Expectations For Cleantech Innovation in 2025

Cleantech Group predicts breakouts, progress, and challenges for 2025

“2025 is not going to be easy but clearly what we need to focus on is the stories underneath rather than the headline figures.”

-- Richard Youngman, CEO Cleantech Group

As the 2020s hit their midpoint, cleantech innovation is hitting noticeable tipping points: the impact of AI is spurring both demand for data center technology and a new wave of digitalization in cleantech, critical materials security is expanding into mainstream conversations, and a wave of first-of-a-kind projects are ready to start testing their mettle in commercial markets.

Cleantech Group’s outlook for 2025 and beyond as discussed by Richard Youngman, CEO & Anthony DeOrsey, Cleantech Group’s Research Manager

From a webinar

By Suzanne Forcese

The upcoming change in U.S. administration will have an influence on the direction of travel for cleantech innovation raising questions as to:

• Which trends will persist, and which ones may accelerate?
• Where will corporate adoption of cleantech grow and where will it shrink?
• Which verticals are most likely to see exits in 2025?

Discussion began with a look at how the post pandemic cleantech world should be interpreted noting that a drop off in venture and growth financing continued in 2024 following the peak years of 2021 and 2022.

“We should consider 2021 and 2022 to be outlier years as there was a spike in low interest rates,” DeOrsey said.

Youngman pointed out that, “We are in an innovation theme that is multi -decades so we consider 2023 and 2024 to be an adjustment period – a classic venture investment cycle. The stories are not really in the figures but deeper down and even beyond. We are only talking about equity investment and that is not the only form of investment in the innovation field. We have an amazingly strong ecosystem.”

Changes In The Investment Field

• An Overall “Upscaling” of the financing mix has occurred. Venture-backed innovators are benefitting from financiers’ new-found familiarity with cleantech and improved perception of risk
• Entire categories are now moving beyond equity – Battery and electrolyzer manufacturing now have clear post-equity playbooks – thermal storage, geothermal, green steel getting there too

Expectations for Cleantech Innovation in 2025 – A Framework

Expect exits along the SMR to SLM Continuum. The AI market is stimulating demand pull-through across a wide spectrum -- data centers but also many adjacencies including supply inputs and stand-ups, data center operations, market-facing and surfaces.

 “Data Center decarbonization is a central piece here,” Deorsey says. “We are encouraging everyone to zoom out and look at the whole value chain because this likely is where you are to see a lot of momentum in the coming year in equity financing across a wide spectrum. Everything from power and supply going into data centers, the materials that are going to go into chips to reduce energy consumption. A mini industry has formed around power location infrastructure development. In the middle inside of a data center, you've got to manage everything. The cooling is going to be the biggest piece There are going to be opportunities to use waste heat for power management.”

Expect an Energy Security = National Security Argument  

Geothermal may be an early beneficiary of the data centers boom and new attitudes toward energy and national security. There’s an interesting overlay between cleantech and defense.

The Cleantech & Defense Nexus will Emerge Strong – dual use cleantech will see a widened pool of engagement – baseload power, earth observation, critical materials will grow.

US Dept of Defense called out rare earth magnets as being a supply chain risk and already murmurs of a China export ban on rare earths that go into magnets which are critical in many industries but especially in defense.

Resilience Tech Will Start Seeing Breakouts.

Wildfire and power resilience are likely to be the first in this theme to build bona fide commercial traction

“What’s super important in the coming years is getting lobbyists together to influence lawmakers on the importance of wildfire tech in the coming years.”

Industrial Electrification Will Ride Its FOAK Wave

Some policy support may begin melting away, but enough projects are out in the real world to make project economics clear, second-mover advantages likely to begin emerging

• Thermal Storage - FOAKs have laid project economics groundwork. The market is now more open to varying approaches
• Industrial Heat Pumps - Grants have softened de-risking costs. The tech is now at maturity

Energy Storage – Materials Abundance Now Crucial

Sodium-ion technology that can avoid supply chain chokepoints will see enthusiasm, but is at the early stages of scale.

“As China proposes fresh export curbs on EV technology, the US and its allies could create a new supply chain for the energy storage taking off across the world.”

What are the challenges in 2025?

• Electric Mobility – Innovation Will Focus on Niches

The challenges of launching vertically-integrated EV and battery manufacturing were laid bare in ’24, absent national strategies to compete with China, innovation will focus on niche components and manufacturing processes

• Low-carbon Hydrogen Will Await Demand Signals

Focus will be on innovation to service today’s markets, enthusiasm for experimental tech will await ready market

• Carbon Removals – Supply Chasing Demand?

The technology landscape has evolved, but weak policy and lack of trust in markets remains a roadblock to scale

Final Thoughts

▪ Be aware of where today’s supply might be chasing future demand and how much policy support would be required in the intervening time

▪ Be on the lookout for where demand might begin chasing supply − today it’s data centers, tomorrow infrastructure resilience, potentially sustainable aviation fuel?

▪ Geopolitics are going to be layered across many cleantech spaces this year − some innovators are already making strong national security arguments, expect more of the success cases to do the same

▪ Never underestimate the power of the real economy − manufacturing jobs and infrastructure projects all impact the middle class and are more likely to motivate policy support; today’s FOAK projects are putting crucial training data into the system

To follow the webinar go here