Is this the year for climate tech to pay off?

The machine room in The Engine, a Cambridge-based venture firm and startup program founded by MIT.Lane Turner/Globe Staff

The climate tech sector has a post-pandemic problem.

Investors say they’re willing to be patient: they realize that developing a new kind of battery or solar cell technology takes longer than coming up with a new mobile app. But we’ve seen a dearth of big paydays, when these companies go public or get acquired. And overall funding for the sector has been sliding after setting records in 2021, according to data from PwC’s State of Climate Tech report. That downward trend has been playing out as US greenhouse gas emissions are back on the rise after a quarantine era dip, according to the Rhodium Group, a New York research firm.

Boston has the potential to be a leader in climate tech, with incubator spaces like Greentown Labs in Somerville and The Engine in Cambridge, and several investment firms that funnel money into the sector. It’s just hard ― 17 years after a group of investors and entrepreneurs got together to form the New England Clean Energy Council ― to find examples of how climate tech (once known as “cleantech”) has spawned big employers, big public offerings, big acquisitions, or companies with technology that is having a big impact on carbon emissions.

One of the region’s most promising companies, XL Hybrids, built a business around turning commercial vans and trucks into lower-emission hybrid vehicles. But after going public in late 2020 through a merger with a publicly-traded shell company, XL’s Boston engineering office has been closed, and the company, now called Spruce Power and based in Michigan, no longer offers vehicle conversions. (After a few days of trading above $20, Spruce’s stock is now at about $1.)

The exterior of The Engine, a former Polaroid building that now houses multiple companies that share space and equipmentLane Turner/Globe Staff

“We still have not solved the issue of how you really create profitable business models that can scale and make investors lots of money, and that can overcome the entrenched positions of incumbents, and the very low cost of fossil fuels,” says Jim Matheson, a senior lecturer at Harvard Business School and special partner at The Engine, an MIT affiliated incubator and venture capital firm.

A phase of enthusiasm for energy-related technologies in the early 2000s “went off a cliff” in the aftermath of the 2008 financial crisis, Matheson says. But that era saw the formation of companies that included Tesla (founded in 2003) and Enphase Energy (founded in 2006), an installer of solar panels and electric vehicle chargers for homes and businesses. Did Boston have a big winner in that era, which Matheson calls “cleantech 1.0″?

“I would say no. We learned a lot, but we didn’t have a big win,” he says.

New energy technologies typically have to compete with the price of commodities like electricity from the power grid, gas, or oil — and few participants in the energy ecosystem are holding their breath for the US government to put a price on carbon emissions, which would make alternative energy sources more economically attractive. But the 2022 Inflation Reduction Act does offer incentives and credits intended to spur purchases of electric vehicles, solar panels, and geothermal heat pumps.

Rob Day, a Marblehead investor who has been active in the energy business for more than 20 years, says that 2023 is beginning with “a pretty weird mix of still headwinds and tailwinds in our sector.” The Inflation Reduction Act is a tailwind, but for companies that depend on venture capital and private equity to perfect their technology and get it deployed, he says, “you’re going to see a bit of capital scarcity as we go into a recession,” which could act as a headwind for companies that need to raise money.

Another challenging dynamic that Day mentions is this: As new-climate tech startups try to perfect next-generation solar cells or batteries, they’re also competing with older generations of that technology, whether polysilicon solar panels or lithium-ion batteries — both produced in massive volumes in China.

Day says he’s encouraged that some investors are willing to take the long view, and put money into nuclear fusion technologies that likely won’t be feeding power into the grid for a decade or more. But for his firm, Spring Lane Capital, a better investment has been in a company called Atlas Organics, a South Carolina firm that operates processing facilities for food and lawn waste. “You get paid to take the trash in,” Day says, keeping it out of landfills, “and then you sell the compost.” Atlas was acquired last January by Generate Capital of San Francisco.

“I’m an all-of-the-above guy,” Day says. “We can’t solve the climate crisis with the technology we have today. However, we can forestall it…with the technology we have today. I think this year will see so much more emphasis on deploying the solutions we have — but, hopefully, not to diminish the excitement about new solutions and new technologies.”

Somerville-based Greentown Labs, a clean-tech incubator.Sanford Tyson Smith/Copyright © 2017 Sanford Tyson

Carmichael Roberts, a Boston investor who runs the Material Impact Fund and also identifies investments for Breakthrough Energy Ventures, a Bill Gates-backed investment entity, acknowledges that the pace of investing in climate tech “has slowed down,” but he says deals are still happening. “If what happens in a down market is that people scrutinize a bit more, and become even smarter about where they put their money, well that’s exactly what I want to have happen,” Roberts says. “What I don’t want to have happen is panic — and I’m not seeing that.”

Roberts says that he and other investors are focused on helping climate tech companies build their businesses, instead of “looking to capture value immediately” by taking them public, or seeking to get them acquired. A big focus in 2023, he says, will be scaling up production and deployment of their technology — not cashing out.

I recently checked in with one of those companies, CubicPV, a local startup that is developing a new process for making solar cells. I’ve followed CubicPV almost since it was founded in 2007. Chief communications officer Laureen Sanderson told me the company hopes its first US production facility will be online by 2025. (Earlier plans for factories in New York and India didn’t move forward.) Roberts put money into CubicPV earlier in his career, when he was an investor at North Bridge Venture Partners, and the company was known as 1366 Technologies.

At Cambridge-based Azolla Ventures, Matthew Nordan says he’s optimistic about the potential for young companies like SiTration, a Cambridge startup working on new approaches for battery recycling, and Funga, a Swiss company that may be able to accelerate tree growth — thus helping pull more carbon from the atmosphere.

“So much capital got raised in the 2018 to 2022 time period” by venture capital firms with a focus on climate tech, Nordan says. (That includes $200 million that Azolla raised last year.) That money will be invested over a decade or more.

But Nordan would like to see more big companies being built in the climate tech sector, creating lots of jobs, a positive effect on the environment, and, eventually, a healthy return for investors. “At some point, we have to see the score get run up in dollars,” he says, “in order to validate that the game is being won.”