5.8 billion) in private investments. Furthermore, as part of the project, 32 companies with activities in member states will participate in 33 projects. The IPCEI Hy2Infra will support the deployment of 3.2 GW of large-scale electrolyzers to produce renewable hydrogen.
  • In March 2024, the US DOE reported plans to grant USD 750 million in funding to 52 projects across 24 US states as part of the 2021 Bipartisan Infrastructure Law. The projects will focus on a range of solutions for the hydrogen industry, including R&D on producing electrolyzers, securing supply chains for the machines, and recycling critical materials used in hydrogen production, such as iridium. The projects aim to boost US electrolyzer manufacturing capacity from 1–2 GW per year to 10 GW, which would be enough to produce an additional 1.3 million tons of clean hydrogen annually.

• The UK invested GBP 300 million to launch Europe’s first high-tech HALEU nuclear fuel program and signed a new fusion energy partnership with Canada 
  • In January 2024, the UK Government reported plans to invest GBP 300 million (~USD 380 million) to launch the first HALEU program in Europe. HALEU is the fuel required to power next-gen nuclear reactors and is currently produced only in Russia.
  • In February 2024, the UK and Canada signed an MoU to partner on fusion energy. The two countries seek to improve collaboration on R&D, coordinate their approach to regulation, and develop their workforce and skill base. This follows the UK forming a strategic partnership with the US in Q4 2023 to accelerate the demonstration and commercialization of fusion energy.

• The US DOE released funding to advance and scale geothermal technologies and unveiled a roadmap for the next generation of geothermal energy 
  • In January 2024, the DOE Geothermal Technologies Office unveiled a funding opportunity of up to USD 31 million for projects that aim to improve enhanced geothermal systems. Areas of interest included projects that address downhole cement and casing evaluation tools and a demonstration project for low-temperature (<130◦ C) reservoir thermal energy storage technology.
  • In February 2024, the US DOE selected three projects to receive up to USD 60 million to demonstrate the effectiveness and scalability of enhanced geothermal systems. The selected projects were 1) Chevron New Energies (using innovative drilling and stimulation techniques), 2) Fervo Energy (aims to produce at least 8 MW of power from each of three wells), and 3) Mazama Energy (demonstrating a first-of-its-kind super-hot geothermal technology).
  • In March 2024, the US DOE released a “Pathways to Commercial Liftoff” report focusing on the potential of next-gen geothermal power to support the country’s energy transition. As per the report, geothermal power has the potential to expand by more than 20x from the current US installed capacity to contribute 90 GW of power by 2050.

Funding: Climate investments hit a three-year high, led by Northvolt’s record funding

Analyst Take: Next-gen Climate and Energy investments got off to a strong start in 2024, reaching a three-year high and securing 11 megadeals. Battery manufacturers were a key contributor–most notably Northvolt’s landmark USD 5 billion debt round. Hydrogen startups also brought in record capital, bolstered by favorable tax regulations set in motion by the 45V Hydrogen Production Tax Credit in the US and clean hydrogen legislation in the EU. Similarly, industry funding for CCUS and CMS showed a positive performance during the quarter, possibly in tandem with the SEC finalizing its climate disclosure rules.

• Next-gen Climate and Energy funding rose to a three-year high in Q1 2024, raising USD 7.5 billion, up 2.3x QoQ and 4.2x YoY in dollar terms. The average funding round size (USD 187 million) also reached a three-year high. Excluding Northvolt’s USD 5 billion round, the total raised was USD 2.5 billion (-22.7% QoQ and +39.1% YoY). 

• On the contrary, the number of funding rounds hit a three-year low, with only 40 taking place (compared with 64 on average in the past three years). All other hubs, except for Hydrogen Economy, had fewer rounds than the three-year average. Notable declines included CMS (5), which averaged 13 funding rounds per quarter, and CCUS (4), which averaged 10 rounds per quarter.

• Similar to 2023, VC funding remained weak, with climate and energy startups relying on alternative sources of funding. Funds raised through grants, debt financing, and other funding sources (“other”) remained the largest in dollar terms, accounting for ~78% of total funding. Both early-stage funding (~10% of total funding) and growth-stage funding (~12% of total funding) improved in dollar terms compared with Q4 2023. Meanwhile, seed funding fell for the second consecutive quarter and was at its lowest in the past three years (~0.5% of total funding).

• There were 11 megadeals (rounds raising USD 100 million or more) in Q1 2024 compared with an average of six per quarter over the past three years. This was the highest number of megadeals seen since Q4 2021 (11) and was raised primarily by Alternative Energy and Hydrogen startups (10).

• Alternative Energy continued to dominate funding, driven primarily by investments in long-duration battery storage. The Alternative Energy industry raised USD 6.1 billion in Q1 2024 (~82% of total industry funding), up 155.4% QoQ and 538.1% YoY. As seen in Q3 and Q4 of 2023, most of this (USD 5.7 billion, ~76% of total industry funding) was raised by battery producers across six funding rounds. 

• The most significant was Northvolt's USD 5 billion financing, reported as the largest green loan raised in Europe to date. The company allocated the funds to expand its Northvolt Ett battery factory in northern Sweden and its Revolt Ett battery recycling plant.

• Geothermal and bioenergy companies also remained strong contributors. Fervo Energy and XGS Energy collectively raised USD 254 million (vs. USD 144.9 million in Q4 2023), while biofuel companies INERATEC and LanzaJet raised USD 158.4 million (vs. USD 51.0 million in Q4 2023). Nuclear energy companies Transmutex and Thea Energy also raised a total of USD 43.2 million over the quarter.

• Hydrogen Economy funding rose to a three-year high, raising USD 884.7 million (+68.7% QoQ and +320.6% YoY) across 10 funding rounds (~12% of total funding). Most of this capital was raised by companies focused on clean hydrogen production, including Sunfire’s USD 559.1 million fundraise, Lhyfe’s USD 162 million grant, Electric Hydrogen’s USD 96.3 million grant and debt financing, and Verdagy’s USD 39.6 million grant. Of the six grants awarded to next-gen climate and energy companies this quarter, five were provided to companies in the Hydrogen industry.

• CMS and CCUS funding recovered following a dip in Q4 2023. The CMS industry raised USD 165.7 million across five rounds (+339.2% QoQ and -47.7% YoY), following a three-year low last quarter. The CCUS industry raised USD 155.2 million across four funding rounds (+102.3% QoQ and -35.0% YoY). The most notable contributors in the CMS industry were Watershed (USD 100 million) and Greenly (USD 52.5 million), while the main contributors in CCUS were CarbonCapture (USD 80 million) and Avnos (USD 36 million).

• Conservation Tech saw its strongest funding performance in two years, raising USD 113.2 million across four rounds (+440.4% QoQ and +1942.8% YoY). The most notable were a USD 92.1 million Series B funding round by Unseenlabs, a French company using satellite technology for maritime surveillance, and a USD 14 million Series A funding round by Cultivo, a climate-focused FinTech that identifies projects and forecasts natural capital returns.

• CRA and EOMS funding levels were at three-year lows. CRA industry funding declined for the third consecutive quarter, amounting to USD 1.2 million from one round (-73.2% QoQ and -91.8% YoY). Similarly, EOMS funding for the quarter fell to USD 8.5 million, raised from two rounds (-93.5% QoQ and -71.7% YoY), a notable low for the industry.

Product updates: Biofuel, energy storage, hydrogen, and CCUS startups broaden offerings and operations

Analyst Take: Renewable energy companies pushed for commercial-scale launches this quarter, with biofuel, energy storage, and hydrogen startups leading. This included notable world firsts such as LanzaJet opening the first ethanol-to-SAF plant and Infinium unveiling the first commercial-scale e-fuels plant. Nikola also opened its first HYLA hydrogen refueling station in Southern California after announcing plans in 2023 to create North America's largest hydrogen refueling network. 

This quarter saw a wide array of product launches, including Riskthinkin.AI’s climate digital twin, HowGood’s carbon accounting solution, and 24M Technologies’ new electrolyte technology. Meanwhile, companies such as Syzygy Plasmonics, Dimensional Energy, and Tokamak Energy focused on advancing their technologies. Several CCUS and alternative energy startups also expanded operations across North America, Asia, Africa, and Oceania. The CMS space was notably quiet this quarter after a surge in climate disclosure product launches last quarter in anticipation of new SEC regulations.

• We observed 36 new product updates in Q1 2024 (compared with 37 in Q4 2023). The updates spanned the Alternative Energy (16), Hydrogen Economy (9), CCUS (6), CRA (2), EOMS (2), CRA (2), and CMS (1) industries. 

• Biofuel and hydrogen fuel cell companies achieved several world firsts
  • Biofuel companies LanzaJet and Infinium have pioneered commercial operations at the world's first ethanol-to-SAF plant and confirmed plans for the first commercial-scale e-fuels plant. Bramble Energy also took an innovative approach to decarbonizing maritime transportation.

• Alternative energy, hydrogen, and CCUS companies launched a range of new commercial-scale projects
  • Renewable energy startups Twelve, Braya Renewable Fuels, Plus Power, and Minesto launched commercial-scale projects. Skytree, a company developing decentralized direct air capture (D-DAC) technology, unveiled its second DAC unit following the launch of its first DAC unit in September 2023. In addition, Nikola, which plans to build the largest hydrogen refueling network in North America, opened its first station.

• Alternative energy, hydrogen, and CCUS startups also scaled their operations
  • Northvolt and 8 Rivers began construction of their production facilities during the quarter, while Ekona Power and SunHydrogen reported plans to expand their current production capacity. In addition, Type One Energy, a company developing stellarator fusion technology, intends to begin construction of its fusion prototype machine.

• We saw broad geographical expansion across both CCUS and Alternative Energy industries
  • Several climate and energy startups, including Climeworks, Carbon Clean Solutions, and Fluence, established offices in new locations, while others, such as Minesto, Piclo, and Energy Vault, launched their products in new markets through local partnerships.

• Product launches spanned multiple hubs
  • New product launches over the quarter ranged from digital solutions such as Riskthinking.AI’s digital twin and HowGood’s carbon accounting solution to hardware innovations such as 24M’s new electrolyte technology and Hyzon’s fuel-cell system. Future launches from Meteomatics and Piclo were also announced.

• Alternative energy startups also focused on advancing technology
  • While Syzygy Plasmonics, ZeroAvia, and Dimensional Energy tested their technologies in preparation for commercial launches, companies such as Carbon America and Tokamak Energy reported plans for future technology validation. Additionally, both Enerkem and AW-Energy reported successfully completing multi-year pilot projects.

Partnerships: Collaborations prominent across biofuel, energy storage, EOMS, and hydrogen mobility

Analyst Take: Alternative energy startups collaborated the most this quarter with biofuel, battery energy storage, and third-generation renewable energy companies centering collaborations around advancing commercial activities. Despite a weak funding performance, EOMS companies formed several partnerships to strengthen national grids through optimization tools and the connection of DER. Activity in both the CCUS and CMS industries was relatively quiet this quarter, but CCUS startups signed several notable carbon dioxide removal (CDR) offset agreements, including Neustark inking a second CDR agreement with Microsoft. LEGO Group, Lufthansa Group, and BCG also purchased CDR offsets. Lastly, hydrogen mobility partnerships focused on advancing hydrogen-powered aviation, gearing to compete with renewable alternatives such as SAF-powered flights and electric aircraft.

• We observed 70 partnerships in Q1 2024 (vs. 105 in Q4 2023). The Alternative Energy, CCUS, EOMS, Hydrogen Economy, and CMS hubs saw the most number of partnerships. Product/tech development partnerships (30) and customer collaborations (26) were the most common, followed by sales collaborations (14).

• Biofuel, battery energy storage, and third-generation renewable energy startups focused on advancing commercial activities through collaborations
  • The Alternative Energy industry carried the most number of partnerships in Q1 2024 (26% of total partnerships). Several notable disruptors focused on advancing commercialization through partnerships, with Infinium, Blue Biofuels, Electrified Thermal Solutions, and Heliogen developing new manufacturing facilities, Corre Energy launching its first battery system, Energy Vault licensing its products in Africa, and Type One Energy developing its fusion prototype machine. In addition, companies inked joint product development agreements, with Infinium and Amogy exploring technology integration and ABOUND Energy partnering to develop a non-precious metal catalyst-coated electrode.

• EOMS partnerships centered on optimizing the performance of energy grids
  • There was a heavy focus on expanding DER access to electric grids to improve their reliability and stability, with Piclo expanding access to its grid flexibility platform and Smarter Grid Solutions aiming to create a new Distributed Energy Resource Management System (DERMS). Increased integration of renewable energy sources was another key goal of DER integration, as evidenced by the Voltus and EnergyHub partnerships. 

• CCUS partnerships focused on joint technology development, establishing CDR offset agreements, and testing DAC technologies
  • Partnership activity in the CCUS space was half that of Q4 2023. Disruptors such as Climeworks, 8 Rivers, and Svante formed partnerships to advance their carbon capture technologies, while Deep Sky entered several agreements to support DAC startups to test their solutions at its lab facility in Quebec, Canada. There were also several notable CDR agreements during the quarter, including with Microsoft, LEGO Group, Lufthansa Group, and BCG.

• CMS collaborations included developing new tools, improving the reliability of carbon credits, platform integrations, and supply chain traceability
  • Although the industry had a relatively quiet quarter (24 partnerships in Q4 2023 vs. eight in Q1 2024), companies such as Optera and CarbonChain formed collaborations to develop new tools and platforms to support carbon management. Additionally, Sylvera offered its insights to improve the reliability of its partner’s carbon credits, while Cedara partnered to manage the carbon footprint of ad requests. Notably, Circulor partnered with Automotive Cells Company to trace the CO2 emissions of the raw materials used for EV battery cells.

• Partnerships focused on advancing hydrogen mobility
  • ZeroAvia dominated aircraft development with several collaborations to support hydrogen-powered flight and orders for its engines from flyv and MEHAIR. In addition, following the deployment of a hydrogen-powered refuse truck with Remondis in Australia in Q4, Hyzon Motors is now focusing on developing a refuse truck for the North American market.

Acquisitions: Deals in Conservation Tech and EOMS

• We observed two M&A deals in Q1 2024 (compared with six in the previous quarter). Conservation Tech accounted for one, while EOMS accounted for the other.

• In January 2024, Conservation X Labs (CXL), a provider of AI-powered wildlife monitoring tools, merged with Wild Me, a nonprofit that develops AI tools for wildlife conservation, to combine their strengths in AI. Wild Me develops open-source software platforms that combine structured wildlife research with computer vision and machine learning to process images, locate animals, apply species labels, and suggest matching animals from its database. Through the merger, CXL will integrate Wild Me's technology into its product portfolio and leverage Wild Me's AI for individual animal re-identification.

• In March 2024, ONYX Insight, a provider of wind turbine performance analytics, was acquired by Macquarie Capital. The company operates a leading wind turbine performance monitoring and optimization platform that monitors more than 17,000 turbines in over 30 countries. Following the acquisition, ONYX will continue to operate as an independent business, with Macquarie planning to support its growth within the industry.

Value chain: Outbound activities intensify; support activities moderate

Analyst Take: Outbound activities in the energy value chain had a notable uptick in funding and partnerships, driven by battery energy storage startups and grid optimization efforts. Notable among these was Northvolt’s USD 5 billion funding round. R&D activities by renewable energy companies focused on advancing their technologies, ranging from renewable fuels and innovative battery designs to nuclear prototypes, with INERATEC’s advancement of CO2-neutral e-fuels being a notable development. Inbound activity focused on the production of biofuels and clean hydrogen, with notable world firsts such as LanzaJet opening the first ethanol-to-SAF plant and Infinium unveiling the first commercial-scale e-fuels plant, as well as notable hydrogen funding rounds such as Sunfire’s USD 500 million fundraising. Manufacturing and operations activities during the quarter were focused on improving hydrogen vehicles and aviation, with ZeroAvia playing a key role in the latter. The advancement of tidal/wave energy by startups such as Minesto and AW-energy was also noted. Lastly, while support activities were relatively subdued this quarter due to the dip in activity in the CMS industry, CCUS startups focused on collaborations centered around developing new technologies, testing DAC products, and establishing new CDR agreements. 

Appendix

Appendix I: Funding rounds in Q1 2024

Appendix II: Partnerships

Appendix III: Value chain summary Q4 2023