As the U.S. government accelerates the green transition, providing huge injections of funding into a diverse array of renewable energy sources and clean technologies, it is being supported by thousands of startups bringing entrepreneurial innovation to the sector. Small businesses are driving the clean energy revolution in the U.S., supported by federal funding from the Inflation Reduction Act (IRA).

Government Funding for Small Businesses

Unlike oil, gas, and coal, which have long been dominated by large energy companies, the green transition has provided space for startups, small businesses, and academic institutions to get involved. In the U.S., the Biden administration has strongly encouraged innovation from a wide range of sources through the provision of grants and subsidies in recent years. 

Creating economic opportunities for all American communities, entrepreneurs, and workers is central to Biden’s Investing in America agenda, supported by funding from the IRA and Bipartisan Infrastructure Law (BIL). 

In May, the government held a Climate Capital Convening at the White House with investors, climate technology start-ups, small business owners, and entrepreneurs to discuss funding opportunities. This was followed by the publication of a new Climate Capital Guidebook to provide a comprehensive overview of the capital programs available to climate-related start-ups, small- and medium-sized businesses, and their investors. Smaller firms often find it more difficult to access funding opportunities than big, experienced companies in the energy field. The guidebook outlines hundreds of billions of dollars in grants, loans, loan guarantees, and other funding tools. 

Funding Programs 

Small and medium-sized enterprises (SMEs) represent around 90% of businesses and over 50% of employment worldwide. The White House has repeatedly emphasized that small businesses will play a critical role in achieving net-zero carbon emissions by 2050 and should have access to capital to develop new clean energy and climate projects. Therefore, the Biden administration has launched several financing mechanisms to ensure that startups and SMEs have greater access to funding to support a green transition.  

The Small Business Administration’s 504 Loan Program offers long-term, fixed-rate loans of up to $5.5 million from Small Business Administration-approved lenders for energy and manufacturing projects. Funding was previously limited to three loans, totaling a maximum of $16.5 million, but this cap was lifted for companies pursuing “energy public policy projects.”

This September, the Department of Energy (DoE) announced $142 million in grants to small businesses across 34 states. The funding will go to 123 projects that address a range of energy transition issues, such as decarbonization, cybersecurity and grid reliability, fusion energy, and nuclear non-proliferation. 

Private Funding for Startups

 Supported by a major rise in public and private funding, thousands of startups and small businesses are driving innovation in the green transition. In the private sector, Microsoft’s Climate Innovation Fund is one force driving startup growth, offering $1 billion in investment for the development and deployment of climate innovations. Meanwhile, ENGIE New Ventures, ENGIE’s corporate venture branch, has a $280 million fund for the scaling of technologies and business models of startups. In total, global venture capital funding for clean energy startups increased from $1.9 billion in 2019 to $12.3 billion in 2022 and is continuing to grow.  

Cleantech Startup Hubs

Funding for startups has increased rapidly in recent years, which has helped spur the emergence of green energy and clean tech startup hubs in the U.S. Houston has gained a reputation as the Silicon Valley of Texas in recent years, known for its cleantech innovation. The city, which was previously dominated by the oil and gas industry, has diversified its energy mix and has become a major hub for startups looking to break into renewables and cleantech. 

 

In 2022, the growth rate for tech employment in the region reached 3.5%, compared to the national average of 3.2%. Houston attracted a reported $6 billion in venture capital funding between 2017 and 2022 and is home to over 80 startup development organizations. Houston’s 21 business research centers that focus on the energy transition are supporting the growth of the clean tech sector. 

The University of Houston was recently awarded $125 million in DoE funding for the establishment of two Energy Innovation Hubs to conduct research to address the nation’s most pressing battery challenges and encourage next-generation technological developments. The strong investment environment in the Texan city is attracting more startups to the region and encouraging greater innovation to support the green transition. While Houston has become the most well-known city in the U.S. for its cleantech and renewable energy startups, more of these hubs are expected to emerge across the country in line with greater funding opportunities and public and federal support for the green transition. 

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