Global venture capital activity in the renewables sector has remained flat in the first quarter of 2024, as rising rates continue to pose challenges for growth capital. In the first quarter of this year, VC investors increasingly turned to hydrogen while Solar PV reported a drop in investment.
Higher rates continue to obstacles for the clean energy sector, with venture capital fundraising activity remaining flat for the first quarter of 2024. However, this year saw a sharp increase in clean energy projects becoming operational.
Venture capital deal-making activity in the clean energy sector stood at $3.5bn in the first quarter of this year, a 10% drop compared to Q1 2023, according to Pitchbook’s latest clean energy report.
While solar photovoltaic continues to dominate the sector, reporting $1bn in investment in Q1 alone, this represents a 21.4% drop in demand compared to the previous quarter. Meanwhile, demand for battery storage projects increased marginally by 0.8% to a total of $928.5m in Q1.
Investor demand for hydrogen assets, meanwhile, skyrocketed by more than 70% this year, with $717.4m in new investments in Q1. Hydrogen is now the third most popular sector in the global renewables market, Pitchbook data revealed.
This trend appears to be driven by policy incentives in the US, as the Biden-Harris administration announced a $750m support package for the American hydrogen industry in March this year.
The commitment follows the introduction of Regional Clean Hydrogen Hubs as part of the Inflation Reduction Act and is aimed at reducing the cost of producing clean hydrogen to $1 per kg, the US government said.
Another key trend in the first quarter was growing investor demand for early-stage venture capital projects, with funding rising to a total of $10.6bn, compared to just under $2bn in 2017. Meanwhile, interest in late-stage projects remained stagnant at a total of just over $8bn, Pitchbook data showed.
While institutional investors remain cautious about the asset class, larger, more private market-focused investors such as Australian super funds and Canadian pension funds are increasingly embracing it.
Some UK investors, such as the $40bn Border to Coast Pool, are selectively including venture capital investments as part of their wider private market holdings.
In the UK, the British Private Equity and Venture Capital Association (BVCA) brought together venture capital firms with pension funds at the end of last year for a Venture Capital Investment Compact, in a bid to attract more institutional funding for UK growth assets.
