Corporate VCs expect the needs of AI data centres and US deregulation to boost energy funding, with grid tech and nuclear among the winners.
The incoming US presidential administration and the power needs of data centres are set to give a hefty push to the energy tech sector in 2025 according to some prominent corporate investors. Some technologies, such as batteries, heat pumps and hydrogen may suffer, however, if the subsidies that have sustained them are cut.
“We think that energy will see a huge gain from the next administration, just based on deregulation,” says Pete Bastien, the US-based president of Hitachi’s corporate venture arm.
Although the Trump administration is yet to come into power, the signs are that it favours an ‘all of the above’ approach to energy that will boost investment in several areas at once. Part of the reason for that is the new administration’s favourable views on power-hungry areas like artificial intelligence and cryptocurrency.
“If you just look at the stated positions of the incoming administration in the US, I think it’s clear that AI is going to be front and centre,” says Pradeep Tagare, head of investments for energy utility National Grid’s CVC subsidiary.
“Crypto meanwhile is increasingly looking to be front and centre, and both of those are going to create huge energy demands. So, anything that supplies from an energy perspective, that can address that increased demand is obviously going to be a huge winner.”
But ‘all of the above’ may not actually mean all of the above. Both Bastien and Tagare believe areas like electric vehicles (EVs) and batteries, hydrogen and heat pumps will be vulnerable due to a comparative reliance on subsidies.
All of them were recipients of subsidies and incentives in President Biden’s Inflation Reduction Act two years ago – a bill Trump has threatened to repeal. He has also claimed he wants to kill offshore wind energy development “on day one” of his administration. But the new government could be good news for another low-emission power source: nuclear.
“Oil and gas will maybe see the major boost, but I think fission will get lifted up and especially small reactors, because Trump has actually mentioned in a few interviews that he thinks nuclear is a viable way to generate electricity and the regulations are way too strict,” says Bastien. “But he also thinks the large reactors are too complex and have many cost overruns, so he wants to see something different.
“This is just talk. But we think that talk can lead to interest in the market. At a high level, that’s basically what we see right now.”
The data centre boom will drive funding for energy generation
2024 has put energy front and centre in the overall technology space because of the energy requirements of AI data centres,” says Tagare. “As AI sort of grew exponentially, the attention around energy for data centres grew similarly.
“There is going to be a renewed interest in figuring out how to solve that problem. And that is going to create a bunch of interesting investment opportunities, both directly related to energy and on the compute side that can lower energy demands.”
“The question is, especially with the data centre demand, does fossil fuel play a role there or not?”
Pradeep Tagare, National Grid Partners
That kind of activity can already be seen at the startup level. Just last month, a startup called Crusoe raised $600m from investors including AI chipmaker Nvidia to finance development of data centres powered by gas which would otherwise be flared off. A Swiss startup, Deep Atomic, is less than six months old but is working on a small modular reactor (SMR) designed to power data centres.
The demand is there too. Amazon and Google signed the first ever power purchase agreements with SMR developers in October, specifically to serve their data centres.
“The question is, especially with the data centre demand, does fossil fuel play a role there or not?” says Tagare. “That is the big question. If it starts to play a bigger role in the short term, I think you’re going to see a lot of investment go into that sector.”
Grid technology is hot – and a lot of it is going to be AI
The increase in demand for energy, coupled with projected growth for onshore renewables projects, is also going to put a lot of strain on electricity grids. Grids were originally designed around central generation but, with more and more decentralised sources like renewables coming online, the distribution system needs to be changed to orchestrate it all.
The problem is that grid hardware can’t be replaced cheaply or easily, so startups that can increase capacity in other ways will be in demand. That means software, and in particular AI is going to come into play – “AI to solve the AI problem,” as Tagare puts it.
National Grid Partners (NGP) is already exploring that area, with startups like LineVision, which uses lidar technology to monitor grid and weather conditions to calculate how much energy can be transmitted, and which can expand capacity by 20% to 30% without requiring new infrastructure to be built. Investments in the past six months include TS Conductor, developer of a new type of conductor material that can increase capacity by up to two or three times, and Urbint, which uses AI to automate safety monitoring for the grid.
For a firm like Future Energy Ventures (FEV), which began life inside Germany-headquartered energy utility E.ON before being spun off with corporate backing, the shift to software and digital tools is welcome.
“We believe digital tools and the current environment are the most effective tool to decarbonise the sector,” says managing director Jan Lozek. “And they are largely financially viable. That’s why it makes a lot of sense to focus on that type of asset class in the venture capital space right now.”
The majority of FEV’s portfolio uses AI and Lozek says it is a “great opportunity” for climate tech. Decentralised energy infrastructure like heat pumps, solar panels and electric cars are only going to become more important, and AI is going to be needed to quickly and proactively solve problems in this more complex grid.
Corporates are still willing to spend on edge tech – but nuclear could outpace hydrogen
While digital energy technology is set to see considerable growth in 2025, the need for baseload energy and the urgent need for decarbonisation means hardware cannot be ignored. In terms of energy generation, the two recent breakthrough areas have been in hydrogen and innovative nuclear technology. The latter in particular looks set for continued growth.
“We think that there are lots of tailwinds, mostly in the US but maybe internationally as well, for these smaller reactors, especially with data centres becoming more intensive going forward,” says Bastien. Fusion also saw an uptick in funding activity, he adds, but that’s still considered the energy source that will come after the next one.
“The next administration will have whatever rules they want, but the corporates themselves have longer-term goals for decarbonisation.”
Pete Bastien, Hitachi Ventures
While small modular fission reactors look promising in the shorter term, investors also have an eye on nuclear fusion technology. The familiar joke is that it’s one of those technologies that is always 15 years away, but there were several breakthroughs in labs last year, and that number may finally be set to drop. As far as startups go, Zap Energy and Tokamak both closed nine-figure rounds in the second half of 2024, following in the footsteps of the likes of Commonwealth Fusion and Helion.
“The initial signs are very promising,” says Tagare. “Is that going to happen in the next five years at scale? Obviously not. But it’s very exciting because it’s getting to the point where we can say that it’s feasible. I don’t know that anyone is going to put a number on it – five years, seven years, 10 years, whatever. But it increasingly looks feasible.”
Hydrogen is a trickier case. Lozek compares it to offshore wind, which is producing energy but which needed partnerships between governments and large utilities to truly emerge. For Tagare, the sector’s dependence on subsidies to finance development and deployment of the projects are what makes it vulnerable, especially in the US.
“The technologies that are used, especially around things like green hydrogen for example, are first-of-a-kind projects. And so, the cost curve for those projects is not yet at a point where it can be sustainable as an independent entity. So, they have to depend on subsidies,” he says.
“If these subsidies are not there, then they are not cost competitive, and if they’re not cost competitive, the market is not going to accept it. It’s that simple.”
There is a general agreement, however, that new technologies are going to be needed, both to meet projected energy demands and to meet decarbonisation targets. Lozek believes the industry is going to need new asset and hardware technology from 2030 at the latest in order to complement the advances that have been made with digital technologies. But, from carbon capture and hydrogen to nuclear, batteries and geothermal, corporate investors have been willing to invest in the future, and that seems likely to continue.
“The next administration will have whatever rules they want, but the corporates themselves have longer-term goals for decarbonisation, and I think that their shareholders are on board with it. So, I think the corporations will drive a lot of this, regardless of what regulations there are,” Bastien says.
“I think there is enough interest because if it works, the markets are huge,” Tagare adds. “So, people are still willing to bet on the technologies, they are willing to bet on teams and they are willing to bet that the markets will need this at a point in time. And I think there’s enough interest that you will continue to see funding.”
