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Money is the key to the energy transition, both the overall sum and how it gets allocated.

Today, a greater share is being invested into clean power sources compared to just a few years ago, but less is flowing to new cleantech ideas and startups.

The biggest lenders and investors, including major banks, insurance companies and mutual funds, are moving steadily into the huge infrastructure projects that are now driving much of the energy transition, according to the International Energy Agency. These big players are proving particularly suited to the sorts of large-scale financing many energy projects require.

Meanwhile, smaller start-ups are fighting the ups and downs of venture capital cycles that fund riskier bets. For big lenders and investors, the shift over the last five years, shown in the chart above, was propelled by government policy and social pressure to move toward clean energy as well as the significant commercial potential of renewables such as solar and wind power paired with batteries.

Smaller-scale financing — including venture capital deals in the cleantech sector — rose dramatically in the early 2020s with a big spike in 2021, especially in the United States, according to Pitchbook data shared with Cipher. This rise came as interest rates fell and governments adopted programs to boost clean energy.

But over the past four years, the value of deals in the space has dropped steadily from that peak, including through the first half of this year, after interest rates rose and capital became scarcer at the end of the Covid pandemic.

The big question now is where overall financing will flow after the massive changes to U.S. energy policy enacted by the Trump administration. President Donald Trump has turned many of the policies and spending priorities of the preceding Biden administration on their head, disadvantaging clean energy sources while boosting support for fossil fuels.

Meanwhile, Europe — where financing and policy support for cleantech has been more consistent — has also backed off some of its most ambitious goals in recent years. Still, official European Union policies remain largely committed to pursuing an energy transition.

While China is by far the world leader in clean energy investments, Asia as a region has been less ambitious but more consistent in supporting an energy transition to date. Most Asian countries are moving forward, slowly increasing the funds allocated, a steady-as-it-goes strategy likely to continue, experts say.

Clean energy financing will likely continue to flow at higher rates worldwide as costs fall and large-scale financial institutions build on the finance models they’ve put in place in recent years. Smaller scale VC financing will likely continue to play a complementary role in niches that require smaller doses of capital for shorter periods.