A great deal can change in just a few months.
While the climate technology sector hasn’t been dramatically altered, it is certainly facing new challenges compared to the summer. The recent U.S. federal election outcomes may threaten the startup-friendly Inflation Reduction Act, posing potential obstacles for many business strategies.
At the same time, the rising computational demands of AI are prompting data centre operators to seek diverse power sources, igniting interest in various energy solutions including nuclear, renewable resources, batteries, and even fusion technology.
As we approach 2025, it is an opportune moment to examine the trends that are anticipated to shape the coming year.
Advanced Nuclear Energy
Nuclear energy garnered significant attention this past year, highlighted by Microsoft’s revival of a reactor at Three Mile Island and Google securing a 500-megawatt partnership with startup Kairos. The main impetus? The soaring requirements of data centres. With AI systems projected to experience power shortages by 2027, tech corporations are competing fiercely to secure energy sources.
Nuclear energy stands out as a potential solution. Traditionally, expanding nuclear capacity involved constructing large plants requiring over a decade to complete. However, a new generation of startups is proposing smaller designs, which are anticipated to be easier to mass-produce. While these designs are yet to be validated on a large scale, the viability of nuclear startups will heavily rely on the outcomes of initial projects.
A favourable factor for these companies is the newly streamlined regulatory framework, which may expedite the transition from proposal to construction.
Nonetheless, they face formidable competition from renewable energy solutions, which have proven reliability and rapid deployment capabilities. Unless a significant advancement in efficiency for AI training or inference occurs, one can expect ongoing discussions regarding the tech industry’s increasing affection for nuclear energy in the year ahead.
Fusion Power
We are now just over two years since the National Ignition Facility’s historic announcement of the world’s first controlled, net-positive fusion reaction. This milestone has undoubtedly catalysed fundraising efforts among fusion startups. This year, notable success stories include Acceleron Fusion, Marvel Fusion, Marathon Fusion, Type One Energy, Xcimer Energy, and Zap Energy.
The upcoming year promises further developments in this field. Constructing a fusion power plant, including demonstration units, carries significant costs. Several startups are currently engaged in developing prototypes, demonstrations, and even commercial reactors, such as Commonwealth Fusion System and Zap Energy. Many aim to connect power facilities to the grid by the early 2030s, necessitating substantial work and increased funding in the near future.
While fusion technology is fraught with risks, its potential to revolutionise the trillion-dollar energy sector is immense. If these companies can achieve crucial scientific and engineering milestones, increased investor interest is anticipated in 2025.
Hydrogen Initiatives
Few industries are as vulnerable to potential shifts regarding the Inflation Reduction Act as hydrogen. Numerous startups aspire to provide hydrogen at a target price of $1 per kilogram, but achieving this goal may take until later this decade or early next.
To facilitate this aim, they have placed hope in the two-year-old IRA, which offers a $3 per kilogram subsidy for hydrogen generated from renewable electricity. Should this provision be removed, many hydrogen startups could face severe challenges. Additionally, larger corporations are becoming increasingly cautious.
Simultaneously, there is a growing interest from scientists and investors in so-called geologic hydrogen, which occurs naturally within the Earth. Could this approach salvage the industry? The coming 12 months could prove crucial for its success.
Additional Trends
The forthcoming year is likely to usher in even more changes, particularly as policymakers and regulators respond to the rising energy demands of AI. Adjustments in the permitting process could trigger a surge in investments in grid-related technologies; however, should these initiatives falter, a growing number of companies may opt to establish direct connections with power providers to bypass the grid entirely and link directly to their data centres.
Investors have indicated that many startups might struggle to secure new funding in the upcoming year. Companies that heavily rely on uncertain subsidies are especially at risk.
However, 2025 could also present unexpected developments — it is important to recall that the current wave of climate technology innovation first emerged during the initial Trump administration. The next year may hold its own surprises as well.
