If you want a shot of optimism about how Massachusetts entrepreneurs are helping to combat climate change, all you need to do is look at the startups that were champs at raising capital here over each of the last three years.
One is building plants to recycle used materials from lithium-ion batteries into materials that can go into new batteries. Another is developing a giant battery that would allow utilities to store the power generated by wind and solar farms and deliver it when it’s needed, not just when the sun is shining or wind is blowing. A third is designing a fusion reactor that would generate power while emitting zero carbon.
Governor Maura Healey plans to make climate tech — technologies that can reduce our impact on global warming and the environment more broadly — a centerpiece of her administration. In her first State of the State address last month, she promised to “make Massachusetts the climate innovation lab for the world. We’ll help climate tech companies not only start, but scale in Massachusetts.”
I’m a supporter of the strategy, as I’ve written, but it’s important to stay grounded in one important reality of climate tech: when investors make big bets, they expect big returns. Climate tech venture capitalists like to boast that they are more patient than other stripes of investor — after all, it takes longer to design and manufacture a wind turbine than to build a website. But when money doesn’t come back, they either close up shop, or they start looking to put their money to work somewhere else.
A 2023 report from SVB, a division of First Citizens Bank of Raleigh, N.C., found that between 2021 and 2023, the number of sales of climate tech companies in which the sale price was not disclosed increased. That, the report noted, is “indicative of under-performing exits” in the climate tech sector. When you ask players in the local climate tech ecosystem to talk about the best exit — a sale or public offering — of the past decade, as I’ve been doing, you often get crickets.
The Boston investment bank Bowen crunched the numbers, looking at January 2014 through January 2024, and found that the state’s biggest hit in climate tech was XL Hybrids, an MIT spin-out that built a business converting gas-powered vehicles into hybrids. That company was valued at $1.4 billion when it went public in 2020 in a reverse-merger.
But over the next two years, the stock dropped 97 percent, and last year, the Securities & Exchange Commission levied an $11 million fine against the company, now called Spruce Power and based in Houston. The reason? XL had inflated its revenue projections before going public. XL’s unprofitable hybrid vehicle conversion business was discontinued and its assets sold last year.
Hardly a poster child for a stellar outcome in climate tech (especially since early investors got paid, and most people who bought XL stock once it was publicly traded got burned).
Massachusetts and this sector have seen boom and bust cycles before. In 2016, MIT’s Energy Initiative published a widely-read working paper that noted that investing in what was then called clean tech had led to “carnage”: investors lost half the money they put in.
Remember Solyndra and Evergreen Solar, solar panel makers that went bankrupt when their product couldn’t compete with cheaper panels from China, despite government support? The very subtitle of the 2016 report called venture capital funding “the wrong model for clean energy innovation.” Yet better models have not emerged.
One more challenge for companies in the climate tech arena is that often, they need to compete on price. As Mark Lewis put it, “Whether you’re producing energy or storing it, you want to do it in the lowest cost way possible.” Lewis is a managing director at Lime Rock New Energy, an investment firm in Westport, Conn.
He is not an investor in the three Massachusetts startups that topped the capital-raising charts in recent years — Ascend Elements ($542 million in 2023), Form Energy ($450 million in 2022), and Commonwealth Fusion ($1.8 billion in 2021) — but Lewis said “they are all really interesting businesses. I’m super encouraged to see these companies getting built, growing, and getting funded by VCs.”
But they’ll have to prove that they are more than just “science projects,” he added, to eventually reach some sort of happy ending for their investors.
Both Healey and her economic development secretary, Yvonne Hao, are aware of the headwinds that climate tech companies face. What should we be doing to ensure that those headwinds don’t turn into another nor’easter?
Three suggestions. The first is to help all climate tech companies in Massachusetts find places to pilot test their technology, gather data about the results, and then, if it works, roll it out in a bigger way. The second is to find ways to bring the biggest energy companies and project developers in the world to Massachusetts to see what’s being incubated here. (Greentown Labs, a shared startup space in Somerville, already does a good job of this — but more action would not hurt.)
The third is to support, at the federal level, policy that would put a price on carbon emissions — something Congress hasn’t discussed seriously since Barack Obama’s first term. Joe Curtatone, the president of the Northeast Clean Energy Council, an industry trade group, said via email that “we need to follow Europe’s example” by creating a system that would create financial incentives for businesses to “reduce emissions more rapidly, incentivize adoption of new technologies, and spur innovation.”
A handful of states, including Massachusetts, have put in place pieces of these so-called “cap and trade” systems over the past five years. But doing it at a national level — politically difficult even in a second Biden administration, and likely impossible in a second Trump term — or in more states, would help spur demand for the new climate-related technologies being built here.