Is AI to blame for the cleantech funding slump?

Artificial intelligence may be diverting money from climate tech. 

The first half of 2024 saw a down-turn for climate tech funding, one that was especially challenging for early-stage companies. And according to new research from BloombergNEF, “investor fascination” with artificial intelligence might be to blame. 

Climate tech companies raised $15 billion in venture capital funding in the first half of the year, which is 16% less than in the same period last year. Meanwhile, companies developing AI-based technologies raised $47 billion, a 60% increase compared to last year. 

The spike in AI funding is partly due to its relative novelty, and to the fact that it’s very capital intensive. According to a recent paper by Epoch AI, it costs an average of nearly $10 million to train an AI model in 2024, and the costs are rising. By 2027, the report found, training a large generative AI model could cost more than $1 billion. 

Climate tech startups are having a particularly hard time crossing the so-called “valley of death.” The time it takes for them to raise a Series B round has more than doubled in the last three years, according to data by market intelligence firm Sightline Climate. 

AI might be dazzling investors with its promises and securing funds that would otherwise go to climate tech, but the climate funding slump appears particularly bad after a 2021-2022 bonanza that was unsustainable in the long-term. Institutional investors have already committed large sums to climate tech in recent years, and they’re waiting to see returns before they invest some more. This is creating a challenging environment of the dedicated VC funds many startups rely on for funding. 

It’s worth noting that many cleantech startups that have been successfully raising money situate themselves at the intersection of AI and climate tech. These include companies like WeaveGrid and Camus Energy using AI for grid orchestration, for instance, as well as Dryad Networks and Rhizome applying AI to wildfire detection. 

A global picture

Total climate tech equity funding was just $22 billion in the first half of 2024, or half of the $44 billion raised during the same period last year.

The research tracks funding globally. Last year, China led the world in climate tech funding, but so far in 2024 the United States has charged ahead. In the first half of 2024, U.S. firms raised $6.7 billion, while Chinese companies raised $5.1 billion. Canada ranked third, raising $1.8 billion in the same period.

In the U.S., BNEF found that most funding — roughly 600 deals in total — went to clean power companies, especially equipment makers and project developers. Startups in the energy storage space also dominated.