Three climate technologies every investor should have in their portfolio

Few fields are changing as quickly as climate tech. In the last five years, it’s undergone a radical transformation, blossoming from a niche area to a broad sector full of promising niches. With that diversification comes risk and opportunity.

And choices. So, so many choices. With the world looking to revamp nearly every corner of the global economy, there is a seemingly unending supply of startups in which to invest. There’s no way to create a definitive list, but here are three areas that deserve a closer look.

Enhanced rock weathering

With humans on track to blow through the “safe” amount of global warming in less than five years, carbon removal has been getting a lot of attention. There are lots of ways to do it, too: from big carbon filters and enhanced algae to rocks. Yes, rocks.

Several types of rocks naturally draw carbon dioxide from the atmosphere and transform it into a stable mineral. Problem is, that process is happening too slowly to have any effect on the colossal amounts of carbon we’ve pumped into the atmosphere.

One of the easiest ways to speed that process up is to expose more rock to the atmosphere by crushing it to bits and spreading it out over a wide area. That may not sound very appealing, but it is to farmers.

Farmers already spend lots of money on soil amendments, which includes everything from synthetic fertilizers to compost and manure. In certain regions with acidic soils, farmers also apply crushed limestone to raise the pH in the area.

More than a few startups, including Lithos Carbon and Eion, have latched on to this idea. But instead of spreading lime, they substitute it for another pulverized rock, like basalt or olivine, that can suck carbon from the air.

In one fell swoop, the amendment reduces soil acidity, adds helpful nutrients, and captures and stores carbon. The startups then sell carbon credits to buyers like Stripe, which means they often give the amendment to farmers for free (lime applications usually cost $40 to $60 per acre).

Two things make enhanced rock weathering appealing to investors. One, the cost per ton of carbon removed is pretty low, ranging anywhere between $80 and $180 per ton. That’s far below the costs of direct air capture, which involves big fans blowing air over filters to strip it of the dilute amount of carbon dioxide that regular air contains. Enhanced rock weathering could remove up to two metric gigatons of carbon dioxide every year.

Second, we have the tech. None of this would work if the startups didn’t have sophisticated models to accurately predict how much carbon an acre of farm field can remove. Crushing, hauling and spreading rock isn’t hard — that stuff can all be subcontracted — but the modeling and verification is.

If, as many people suspect, carbon removal becomes a service akin to wastewater treatment or garbage collection, then the demand for such platforms will be enormous.

Fusion

Commercial fusion power practically defines high-risk/high-reward investment. What investor wouldn’t want at least one bet like this in their portfolio?

Fusion’s potential is often described as limitless, and that epithet isn’t unwarranted. Supply is practically unlimited: Depending on the technology, the Earth could have thousands or millions of years of fuel on hand.

If fusion reactors can be built at scale for a reasonable cost, demand certainly won’t be a problem. Last year, consumers paid over $10 trillion for energy, the IEA estimates. How many other markets have a potential TAM in the trillions?

Plus, the odds of fusion succeeding have increased significantly in recent years. New magnets have enabled designs for fusion plants that are smaller and cheaper to run, tipping the balance toward profitability. And the breakthrough experiment at the Department of Energy’s National Ignition Facility has boosted hopes that sustainable, profitable fusion power may finally be within reach.

There are a range of investment opportunities, too. We have unicorn-scale startups and suppliers as well as smaller outfits that are taking a lean-and-mean approach to reactor design and development.

Fusion may not pan out, but if it does, the winners could make Exxon look small by comparison.

Grid management software

What venture portfolio would be complete without a SaaS play? As the climate tech matures, there will be plenty of SaaS opportunities, but one area that’s particularly promising today is software to help manage the increasingly vital and soon-to-be-overwhelmed electrical grid.

Electrifying the economy will require major grid upgrades, which won’t come cheap. The Department of Energy is providing $13 billion in financing to help ease the burden, but that’s nothing compared to the estimated trillions of dollars we’ll need.

Grid management software could pare those costs, though. Instead of spending money on physical upgrades, software can help find efficiencies. LineVision, for example, monitors high-voltage transmission lines to determine the maximum amount of electricity they can carry at any given moment. In many cases, that’s higher than the line was originally rated for, usually 15% to 40% more.

Electric vehicle charging is another wildcard that utilities are planning upgrades around. Since EVs draw massive amounts of power, there’s the potential to overwhelm transformers if too many people plug in at once. To minimize the chances of that, WeaveGrid helps coordinate power supply, giving both automakers and utilities windows into drivers’ charging behaviors.

The beauty of software-driven solutions is their inherent flexibility and broad applicability. As the grid is upgraded, there will arise new avenues for software to interface with it. SaaS-like niches will multiply, creating ample opportunities for investors.

Because the customers are utilities, the sales cycles are bound to be long, and runways will have to be, too. But once a startup has proven itself, the contracts are usually lucrative and long term, improving returns.

Balancing risk and opportunity

Climate tech has only taken off in the last few years, and many investors are still finding their footing in this ever-changing landscape. Change means opportunity, though, and as the sector continues to evolve, so will investment strategies.

The three technologies listed above aren’t the final word in climate tech investing, but they do offer a decent balance between risk and safety. All that’s left is picking the winners.