How Investments in Startups and New Technologies Are Driving Explosive Growth in Renewable Energy

When lawmakers passed the Inflation Reduction Act (IRA) in 2022, investors were inundated with reports about which companies and industries would benefit the most. However, even some of the most optimistic expectations appear to have been quite conservative now that the data from the first full year of the IRA is in.

Solar-energy capacity growth outpaced fossil fuels in 2023

In particular, 2023 brought an explosion in solar-energy capacity, with the U.S. shattering previous records for gigawatts of new solar-energy generating capacity. According to a report from the Solar Industries Association (SEIA), the solar industry in the U.S. added 32.4 gigawatts of new electric-generating capacity in 2023, marking an impressive 37% increase from the last record set in 2021.

The "U.S. Solar Market Insight 2023 Year in Review" report compiled by the SEIA and Wood Mackenzie also found that solar energy accounted for 53% of all the new electric-generating capacity added to the U.S. grid last year. Additionally, last year marked the first time in 80 years that a renewable-energy source accounted for more than half of the year's capacity additions.

At the end of 2023, total installed solar capacity in the U.S. reached 177 gigawatts, with the utility-scale sector alone adding 22.5 gigawatts of additional capacity last year. Additionally, almost 800,000 Americans added solar modules to their homes — despite the steadily rising interest rates.

The SEIA also noted growth in energy-storage devices. In 2023, 13% of residential solar installations and 5% of non-residential installations included storage capacity. In 2024, the SEIA expects 25% of new residential installations and 10% of non-residential installations to include storage.

New technologies are driving growth in renewable energy

Of course, many new and developing technologies are still needed to meet all the goals that have been set for carbon-emissions reductions. As a result, investors have plenty of options in terms of deploying their capital in support of renewable energy — and ultimately, a net-zero future.

The Inflation Reduction Act also granted sizable tax credits to companies that manufacture those technologies, and companies are making good use of those funds as well. According to the "Clean Investment Monitor," the U.S. saw $239 billion in new investments in manufacturing and deploying clean energy, clean vehicles, building electrification, and carbon manufacturing in 2023, a 38% jump from 2022.

In fact, those investments have been steadily ramping up, with a record $67 billion occurring in the fourth quarter, a 40% year-over-year jump. As such, just looking around at some of the latest technologies coming out of all those investments in renewable energy brings encouraging signs of progress in all areas.

Where all these investments are taking us

For example, Infinity Turbine recently unveiled its new 3,000-kilowatt Organic Rankine Cycle Radial Outflow Turbine Generator Set. It's designed to harness heat energy from a variety of different sources, including from industrial waste, geothermal and solar thermal, biomass, and other heat sources under 200 degrees Celsius.

Out-of-the-box thinking has also led to new and exciting ways to store renewable energy. For example, Finnish startup Polar Night Energy is building a giant sand battery capable of storing 100 MWh of thermal energy from wind and solar sources, which will enable one town to slash its carbon emissions by almost 70%.

The company established proof of concept in May 2022, when it rigged a smaller version of its technology to a power station in another Finnish town. The new sand battery being constructed in Pornainen, Finland will be about 10 times larger than the one currently in operation in Kankaanpaa.

How the U.S. military is helping support growth in renewable energy

The U.S. Department of Defense (DOD) is also doing its part by investing in renewable energy. For example, the DOD signed a contract with Canadian startup Eavor to harness its Eavor-Loop geothermal energy to power a U.S. Air Force base in Texas.

The Canadian firm will receive guidance from the Air Force Office of Energy Assurance and is partnering with U.S. oil giant Chesapeake Energy (CHK) for its technical and operational expertise. Eavor's technology is similar to other geothermal systems already being used.

However, Eavor's closed-loop system utilizes a thermosiphon approach that involves heating cold water, turning it into steam, and then cooling it again for use. This approach avoids the use of a pump that uses lots of energy and makes previous geothermal technologies more expensive and less efficient.

Eavor's contract with the DOD is just one of a growing number of contracts the U.S. military is doling out in search of renewable energy for its facilities. For example, Ideal Power (IPWR) was a partner in a DOD Naval Sea Systems Command (NAVSEA) project a few years ago to develop and demonstrate a high-efficiency 12kV medium-voltage direct-current circuit breaker equipped with its B-TRAN technology.

B-TRAN is Ideal Power's bidirectional semiconductor power switch, which is designed to be more efficient, thereby making it perfect for renewable-energy solutions. The company delivered its first B-TRAN devices to Diversified Technologies as part of the NAVSEA contract in August 2022 and completed deliveries last year. Separately, Ideal Power also began fulfilling orders for its first SymCool Power Modules, which utilize B-TRAN, to a large, global customer in February.

How teaming up is giving more bang for all those investment bucks

The military investments in renewable energy are just the tip of the iceberg in terms of driving growth in the industry. A growing number of other partnerships in the private sector are also pushing us toward our overarching goal of a net-zero future.

For example, Schneider Electric (SBGSF) hosted a series of roundtables at COP28 in December to encourage collaborations among the many global companies that have set net-zero goals. Among the participants were Cisco Systems (CSCO), Microsoft (MSFT) and Accenture (ACN).

A growing number of partnerships in the electric-vehicle space are also pushing us toward a net-zero future. For example, global top-10 automaker Stellantis (STLA) revealed a long list of partnerships with startups and other smaller companies in December as part of its 2023 Venture Awards.

Many of those partnerships are aimed at incorporating cutting-edge technologies into Stellantis' many well-known auto brands, which include Jeep, Ram, Chrysler, Dodge and many others. For example, Ideal Power is working with Stellantis on a custom B-TRAN power module for use in EV drivetrain inverters for Stellantis' next-generation EV platform.

In February, Ideal Power successfully completed Phase 2 of the development program with Stellantis. Phase 3 is expected to transition the project to Stellantis' production team. The companies are currently finalizing the scope of work for this next phase, which is expected to include extensive testing of the custom B-TRAN module to meet the automotive certification standards.

Stellantis also partners with other startups by investing in them through its venture capital arm. Similarly, a growing number of other companies are also partnering up for the express purpose of investment rather than working together to develop new technologies for the next-zero transition.

For example, BlackRock (BLK) is partnering with Singapore-based Temasek to invest $600 million into companies and proven technologies that will reduce or possibly eliminate carbon emissions.

Investing in renewable energy for a net-zero future

The Inflation Reduction Act has played a critical role in supporting the possibility of a future with net-zero carbon emissions. In some ways, simply drawing attention to the problems and what's needed to achieve those goals has made a significant difference.

However, until the net-zero goals are met, significant investment is still going to be required, and investors who do delve into the space are in good company alongside many well-known investors. For example, Warren Buffett invested $3.9 billion in wind and solar power projects in September.

Additionally, one of Buffett's newer favorite positions is Occidental Petroleum (OXY), which has several green-energy initiatives in place, including its work on removing carbon dioxide from the atmosphere.

In fact, many other large companies that aren't part of the energy industry are also pouring capital into renewable-energy projects. For example, Amazon (AMZN) invested in over 100 new wind and solar energy projects in 2023, making it the largest corporate buyer of renewable energy in the world for the fourth straight year.

At the end of the day, investors have many options to choose from when it comes to supporting renewable energy via their investment dollars, whether it's by investing directly in the stocks or private equity of companies that play directly in the space or by selecting other investments that indirectly support a net-zero future.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.