Investors Are Betting $21 Billion That the Energy Transition Isn’t Going Away

The energy transition faces significant headwinds, with congressional Republicans blocking tax credits for clean energy and the Trump administration threatening to revoke billions of dollars in grants. However, despite these challenges, there are signs that the transition may not be derailed as some might think.

Investor sentiment, as reflected in the size of new fund raises, remains strong. More and more founders are also entering the sector. The takeaway: investors and organisations are putting their money and time into the belief that the energy transition is a long-term trend.

This week, Brookfield, a Canadian infrastructure and asset management giant, announced it raised $20 billion for its second energy transition fund. Brookfield has already deployed $5 billion of this fund into renewable power projects, including investments in solar, wind, and battery storage.

What’s particularly noteworthy is that Brookfield raised 33% more for this second fund than for the first in 2021, when ultra-low interest rates and a booming economy led to speculation that clean energy might be entering a bubble. The fact that this larger fund was raised in a less exuberant economic period suggests that limited partners are betting on sustainable, long-term growth.

Growing Confidence in Clean Energy

Additionally, Energy Impact Partners (EIP) has closed its third flagship fund, securing $1.36 billion in commitments, 40% more than its previous fund. EIP, a venture fund that invests in companies once they’ve proven themselves in the early stages, focuses on scaling businesses. The typical investment round for EIP is around $26 million, according to PitchBook.

Climate tech has seen a surge in new founders in the past five years, driven by an increasingly evident climate crisis. While not all startups will survive, enough have made it that investors see a significant opportunity in funding the next phase of growth. EIP has already allocated about a quarter of its new fund to companies like GridBeyond, which helps manage distributed energy resources, and Quilt, a consumer-focused heat pump manufacturer.

A Decade of Strong Investment Trends

Since 2014, major limited partners (LPs) such as pension funds and endowments have committed nearly $1 trillion to the energy transition. Even though climate tech VCs are on track to raise a similar amount to last year, they are outpacing the broader venture capital world. This year, they’ve raised 3.8% of all venture capital, nearly double their share in 2020, according to PitchBook.

Headwinds in the U.S.

In the U.S., near-term challenges persist. The Trump administration has been openly opposed to the energy transition and has attempted to undermine the progress made so far. As a result, the International Energy Agency (IEA) revised its forecast for renewable adoption in the U.S., predicting that renewable energy rollout through 2030 will be 45% lower than initially expected.

However, the global outlook remains more positive. Renewable capacity worldwide is expected to double by 2030, with solar installations leading the charge in China, India, the EU, and Sub-Saharan Africa.

The IEA isn’t the only entity forecasting continued growth for renewables. Analysts at DNV expect renewables to supply 65% of global electricity by 2040, and nearly all of it by 2060. While DNV notes that this pace won’t be sufficient to meet net-zero carbon emissions by 2050, it affirms that the momentum continues to favour renewable energy rather than decline.