Publication date:
April 23, 2025
Climate Tech Startups Capitalize on Data Center Energy Demand Amid AI Boom
Climate tech startups are finding new opportunities to scale by providing clean energy solutions to data centers, driven by the AI boom and tech giants' efforts to reduce costs and carbon emissions.
Energy
The rapid expansion of artificial intelligence (AI) infrastructure is creating unexpected opportunities for climate tech startups in the energy-intensive data center sector. As tech giants like Amazon and Microsoft increase their AI investments, they're simultaneously seeking ways to reduce costs and carbon emissions, opening doors for innovative clean energy solutions.
Data centers currently account for 1-2% of global electricity consumption, with Goldman Sachs Research projecting an increase to 3-4% by the end of the decade. This surge in energy demand is attracting climate tech startups offering various solutions, from grid connection technologies to renewable energy sources and energy storage systems.
Luca Mezossy-Dona, CEO of Ionate, a London-based startup developing hardware to detect power grid disturbances, noted the significant market pull resulting from the AI boom. The challenges associated with connecting data centers to the grid, which can take years in some locations, are driving demand for uninterrupted power supply solutions.
Investors are observing growing interest in more reliable and decentralized energy sources, including nuclear, clean hydrogen, and energy storage. Matthew Nordan, general partner at Azolla Ventures, highlighted increased demand for data center startups in his firm's portfolio, such as Scalvy, which produces modular power electronics for data center racks, and Zanskar, a startup using AI to improve geothermal power success rates.
The AI-driven data center boom is also providing new scaling opportunities for hardware energy startups, which often require significant capital investment. Big Tech companies are testing emerging technologies like small modular reactors to accelerate energy project delivery, creating potential customers with deeper pockets for these startups.
However, climate tech startups face the challenge of balancing their decarbonization goals with serving a carbon-intensive sector. Founders and investors argue that this isn't a mutually exclusive situation, as it presents an opportunity to make the industry more sustainable. The broader impact could be positive from a climate perspective if more renewable energy sources are consistently used to power data centers, potentially lowering the cost of these energy sources.
While climate startup funding has seen a decline, with Q1 2025 securing $10 billion compared to $20 billion in Q1 2024, the data center market offers a promising avenue for revenue generation and scaling. As the sector continues to grow, climate tech startups are poised to play a crucial role in shaping a more sustainable and efficient energy landscape for the AI-driven future.
Data centers currently account for 1-2% of global electricity consumption, with Goldman Sachs Research projecting an increase to 3-4% by the end of the decade. This surge in energy demand is attracting climate tech startups offering various solutions, from grid connection technologies to renewable energy sources and energy storage systems.
Luca Mezossy-Dona, CEO of Ionate, a London-based startup developing hardware to detect power grid disturbances, noted the significant market pull resulting from the AI boom. The challenges associated with connecting data centers to the grid, which can take years in some locations, are driving demand for uninterrupted power supply solutions.
Investors are observing growing interest in more reliable and decentralized energy sources, including nuclear, clean hydrogen, and energy storage. Matthew Nordan, general partner at Azolla Ventures, highlighted increased demand for data center startups in his firm's portfolio, such as Scalvy, which produces modular power electronics for data center racks, and Zanskar, a startup using AI to improve geothermal power success rates.
The AI-driven data center boom is also providing new scaling opportunities for hardware energy startups, which often require significant capital investment. Big Tech companies are testing emerging technologies like small modular reactors to accelerate energy project delivery, creating potential customers with deeper pockets for these startups.
However, climate tech startups face the challenge of balancing their decarbonization goals with serving a carbon-intensive sector. Founders and investors argue that this isn't a mutually exclusive situation, as it presents an opportunity to make the industry more sustainable. The broader impact could be positive from a climate perspective if more renewable energy sources are consistently used to power data centers, potentially lowering the cost of these energy sources.
While climate startup funding has seen a decline, with Q1 2025 securing $10 billion compared to $20 billion in Q1 2024, the data center market offers a promising avenue for revenue generation and scaling. As the sector continues to grow, climate tech startups are poised to play a crucial role in shaping a more sustainable and efficient energy landscape for the AI-driven future.
