Debt is dominating climate tech funding in 2024

Global funding data published today by climate tech intelligence firm Net Zero Insights shows that the first quarter of 2024 was a historic one for the cleantech industry: despite a continued downward trend in the number of completed deals, an unprecedented boom in debt-structured giga-rounds (deals of $1 billion or more) helped to shape the funding landscape.

• The top line: According to the report, non-dilutive funding reached record levels in the early months of this year, accounting for more than 60% of all funding. Debt financing in particular surged ahead, dominating funding for both breakthrough and adoption stage physical solutions, as well as late-stage funding rounds across sectors.
• The market grounding: The decline in overall deal activity isn’t a new phenomenon; while climate tech funding peaked at $102.5 billion in 2022, last year it dropped to just under $73 billion. That decline has come with significant decreases for earlier stage companies over the last several quarters, though Series C and growth-stage companies have fared better. However, the jump in non-equity funding is a significant one — in 2023, non-equity funding made up just 30% of climate tech’s capital stack.

The first quarter of this year marks the largest share of non-dilutive funding to date, Net Zero Insights found, thanks in part to a handful of unusually large debt rounds targeting capacity expansion and facility construction for the transport, energy, and industrial sectors (including H2 Green Steel’s $5.17 billion raise in late January).

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Giga-rounds made up 54% of all funding in Q1, and blew the last five years out of the water in terms of dollar value: the first quarter of 2024 alone saw more giga-round funding than total yearly amounts between 2019 and 2023.

Most of those largest rounds were in the form of non-recourse project finance, in which lenders provided funds for a particular project based on that project’s expected cash flow as opposed to company assets, with bank syndicates underwriting the debt.

The surge in that type of structure comes as banks appear to be upping their focus on climate projects, particularly on commercializing physical infrastructure projects, pushing past venture investors and government funding last quarter.

This increased reliance on non-dilutive funding, Net Zero Insights founder Federico Cristoforoni told Latitude Media in January, may be a sign that the climate tech market is reaching maturity.

“More and more banks and big funds and financial institutions are interested in financing and finding these solutions,” he explained. That increase in activity illustrates a change that’s occurring: The industry needs a level of capital that goes “way beyond” the model of venture, Cristoforoni added.

“Hopefully, if everything goes right, that’s going to continue to be the trend,” he said. As the industry matures, a key litmus test over the coming years will be whether these new climate financiers start to invest more in breakthrough and earlier-stage technologies, which the industry can’t afford to leave behind.