While cleantech in Canada and the U.S. has hit a critical point with diverging policies and support in a riskier investment environment, growing energy demand will continue to buoy the sector, according to speakers at MaRS Climate Impact 2025.

Held in Toronto at the MaRS Centre from Dec. 2-3, a Tuesday afternoon session organized by the innovation hub revolved around where investors seeing the cleantech dollars flowing between the borders of both countries.

Though the U.S. government is dramatically reversing its supportive policies for cleantech, “it’s not all bad news,” Kyle McEneaney, the director of the U.S.-based Schmidt Family Foundation, said.

Other countries are picking up the slack and catching on to the market opportunity offered by the energy transition. Large data centre companies are a major force behind the rise in energy demand, and most have durable net-zero commitments. Many are demanding clean energy to power the facilities.

“These are the kind of groups that you want spending a lot of money, that you want to be on front, innovating in the energy transition,” McEneaney observed. “I think they’re going to drag a lot of the stuff that’s not yet in the market, or in the money, along with them.”

As the spigot of low-interest-rate funding has turned off, cleantech founders will have to navigate carefully, Nate Lowbeer-Lewis, a principal at Boston and Montreal-based sustainability private equity firm Spring Lane Capital, said.

Companies will have to look into project financing and running projects as a standalone business, as opposed to sustaining with equity until revenue is generated. “That’s ultimately a really good thing for the industry,” he said, “because it grounds us in what actually can be done.”

Data centres to lift cleantech

It is widely agreed that demand for energy is increasing, according to Sahir Surmeli, chair of the sustainable energy and infrastructure practice of Boston-based law firm Mintz, which has an office in Toronto.

Even as certain industries are being hard hit, such as offshore wind in the U.S., Surmeli remains optimistic for cleantech. Low-carbon baseload power sources like geothermal and nuclear energy are hot spots for private investment and government funding, Surmeli said.

Investors today, Lowbeer-Lewis observed, are attracted to “anything to do with data centres.” Examples include efficient chips and sustainable ways of structuring and wiring the computing facilities. Investors sense “this will be around for a while,” he added.

While there was a lull in cleantech companies raising funds earlier this year, there has been an uptick over the past two to three months, Lowbeer-Lewis said. He tied the growth to emerging solutions for data centres and artificial intelligence.

The world’s retreat from globalized supply chains and “just-in-time” manufacturing toward onshoring and “just-in-case” manufacturing will mean overproduction, McEneaney predicted. Canada, for instance, is focusing on domestic critical mineral production. But oversupply of cleantech, he said, will lead to competition which may drive prices down.

“Oversupply of clean energy technologies is not a bad problem for achieving our climate objectives.”

From party days to caution

In the early 2020s, equity was cheap because of low interest rates. It was the “party days” for cleantech, as McEneaney put it. But the sector has hit a “risk phase” from higher interest rates and greater policy risks, he noted.

The conditions will push cleantech businesses to a more structured, efficient capital stack, Lowbeer-Lewis said. Companies will have to be specific about their business and cash flow.

“That’s ultimately what’s going to create successful companies going forward,” he added.

Spring Lane, more than ever today, is looking for companies that deliver “green discounts to their customers,” not green premiums, Lowbeer-Lewis said.

Energy transition funds are still a deep source of financing to draw from, Lowbeer-Lewis offered. However, the funds will demand scale and derisked projects.

Cleantech companies should focus on staying solvent, minimizing costs and developing responsibly, McEneaney recommends.

As companies move to more complicated, but efficient, capital structures, Lowbeer-Lewis said the team transition will be critical. The group which developed the innovation will not be the same one which will deploy projects and raise funds, he explained.

McEneaney hopes more philanthropic capital will be interested in cleantech to create investible transitions, now that repeatable sub-scale models have been demonstrated.

The excitement surrounding data centres will raise additional opportunities for non-data centre businesses, Surmeli anticipates.

“There’s a lot of stuff that’s going to happen out there that you need to build for this – cables, wires, racking – all that stuff drives additional opportunities for cost savings, innovation, technology, innovators.”