After an extended period of economic growth, a pause is underway. During the first and second quarters of 2022, U.S. gross domestic product (GDP) contracted by 1.6% and 0.9% respectively. This contraction has met the technical definition of an economic recession and the financial markets have been reacting accordingly. All the major equity indexes went into the tank during the first half of 2022 in one of the worst market performances since the early 1970s. The Dow Jones Industrial Average dropped more than 15%; the S&P 500 was down more than 20%; and the Nasdaq composite was down 30%.

Impact on Clean Energy Tech

Many emerging markets got hammered and the clean energy tech sector was no exception.

For example, one technology developer in the battery storage space saw its market capitalization shrink by about 70% between year-end 2021 and midyear 2022. Another developer of hydrogen fuel cells saw its market cap drop by 50%.

There are many other examples and all of them are posing concerns. Analysts evaluating risk profiles of potential initial public offerings (IPOs) of any new clean tech market entrant are likely to have significant concerns, and opportunities are going to be limited in the near term until the financial markets stabilize.

The Best Ideas May (Or May Not) Win

It’s uncertain how much consolidation this turmoil will cause, but we are likely to see some ideas that are not as viable fall quickly by the wayside. Other ideas that may be brilliant but have failed to attract big investors may be shelved for a time or snapped up by bigger companies.

If we do see some consolidation, this may benefit some of the companies and investors who are a bit further along in the development cycle. There will be fewer competitors coming out of the woodwork to compete for funding with a similar version of the same innovation.

This is a dramatic turnaround. Before the downturn, many companies consisted of a couple of people with a great idea, and many had success attracting venture capital money. Those who were part of a blue-chip research and development incubator or a highly respected academic institution like Stanford or MIT usually attracted some interest. If the company was in a very early startup phase and had a reasonable business plan, venture capital investors were often willing to commit a couple of million dollars and could usually gain a significant percentage of the company. For now, it is less likely that investors will be willing to commit to high-risk ideas like they were a short time ago. With less funding available, we’re likely to see a lot of development slowing or drying up completely.

Long Development Cycles Still a Reality

Startup companies typically seek multiple rounds of funding leading up to a demonstration phase. If the demonstration is successful, the company then begins a commercialization phase, and it’s at this point that most begin exploring an IPO or a purchase by a special purpose acquisition company (SPAC). Though SPACs may or may not be an option for much longer, due to recent adverse court rulings, they have provided another source of capital for companies that want to avoid going through an IPO.

No matter which funding path a startup pursues, the current environment is almost certain to make cash infusions a lot more problematic — partly because of the long period of development needed for most of these technologies, and also because of the enormous sums of startup capital required. This is a big difference between the clean tech sector and many others. During the dot-com era, for example, companies were going to market within months, compared with 10 years or more for many clean tech companies. Whether it’s hydrogen, carbon capture, energy storage, renewable energy, advanced nuclear reactors or any other innovation in the decarbonization space, development cycles are very different.

Much-Needed Boost Forthcoming

Some of these development challenges are likely to be addressed through federal incentives administered through the U.S. Department of Energy (DOE). Authorized by Congress, these DOE incentives will be handled primarily through grants and low-interest loans, once projects are in later stages of commercialization.

This infusion of investment in technology is designed to jump-start many emerging technologies to advance pursuit of the goal of decarbonization.

The real economic engine that will propel these technologies into profitable enterprises upon commercialization is the tax credits that are expected to be made available under the Inflation Reduction Act of 2022. This incentive will provide infusion of significant amounts of domestic and foreign investment in decarbonization technologies. Developers should keep in mind, however, that DOE grants are typically provided on a cost-share basis. This requires the technology company to adequately scale in the process of moving toward commercialization.

Previous DOE awards for technologies that were in later stages of commercialization were commonly limited to a 20% cost share. It is hoped by many that the DOE will recognize the true cost curve in the commercialization process and respond with 50% awards.

The DOE has awarded a higher percentage of matching funds in the recent past, based on the extent of technology advancement targeted. Unfortunately, that approach has proved to be shortsighted and resulted in repeated challenges during the 1990s with funding for advanced coal gasification technologies. Under this coal gasification program, the DOE funded competing technology pathways for coal gasification processes, only to end up with no workable designs. A similar situation occurred again with an award in 2010 for a lignite gasification facility that never successfully operated.

The DOE is likely to go into this process with past mistakes in mind as it evaluates which technologies and systems deserve to be supported. It is expected that the DOE will want more rigorous economic and engineering analysis before supporting any specific technology or system. The department will want to be sure it is lining up to support a truly viable market. The variety of use cases for hydrogen illustrates the point. Whether it’s hydrogen conversion to ammonia, hydrogen fuel cells for transportation, hydrogen-fired power plants, or the many other potential use cases, the DOE will be looking for the most appropriate uses of government funding.

Another challenge for development companies will be the amount of reporting and verification required to comply with the terms of federal loans or grants. This will be a major burden for many companies that could translate into an additional 20% to 30% of administrative overhead in accounting for how the funds are spent.

Investing in the Future

It’s unwise to predict how long the recession will last or when the Federal Reserve will get inflation under control, but the federal clean energy funding may take some uncertainty out of the equation. At some point, the government support will assist in attracting private investors back into the clean tech sector as price points for various innovations reach some equilibrium.

Clean energy technologies have drawn significant sums of capital to date — larger than the dot-com sector ever saw at similar points in their respective growth curves — and more capital will be needed. The International Energy Agency predicts that around half of the technologies that will help achieve aggressive decarbonization goals are in demonstration or prototype phases now. Those that eventually succeed will need to go through extensive development and will need significant investment support if they are to become scalable and cost-effective.

We’re still at a relatively early stage of the development curve for most clean energy technologies, but as decarbonization progresses, it will be extremely interesting to see which ones reach viability.


Direct air capture is one of the clean energy technologies that could see increased funding by the DOE for demonstration projects.

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Grant Grothen is a principal and business development manager at Burns & McDonnell. Over a 30-year career, Grant has consulted with utilities throughout North America, Europe and Asia on nuclear, renewable and fossil generation resource issues, including air quality control and water and wastewater systems.