Top Climate Tech Trends to Watch in 2023

By: Megan Cain and Nick Albanese

At The Westly Group, we love to evaluate startups shaping the future of clean energy, mobility, buildings, and industrial technology. Here are 10 sectors we are particularly excited about that we believe will drive investment activity in 2023:

1)🚚 Fleet Electrification: Electrified mobility will move beyond passenger vehicles to commercial fleets, paving the way for fleet electrification, charge management and advanced telematics solutions.

• Market Backdrop: Federal incentives make owning electric medium- and heavy-duty trucks cheaper than diesel trucks as early as 2023
• Opportunity Zones: As fleet operators accelerate adoption of commercial EVs, there will be increased demand for fleet electrification platforms that offer vehicle procurement, leasing, charging and charge management solutions
• Notable Startups: Synop, Forum Mobility, EVRealty, Autofleet, Zemetric, Voltera

2) 🔌 V2G / VPP: Bidirectional electricity flows and networked behind-the-meter (BTM) assets will begin to demonstrate value to the power grid by offering excess capacity in exchange for compensation to asset owners for operating as an energy storage device.

• Market Backdrop: Distributed power generation is increasingly moving behind the meter, making it difficult for grid operators to maintain resource adequacy. By 2030 there will be 26.4M EVs on U.S. roads placing huge capacity and reliability constraints on the grid
• Opportunity Zones: V2G for centralized assets with high utilization (i.e., commercial fleets), and VPPs for decentralized assets (i.e., networked DERs), unlock additional capacity to the grid in exchange for compensation via utility incentive programs
• Notable Startups: Fermata, WeaveGrid*, Rhythmos, Leap

3) 🏦 Commercial & Industrial Building Decarbonization: Federal & State incentives will turbocharge demand for energy efficiency programs and electrification of building systems to decarbonize our commercial building stock.

• Market Backdrop: Policy tailwinds like the NBPSC, the FBPS, and recent amendments to Tax Credit 179D will accelerate decarbonization of commercial building stock in the U.S.
• Opportunity Zones: Data-driven project development tools that accelerate electrification of building systems and reduce soft costs by streamlining the development phase of building projects (i.e., design, permitting, financing, procurement, construction, PPAs etc.)
• Notable Startups: Audette, Allumia, StationA, Juno, Renewafi, Lumen Energy

4) 🏡 Residential Electrification: In the quest for utility bill savings, greater energy independence, and sustainability, residential customers will increasingly seek out turnkey electrification solutions.

• Market Backdrop: IRA incentives for residential electrification plus the increasing frequency and severity of climate related extreme weather events (Texas cold snap, California atmospheric river) have driven residential customers to pursue sustainable alternatives
• Opportunity Zones: As customers navigate the complicated road to electrification, vertically integrated platforms that guide customers throughout the electrification journey (i.e., installation, financing, incentive management, O&M) will emerge as winners in the sector
• Notable Startups: Span, Lunar, Enpal*, Woltair*, Buildzoom, Samara, Sealed

5) ♻️ Circular Economy & Reverse Logistics: Rising costs of doing business [1], ongoing raw material shortages, and corporate demand for sustainability underpin the need for greater circularity throughout the global economy.

• Market Backdrop: Commodity price spikes [2] sent shockwaves throughout global supply chain in 2022 and are expected to continue in 2023 posing risks to reliant manufacturers
• Opportunity Zones: Asset-light, data-driven platforms that digitize analog processes and layer on intelligence for dynamic pricing, inventory management, purchase order ingestion, and logistics will help companies transition toward circular sourcing strategies
• Notable Startups: Cling Systems, TrueCircle, GreenSpark, ReMatter, Cambium Carbon, Boom & Bucket, Rheaply, ReverseLogix, Recurate

6) 💻 Learning & Upskilling Platforms: The growing labor gap in the U.S. will become a constraint to infrastructure buildout if not addressed in the near term — highlighting the need for advanced learning, upskilling & career development platforms.

• Market Backdrop: Prevailing wage and apprenticeship requirements under the IRA incentivize employers to offer workforce development and training platforms
• Opportunity Zones: Learning, upskilling & career development platforms for skilled trades (i.e., materials, manufacturing, construction, distribution, warehousing etc.) will help to address the growing labor gap and accelerate infrastructure development
• Notable Startups: Interplay Learning, Classet, Climatebase, Terra.do, On Deck, Traba

7) 🚢 Supply Chain & Logistics: In the way that 2021 and 2022 were about optimizing for cost, capacity, and visibility, in 2023 supply chain managers will optimize for flexibility, reliability, and sustainability.

• Market Backdrop: Global demand softening in 2023 will shift the narrative in global trade from supply shortages to surplus
• Opportunity Zones: Advanced risk management solutions that can seamlessly pivot from primary to secondary suppliers and optimize routing strategies based on pricing volatility, fuel consumption, lead time, and potential supply chain risks
• Notable Startups: Aifleet, Vizion, Optimal Dynamics*, Circulor*, Bearing, LogiNext, CarbonChain, Wise Systems

8) 🏭 Smart Manufacturing: Onshoring, nearshoring, and reshoring of manufacturing in the U.S., coupled with labor shortages and reduced operating budgets will drive renewed focus on expense management and incremental efficiency gains.

• Market Backdrop: Domestic manufacturing is on the rise [3] , however the looming global recession and growing labor gap are forcing operators to do more with less
• Opportunity Zones: Despite limited budgets for new tech adoption, if it addresses efficiency gains (i.e, real-time data processing, workflow optimization, increased throughput, or advanced inspection technologies), then it is likely to get approved
• Notable Startups: Machina Labs, Liminal, InvisibleAI, Guidewheel, Poka, Formic, Seurat

9) 💸 Project Finance: The explosion of new climate technologies means that the demand for project finance is bigger than ever — opening the door for venture capital dollars.

• Market Backdrop: Structurally, the market for capital intensive climate technologies is stronger today than it was ten years ago thanks to the availability of low-cost capital, a healthy pipeline of high-quality startups and attractive exit opportunities
• Opportunity Zone: VCs are uniquely positioned to invest in project finance “backable” businesses by addressing a funding gap at the HoldCo known as the equity contribution. Assuming a clear path to scalability and sustainable cash flows, the equity investment is not only de-risked, as it unlocks non-dilutive project finance dollars, but it will also appreciate as the company develops assets that grow Net Asset Value (NAV)
• Notable Startups: Terawatt Infrastructure, PearlX, Swell, BlocPower, Skyven Technologies

10) 💰 FinTech for Climate: As the global economy transitions to net zero, FinTech solutions for climate will help to lower barriers of adoption by offering flexible financing tools that democratize access to climate technologies.

• Market Backdrop: One of the leading barriers to adoption for climate technologies across residential, commercial, and municipal customers is high upfront costs. Despite the fact that most climate technologies pay for themselves over their useful life, the reality is that many customers are unwilling or unable to meet the initial financial burden
• Opportunity Zones: Financial tools that democratize access to climate technologies like flexible lending programs, usage-based pricing, portfolio analysis & reporting, and budgeting functionality will lower the financial burden and accelerate adoption
• Notable Startups: Sunstone Credit, Finite, Zeti, Banyan Infrastructure, Infraclear, Fynn

We could not be more excited about each of these opportunities in the year ahead. Please reach out if you would like to continue the discussion!

References:

[1] Rising costs of doing business due to higher interest rates, inflation, and commodity prices

[2] Commodity price spikes (i.e., polysilicon, lithium, crude oil, copper, renewable energy)

[3] US Manufacturing is expected to grow in the coming decade due to the IRA, CHIPS Act and ongoing trade wars abroad

Note:

Startups reflect (Seed — Series C) stage companies. Startups with (*) represent Westly Group portfolio companies.