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For climate tech startups, the IRA is starting to pay off

August 18th, 2023

President Joe Biden signed the Inflation Reduction Act into law in August 2022, allocating $400 billion in federal funds for clean energy projects. The goal is to achieve a up to 40% reduction in economy-wide greenhouse gas emissions by 2030. Even startups are beginning to benefit from this initiative.

Investment from private sources into climate tech startups is on course to match, and potentially exceed, the government's funding. This trend is fueled by the confidence of investors in a growing market for such technologies. Over the past year, more than 270 new clean energy projects have been announced, with private investments totaling approximately $132 billion. More than 50% of these funds were directed towards electric vehicles (EVs) and batteries, while the remainder supported renewable energy, grid storage, carbon capture, utilization and storage, and clean fuels. These investments are expected to create over 86,000 jobs, including 50,000 in the EV sector.

While the majority of funding from the Inflation Reduction Act will benefit established companies, private investment like venture capital is also finding its way to startups at various stages of development. Many startups are offering complementary services to larger industries, attracting the attention of investors.

Puneeth Meruva, a partner at Trucks Venture Capital, noted a 10% increase in the number of climate-related startups since the enactment of the IRA, compared to the previous year. He observed a 65% rise in companies focused on EV charging and an impressive 72% increase in startups tackling hydrogen technologies.

The IRA's funding is not directly advantageous for startups due to its emphasis on infrastructure rollout and established technologies. However, startups can leverage the incentives in the bill to appeal to potential customers. For instance, if a startup offers a product related to charging, they can use the availability of IRA funding to collaborate with infrastructure developers.

At the growth stage, the IRA has enhanced access to debt financing. This is due to incentives for domestic manufacturing included in the IRA, making it more feasible for companies to secure debt to finance manufacturing expansion. Project-level incentives in the IRA also simplify the financing of clean energy projects.

The IRA has an impact on various startup sectors, including solar, energy storage, energy transmission, hydrogen, carbon capture and sequestration, domestic EV manufacturing and supply chain, and EV charging. The legislation extends solar-related tax credits and offers new incentives for hydrogen fuel, biofuels, and sustainable aviation fuel. Energy storage regulations have been updated to include standalone energy systems for grid-scale battery systems.

The IRA has played a crucial role in shaping investment opportunities across these sectors, reflecting the government's commitment to promoting clean energy initiatives.

Source: TechCrunch

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