The Swamp
I was in DC a couple weeks ago – one thing that seems different is that no one knows anything. There have always been strong divergent perspectives on Capitol Hill, but usually most stakeholders have a shared understanding of what is actually happening – that was out this window. Staff from both parties were visibly frustrated/annoyed/dumbfounded by things. This was in the context of the federal budget cycle, but seems to be a throughline throughout federal policymaking currently, especially as it relates to tariff announcements and pauses/exceptions/delays (here’s a timeline).
One of the sectors that has had the most tariff volatility is autos, who have deeply intermeshed supply chains across Mexico and Canada, specifically because there is a free trade deal in place (which Trump himself negotiated and agreed to a few years back). This has the potential to be a huge drag on the US auto sector, both because of the actual cost implications and because it is not really clear to anyone when tariffs should actually apply because of the complex nature of supply chains (the New York Times has an interesting feature on this topic). This comes at a critical time for US automakers, as newer Chinese automakers continue to innovate, produce high quality affordable vehicles, and grow market share globally (although not in the US for the time being because of existing protections).
Speaking of China, although things are always changing, if there’s one thing that has been a little more consistent is the escalating trade barriers between China and the US. China has added certain technologies to the list of export control technologies, leading Chinese companies started to slow or halt the export of process technology and certain materials in the critical minerals supply chain (specifically for processing inputs that go into electric vehicle batteries), an area where China dominates both the actual market share, as well as the technology and solutions providers.
Generation Mix
Despite headlines of big changes in the direction of the energy transition, planned capacity additions and retirements this year tell a story that looks a lot more like the last several year (with data from December 2024, so pre-Trump administration but post election). Some of this will undoubtedly change, but the macro dynamics are likely to remain the same: A lot of new solar and batteries on the plus side; a much smaller magnitude of retirements, concentrated in coal. EIA is projecting 63 GW of total additions, up 30% from 2024, although I’m guessing the actual number will come in a good deal south of that given the continued economic uncertainty.
One other interesting trend in this data is the geography of these plants – the natural gas additions are largely replacing existing coal or natural gas generating stations shutting down at the end of their life (essentially replacing like for like). Even more interesting (to me) is the distribution of solar projects, which are being developed in a much broader geography than they were a half decade ago (when they were clustered in a handful of states with robust subsidy regimes or high solar irradiance), and are generally close to load centers. After all, if you were just building based on where the sun shined the strongest, everything would be clustered in California, Arizona, New Mexico, Texas, and Florida.
Money, Money, Money
My colleague Shashank recently published data on recent climate tech investing trends. While investment in climate tech hasn’t returned to the peaks of 2021/2022, total capital raised did increase year over year, and grew significantly in the Midwest region.
While a lack of exits are putting pressure on the venture space as a whole, we have seen earlier stages (pre-seed and seed) less impacted by this pressure.
Across venture more generally, Pitchbook shared that down and flat rounds are at a decadal high, substantially as a function of ebullient valuations in 2021 and 2022 and a more difficult fundraising environment today (as the lack of exits constrains the amount of new capital being deployed in most sectors, save for AI).
Other News
As the climate tech sector has ballooned over the next decade (and benefited more recently from government funding like that from the Office of Clean Energy Demonstrations), there are a new generation of companies attempting to scale in a more capital efficient manner than during Cleantech 1.0. In response, a new category of service provider has emerged in the climate tech market: FOAK development and advisory services like Mark1 and Precursor.
University of Michigan announced a $60 million project to expand their electric vehicle battery research facilities.Illinois is considering new legislation, the Clean and Reliable Grid Affordability Act to help improve the transmission grid and build more energy storage.
