Despite short-term uncertainty, sustainable energy tech poised for growth

By Mark Hillhouse, Sustainable Tech Practice Lead, Wells Fargo

One thing is clear: demand for electricity continues to grow. From data centers for artificial intelligence (AI) to EV fleets and carbon capture solutions, the need for power is everywhere. 

Analysts estimate that by 2030, demand for electric power will increase by 25 percent or more; by 2050, growth could skyrocket as much as 78 percent.

Despite these positive numbers, there’s stress in the energy markets. Uncertainty around tariffs, tax incentives, regulations, and financing has many tech companies focused on what’s next.

Fortunately, the prognosis for renewable energy, energy management, and energy efficiency technologies remains strong. Now is the time for industry players large and small to evaluate the possibilities, strengthen their network of resources, and move forward with confidence.

Renewable energy and sustainable tech deliver many benefits

Innovators focused on sustainable energy design and develop solutions ranging from fuel cells, to solar panels, to software that improves the electrical grid. Their products reside in everything from the smallest batteries to the largest power plants.

The benefits of renewable energy are numerous. These alternative technologies, along with conversion of many legacy power plants from coal to natural gas, have helped the U.S. drive down its carbon footprint significantly.

Despite changes enacted by the “One Big Beautiful Bill” Act (OBBB), renewable energy—particularly solar power—should remain the fastest-growing, least expensive, and quickest way to supply the rising demand for electricity in the U.S.

All these advantages demonstrate why venture capitalists and mainstream investors continue their commitment to building a reliable, affordable, and sustainable electricity generation system.

Economic upheaval, policy changes creating turmoil

What’s dampening the forecast for sustainable energy technology? The industry faces a variety of headwinds.

Tariff and content regulations have upended the supply chain as buyers and sellers worldwide rethink costs and rearrange their trading partners.

• Tax credits, mandates, and government subsidies for adoption of electric vehicles and energy efficient products are expiring.
• Solar and wind tax credits will be phased out sooner than expected, which adds to industry uncertainty.
• Tax credits for energy storage systems and most other forms of renewable energy (such as nuclear and geothermal) will continue, but supply chain managers may need to contend with tightened “Foreign Entity of Concern” regulations intended to move supply chains away from China.

Another factor is the slow process to redevelop power generation and distribution systems, even to accommodate a variety of new, cheaper, and more sustainable energy solutions. Redevelopment affects many stakeholders and requires significant regulatory input; refitting or building a single power plant is a multi-year process.

Three short-term strategies for sustainable energy tech companies

How can sustainable energy technology companies navigate these dynamic conditions? In the short term:

1. Expect uncertainty. Although passage of the OBBB Act removes some uncertainty, the ups and down of tariffs, tax credits, and other policies continue. The next 3-6 months should settle much of this uncertainty, but businesses with a resilient mindset and a proactive strategy will be best-positioned for competitive advantage. 
2. Diversify your financing. Adequate capital is one of the biggest challenges for sustainable energy technology firms. If your company needs to deploy costly equipment to implement your technology, consider developing separate capital strategies—one for traditional working capital financing, the other for asset deployment (similar to project finance). An equipment finance resource may also be an option.
   
   Municipal bonds may be another financing alternative, especially if your company engages in managing or recycling waste. Finally, all tax credits made transferrable in the Inflation Reduction Act (IRA) will remain so until they expire. Selling tax credits is another way to generate additional liquidity. 
3. Hone in on your customers. The shifting market leaves less room for error. Companies that leverage the knowledge and interest of their best customers can go to market with products uniquely suited to their customers’ needs. Take time to listen to customer concerns and adapt solutions, particularly those that solve problems beyond decarbonization. 

Find a bank that values innovation, understands technology, knows your target industries

In the long-term, sustainable energy tech companies are well positioned to drive lasting and valuable change. Innovations that reduce production and distribution costs, meet demand for electricity more efficiently, or save time for customers will all find success.

Working with a forward-thinking bank that values innovation can streamline a tech company’s journey. As part of the Commercial Banking division, Wells Fargo’s Technology Banking Group has delivered specialized insights and recommendations to technology companies for more than 25 years. The team provides scalable support to clients in all stages of the business lifecycle—early, growth, and maturity—and combines industry experience with the strength and resources of one of the largest U.S. commercial banks. Primary subsector focus includes Software, Fintech, E-commerce, Semiconductor, Business & Technology Services, and Sustainable Tech.