Despite the overall climate tech funding decline, some sectors are bucking the trend. Here’s where investor appetite remains strong, and why.
The Winners in 2026
1. Nuclear/Fusion
Why it’s hot:
- Baseload power urgency from AI data center demand
- Policy tailwinds (bipartisan support, NRC reform)
- Multiple companies reaching key technical milestones
- Strategic importance for energy independence
Notable activity:
- Fusion companies raising at premium valuations
- SMR (small modular reactor) companies securing utility partnerships
- Defense applications driving government investment
2. Grid Infrastructure & Storage
Why it’s hot:
- Transmission is the bottleneck for all clean energy
- Storage economics have improved dramatically
- Grid modernization required regardless of generation mix
- Clear path to revenue through regulated utility contracts
Notable activity:
- Long-duration storage reaching commercial viability
- Grid software companies scaling rapidly
- Transmission development companies attracting infrastructure capital
3. Climate Adaptation & Resilience
Why it’s hot:
- Climate impacts are here now, not theoretical
- Insurance industry driving demand for solutions
- Less policy-dependent than mitigation technologies
- Faster revenue cycles than deep decarbonization
Notable activity:
- Climate risk analytics companies growing quickly
- Physical infrastructure resilience solutions
- Water technology seeing renewed interest
4. Industrial Decarbonization Software
Why it’s hot:
- Enterprise demand for carbon accounting remains strong
- Software economics are VC-compatible
- Regulation driving compliance spending
- Doesn’t require the long timelines of hardware
What These Winners Have in Common
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Clear demand signal: Customers are buying now, not “someday”
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Path to profitability: Unit economics that work at current scale
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Multiple revenue streams: Not dependent on single policy or market
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Defensibility: Technical moats or customer lock-in
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Manageable timelines: Results visible within VC fund life
The Implications
Capital is concentrating in climate tech that looks more like traditional tech investment - software economics, enterprise demand, and faster feedback loops.
The harder stuff - heavy industry decarbonization, novel materials, long-timeline hardware - is getting left behind. That’s a market failure that patient capital needs to address.
David, the technical maturity angle is crucial for understanding why these sectors are winning.
Why Technical Maturity Drives Investment Confidence
Nuclear/Fusion: Proven Physics, Unproven Engineering
Nuclear fission is proven technology - the question is cost and deployment. This is an engineering challenge, not a science challenge. Investors can underwrite engineering risk.
Fusion is earlier but key companies have now demonstrated net energy gain. That crosses the threshold from “does the physics work?” to “can we engineer a commercial system?” - a much more fundable question.
Grid Storage: Declining Cost Curves with Predictable Trajectory
Battery storage has followed a semiconductor-like cost curve for a decade. Investors can model future costs with confidence because:
- Manufacturing learning rates are established
- Supply chains are maturing
- Performance characteristics are well-understood
Compare that to novel chemistry batteries where cost trajectories are speculative.
Adaptation: Known Solutions to Known Problems
Most climate adaptation technology involves applying existing solutions to climate-stressed contexts:
- Water treatment is proven technology
- Building resilience uses known engineering
- Risk analytics is software with established techniques
The technical risk is low - the opportunity is applying proven tech to growing markets.
The Technical Readiness Level Threshold
Investors are effectively drawing a line at TRL 7-8 (system prototype demonstrated in operational environment).
Below that, you’re asking investors to take technology risk. Above that, they’re taking commercialization risk.
Right now, the market only has appetite for commercialization risk.
The infrastructure investment opportunities are particularly interesting because they represent a different risk profile than typical climate tech.
Why Infrastructure Attracts Different Capital
Grid Infrastructure: Regulated Revenue Streams
Unlike most climate tech, grid infrastructure has:
- Rate-based returns: Regulated utilities earn a guaranteed return on approved investments
- Long-term contracts: 20-30 year power purchase agreements
- Government policy tailwinds: Bipartisan support for grid modernization
- Physical assets: Tangible infrastructure that retains value
This looks more like traditional infrastructure investment than venture - which opens up a much larger capital pool.
The Transmission Bottleneck = Opportunity
Current situation:
- ~2,000 GW of generation waiting in interconnection queues
- Average wait time of 5+ years to connect new generation
- Projects failing because they can’t get grid access
This creates demand pull:
- Every wind and solar project needs transmission
- Every data center needs reliable power
- Every EV charging network needs grid upgrades
Storage as Grid Infrastructure
Battery storage is increasingly treated as transmission alternative:
- Virtual transmission: Store power during congestion, release when capacity available
- Capacity contracts: Long-term agreements with utilities and grid operators
- Ancillary services: Revenue from frequency regulation and reserves
The business model looks more like owning power plants than software - which infrastructure investors understand.
Engineering Implications
Building for infrastructure investors means:
- Long asset life design: 20-30 year operational life expected
- Maintenance optimization: Minimize operating costs over decades
- Reliability over performance: Uptime matters more than peak efficiency
- Standard interfaces: Easy integration with existing grid systems
Different from typical startup engineering where speed and iteration matter most.
David’s breakdown highlights something important: the winning sectors have unit economics that work even in a tough market.
Unit Economics That Work in 2026
Why These Sectors Have Sustainable Economics
Nuclear/SMR:
- PPAs at $60-80/MWh are achievable
- Baseload premiums justify higher costs
- 40+ year asset life amortizes capital cost
- Capacity factor above 90% vs. 25-35% for renewables
Grid Storage:
- Revenue stacking: capacity + energy arbitrage + ancillary services
- Multiple income streams reduce single-market risk
- Declining battery costs improving project returns
- Tax credits (ITC) further enhance economics
Adaptation/Resilience:
- Insurance industry creating willingness to pay
- Regulatory mandates driving compliance spending
- Measurable ROI (avoided losses from climate events)
- Often software-like margins
Industrial Decarbonization Software:
- SaaS economics: 70-80% gross margins
- Enterprise customers with budget
- Regulatory tailwind (reporting requirements)
- Low capital intensity
The Margin Threshold
Investors are looking for:
- Gross margins above 50% (ideally 70%+)
- Path to cash flow positive within 3-4 years
- Capital efficiency (revenue/funding ratio) above 1.0
Companies that can’t demonstrate these metrics are struggling to raise, regardless of how important their technology might be.
The Uncomfortable Implication
The market is selecting for fundable economics, not necessarily highest-impact solutions.
Some of the most important decarbonization technologies (cement, steel, aviation fuel) have challenging economics that don’t meet these thresholds. They need different funding mechanisms - government intervention, carbon pricing, or patient mission-driven capital.
The private market alone won’t fund everything we need.