A lack of clarity over tariffs, tax credits, and the future of the Inflation Reduction Act (IRA) has caused a dramatic drop in renewable energy funding during the first quarter of 2025, according to Mercom Capital Group.

Global solar companies’ total corporate funding — which includes venture capital, public market, and debt financing — fell 41% year over year in Q1 2025, while energy storage companies saw an even steeper decline of 81%, Mercom’s data shows.

Raj Prabhu, CEO and co-founder of Mercom Capital Group, pointed directly to policy ambiguity as the cause. Uncertainty over the IRA’s future, renewable energy tax credits, tariffs, and persistent supply chain issues has made it nearly impossible for many financing negotiations to move forward. “Mergers and acquisitions can still happen, but financing is a whole other deal right now,” Prabhu said. “Yes, some venture capital deals can happen if you have a company with something really innovative. But beside the sure-fire deals ... the rest are wait and see.”

Dive Insight: A Sector-Specific Slowdown Looms

The funding slump affected nearly every renewable segment — including solar, energy storage, and smart grid — in the first quarter. Prabhu described the drop-off as unsurprising given the political shift following President Donald Trump’s election. Still, he warned that if the trend continues, the industry could be facing something like a sector-specific recession.

“If Congress does not soon signal a consensus on the IRA’s fate, the renewable energy industry could end up snared in something like a sector-specific recession ‘in the sense that activity is going to stall because of the uncertainty,’” Prabhu said.

Importantly, Prabhu clarified that the downturn isn’t solely tied to Trump’s specific policies but more broadly to the lack of clarity around U.S. energy direction. Without clear guidance, developers and investors are hesitant to move forward, unsure of future costs and incentives.

The Numbers Behind the Slowdown

Global solar companies, excluding China-based firms, raised $4.8 billion in Q1 2025 — down from $8.2 billion in Q1 2024 but slightly up from the $4 billion raised in the final quarter of 2024. Mercom noted that one large $1 billion venture capital deal had skewed these totals, particularly lifting the venture investment figures higher than they might otherwise appear.

Public market funding, by contrast, plummeted to just $20 million — a staggering 99% decline compared to the same period in 2024. Meanwhile, energy storage companies raised $2.2 billion in the first quarter, sharply down from $11.7 billion the previous year, which had been bolstered by Northvolt’s massive $5 billion raise in early 2024. Smart grid company funding dropped 23%, from $686 million last year to $530 million this year.

These figures, Prabhu emphasized, do not yet reflect the impact of the most recent rounds of tariffs that were announced, paused, and then reinstated in April — meaning investor confidence could deteriorate even further in the coming months.

Real Demand Strong, but Investors Wait

Despite the funding pullback, real-world demand for renewable energy remains robust. Tom Harper, head of global consulting firm Baringa’s North American energy advisory team, observed that private equity and infrastructure investors are still eager to invest in operational renewable energy and battery storage assets. However, their appetite for smaller or earlier-stage projects has waned sharply.

Harper explained that some companies had planned to sell off portfolios of early- to mid-stage projects but found themselves unable to close deals, forcing them to reconsider whether they’re willing to keep funding those projects internally.

“The appetite is still there, but the risks on uncertain projects are rising,” Harper noted.

Long-Term Impacts Could Slow Energy Transition

If clearer policy signals don’t emerge soon, Prabhu warned, the renewable energy market — and the broader U.S. energy transition — could face meaningful setbacks. “If the market does not receive greater clarity on the direction of U.S. policy within the next few months, the impact to renewable energy markets and to the energy transition could be significant,” he said.

Industry observers stress that time is running short for Congress and the administration to reassure markets and provide clarity on the status of the IRA, renewable energy tax credits, and tariff policies. Without it, Prabhu fears, investor uncertainty could deepen, further delaying the growth and development needed to meet U.S. climate and energy goals.

Originally reported by Emma Penrod in Construction Dive.