Energy innovation and its startups are riding waves – let’s break it down

In this Power Playbook: The last two weeks have been data intensive for cash flows into energy sector start-ups and scale-ups, with LCP Delta finding a quadruple investment increase for the last four years while the IEA warns of a slowdown. Let’s break it down.

Edinburgh-based consultancy LCP Delta released data from its Follow the Money Dashboard, showing that funding over the last four years saw a four-fold increase to the prior period – from €10 billion ($10.8 billion) in the period up to 2020 to over €40 billion ($43.2 billion) between 2021 and 2024.

However, the common question of “is it enough” follows quickly after when looking at the latest report coming from the International Energy Agency – The State of Energy Innovation.

As I covered over on Enlit World, the Paris-based agency highlights uneven global investment trends and warns that, even though flow of capital has been incredibly promising, we now risk a pivot due to slowing momentum in financing and shifting priorities.

Let’s dive in.

Follow the Money

Commenting to me on LCP Delta's finding were Nigel Timperley, the company's research manager for new energy strategies & energy insights+, and Rebecca Forgesson, its associate consultant.

“The data shows that the energy transition start-up market has achieved a step change in scale in the years since 2020," they said.

"As the energy transition progresses to the mainstream, and more customers need to be provided with new energy solutions, there is strong reason to be optimistic that capital will continue to flow to energy start-ups.”

LCP Delta’s dashboard, which looks into the growth and financing of 500 new energy start-up and scale-up companies globally, highlights EVs and solar as growing in popularity for investors.

Although only nine EV car manufacturers are in the database, they account for 30% of the total funding. Solar companies are also increasingly receiving large debt deals to support installations.

According to Timperley and Forgesson, the 47 solar companies in the database collectively received the greatest amount of funding, at €15 billion ($16.5 billion).

The two cite German start-up Enpal, which received more than €2 billion ($2.2 billion) of asset-backed debt in 2024 to fund solar (and other energy product) leases for households, while on a newer and smaller scale, Cloover, which provides financing solutions to installers of solar and other home energy products, received more than €100 million ($109.6 million) investment in 2024 in only its second year of operation.

In terms of emerging areas, LCP Delta points to heating and flexibility – which have traditionally attracted less investment – as showing signs of growth.

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Around 60% of the companies in the database launched since 2023 are in the flexibility space, including Axle Energy, Electryone AI, and Beebop, and some have raised significant funding rounds considering their capital-light software business models.

Timperley and Forgesson cite Flower’s €45 million ($49.3 million) Series A round, and enspired’s €25 million ($27.4 million) Series B, both in 2024.

Over in heating, Aira and Hometree, both heat-focused start-ups, received investments of €200 million ($219.3 million) and €360 million ($394.7 million) respectively in 2024 to finance residential heat pump installations.

Despite this incredibly encouraging growth, some areas remain ‘untapped’. One is energy supply, which includes various company types and makes up 10% of the companies yet only receives 2% of the funding.

Some company types within the energy supply sector, such as digital-first energy suppliers, specialised back-office software providers, and platforms facilitating peer-to-peer energy trading, have greater potential for success than others.

Building energy management is similar, accounting for 8% of companies but only 1% of funding. Despite being a long-established sector that may not be considered the most innovative, several large funding rounds in recent years indicate investor interest is there.

Timperley said: “As investment in new energy grows, some sectors attract significant interest while others remain underexplored.

“To stay competitive, it’s vital to reassess not just the heavily funded areas but also those receiving less attention, as they may offer untapped opportunities.”

Upward trends but slowing risks

Back at the IEA, its report finds that currently, total investments in energy are rising, even as prices fall for renewables, increasing 5% in 2024 compared to the year before. Investments in low-emissions energy have grown to nearly double those of fossil fuels, increasing 7% in 2024.

The agency says that both public and corporate energy R&D spending are also trending upwards, increasing 5% and 6% in 2023, respectively, and there are early indications of continued growth in 2024. This is despite the headwinds of higher interest rates and tighter government budgets.

Although the pace of growth has slowed slightly since 2022, the momentum of investing in low-emissions energy technologies has been maintained – driven in large part by governments’ prioritisation of energy as a key sector for competitiveness and climate policy goals, which has spurred higher corporate R&D in energy-related technologies.

By contrast, the IEA says that venture capital investments in energy start-ups responded more strongly to inflationary macroeconomic conditions and policy uncertainty, declining by 23% in 2024.

While this follows trends in non-energy technology areas, reflecting the cyclical nature of VC markets, the dip in energy-related VC is more pronounced than other sectors, especially artificial intelligence, which attracted a much higher share of the global VC total in 2024.

While bright spots exist in technology areas such as new energy storage options, nuclear and CCUS, the IEA cautions that this recent trend should be of concern to policy makers. It could have long-term negative impacts as innovators struggle to scale up high-potential technologies without access to affordable capital.

Overall, the figures from the IEA and LCP Delta are quite promising.

However, as I covered yesterday, the IEA warns that the global energy innovation landscape is at a pivotal moment amid signs of slowing momentum in financing and shifting priorities, stemming from uncertainties in the global energy and political landscape.

The IEA adds that investment is an early indicator of real-world dynamics: the allocation of capital signals whether energy policies are steering capital to new assets that could displace or outpace the status quo.

And in this regard, I think we can be somewhat encouraged by the direction of things, even as the landscape continues to shift.

But what do you think?

Reach out and let me know so that we can feature your thoughts in the Power Playbook.

Cheers,
Yusuf Latief
Content Producer
Smart Energy International

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