2025: Why Climate Tech Will Embrace AI — Power, Nuclear, Fusion and Hydrogen Trends

AI’s skyrocketing computing needs are reshaping climate tech as 2025 opens, with data-center operators jockeying for electricity across power sources, including nuclear, renewables, batteries, and even fusion. The broader backdrop is a climate-tech scene still adjusting to political and policy shifts from the last year, notably around the Inflation Reduction Act (IRA). This context, captured in TechCrunch’s forthcoming year-in-review framing, highlights a year when AI demand for power could redefine where investment goes and how new plants come online. Tim De Chant frames the trend: data centers are driving a resurgence of interest in nuclear and fusion, while hydrogen subsidies and grid permitting politics could swing the economics of many startups. For readers seeking the full synthesis, see the TechCrunch article linked here. TechCrunch article.

TL;DR

• AI’s growing compute needs are pushing data centers to seek electricity from a broader mix of sources, elevating interest in nuclear, renewables, batteries, and fusion.
• Nuclear power is back in vogue with smaller, mass-producible designs and a streamlined regulatory path, though scale and cost challenges remain.
• Fusion startups have momentum after the National Ignition Facility’s net-positive milestone, but grid connection and funding hurdles persist.
• Hydrogen subsidies tied to renewable electricity face political risk, while geologic hydrogen could alter the industry’s trajectory.
• Permitting and grid-connection changes could shift investment toward grid technologies or toward direct data-center power deals that bypass the grid.

Context and background

As 2025 dawns, the climate-tech landscape remains in a transitional phase. The IRA’s fate in a shifting political backdrop could impact startup funding, as some provisions appeared vulnerable. Yet the AI era has created a powerful counterweight: the appetite for more electricity from data centers is intensifying, driving interest in diverse power sources. The push to ensure reliable power for AI workloads is accelerating conversations around nuclear, renewables, batteries, and fusion as viable complements to existing grids. This framing—linking AI demand to a broader energy mix—captures the core shift described in TechCrunch’s analysis of what 2025 could bring for climate tech. Microsoft’s restart of a Three Mile Island reactor and Google’s 500-megawatt off-take deal with the Kairos startup are cited as evidence that AI-driven demand is reinvigorating interest in nuclear power. The logic is straightforward: AI servers face an imminent power shortfall, with a potential constraint as soon as 2027, which places pressure on securing electricity quickly wherever it can be found. This dynamic sets the stage for the emergence of a new wave of nuclear concepts that aim to shorten deployment timelines and reduce scale required for early-stage demonstrations. On fusion, the field has leveraged a high-profile milestone from the National Ignition Facility (NIF) that demonstrated a net-positive fusion reaction. Startup activity has surged, with Acceleron Fusion, Marvel Fusion, Marathon Fusion, Type One Energy, Xcimer Energy, and Zap Energy highlighted as winners of this momentum. Several developers are pursuing prototype and demonstration units, with grid connection to follow in the early 2030s. The cost and complexity of building a demonstration or commercial reactor remain significant, and the funding environment will be a telling factor in 2025–2026 as investors weigh the long horizon against immediate energy needs. Hydrogen remains a flashpoint for policy and funding. The IRA’s hydrogen subsidy provisions—specifically a potential $3 per kilogram subsidy for hydrogen produced with renewable electricity—are viewed as critical for many startups aiming to hit $1/kg costs later this decade. If those subsidy provisions are removed or scaled back, some hydrogen ventures could struggle. Meanwhile, scientists and investors are exploring geologic hydrogen—hydrogen produced naturally within the Earth—as a potential option, though its role in 2025 remains unproven. Politicians and regulators grappling with rising AI-driven power demand could reshape permitting and grid-infrastructure investments, potentially driving a wave of grid tech funding or pushing more companies to sign direct power deals with providers to avoid grid bottlenecks.

What’s new

AI’s demand for power is triggering renewed attention to nuclear and fusion, alongside ongoing debates about hydrogen subsidies. In the nuclear space, the appeal is twofold: smaller, mass-producible reactor designs that could shorten construction timelines, and a regulatory climate that has started to streamline the path from proposal to construction. The upside is faster access to low-carbon power for AI workloads; the downside remains the lack of large-scale, tested deployments and continued competition from proven renewable sources. Fusion’s resurgence is tied to recent signaling milestones and private funding. The industry has welcomed the NIF’s net-positive fusion achievement as a proof point that fusion energy can move from concept toward viable power generation. This momentum has drawn fundraising and interest from several startups. Nonetheless, building a fusion plant—even a demonstration unit—remains expensive, and several projects already emphasize prototypes and demos before broader commercialization. Some companies have positioned themselves to connect to the grid in the early 2030s, underscoring the long road ahead but also the potential for game-changing shifts in the energy sector if milestones are met. Hydrogen sits at a crossroads. Its future in 2025 hinges on policy support, particularly IRA subsidies that could bridge cost gaps to the $1/kg level. If subsidy provisions are discarded or curtailed, hydrogen startups could face a harsher funding environment. In parallel, the concept of geologic hydrogen—hydrogen produced naturally in geological formations—has begun to attract attention from scientists and investors as a potential alternative path, though its practical impact remains uncertain and contingent on future validation. For investors and enterprises, the near-term implications include a potential shift in how power is sourced for AI workloads and how grid infrastructure is funded and regulated. If permitting reforms lag, the industry may lean toward direct power deals with producers to connect data centers to electricity without depending on a sluggish grid upgrade, a strategy that could reshape the capital allocation playing field.

Why it matters (impact for developers/enterprises)

The central impact of these trends is a recalibration of where climate-tech investment goes and how AI-era data centers secure power. If smaller nuclear designs and streamlined regulatory pathways prove effective, the speed of deployment for new nuclear capacity could accelerate, giving data centers more reliable electricity options beyond traditional large-scale plants. Fusion, if it reaches the promised milestones and costs, could redefine the energy backbone for AI compute, opening doors to substantial new energy sources—though the timeline remains protracted and uncertain. For hydrogen, policy resilience will determine whether hydrogen becomes a cost-effective tier in the energy mix for data centers and industrial users. Subsidies tied to renewable-powered hydrogen could influence business models, while the possibility of geologic hydrogen introduces a new variable for energy planning and investment risk assessment. On the regulatory side, changes in permitting could unlock grid-related investments—an outcome that would benefit developers of grid infrastructure, battery storage, and transmission projects. Conversely, if grid reforms stall, a growing number of companies may seek to sign direct deals with power providers to bypass the grid, effectively shortening the path from power generation to data-center loads but potentially concentrating power contracts among fewer providers. Investors have signaled that 2025 could be challenging for startups dependent on subsidies or policy levers. This caution underscores the need for diversified funding strategies and robust business models that can endure policy volatility while maintaining focus on reliable, scalable energy supply for AI workloads.

Technical details or Implementation

• Nuclear: A new wave of startup-led, smaller nuclear designs is being pursued to shorten deployment timelines and enable mass production. These efforts benefit from a streamlined regulatory process intended to speed proposals to construction, though scale and scalability will remain critical tests.
• Fusion: Several startups are pursuing prototypes and demonstrations with the aim of connecting to the grid in the early 2030s. The field has recently leveraged the NIF milestone to bolster fundraising and public confidence, but the economics of building a fusion plant remain expensive and require sustained capital.
• Hydrogen: The industry is watching IRA subsidies as a key determinant of hydrogen’s near-term viability. The target of delivering hydrogen at $1/kg depends on subsidies such as the $3/kg produced by renewable electricity. The political risk around these subsidies could shape 2025 funding and project pipelines.
• Geologic hydrogen: Interest is growing around hydrogen produced geologically within the Earth, a development that could affect the hydrogen market if validated and scaled.
• Grid and permitting: Permitting changes could drive more investments in grid-related technologies. If these efforts stall, companies may shift toward direct power deals with electricity providers, bypassing the grid to connect to data centers.

Key takeaways

• AI-driven power demand is expanding the set of power sources climate tech companies consider, elevating nuclear and fusion alongside renewables and batteries.
• A new class of smaller nuclear designs and a streamlined regulatory path aims to accelerate deployment, but scale and cost hurdles persist.
• Fusion energy has gained momentum from notable milestones, yet financing and grid-integration challenges remain central to 2025 outlooks.
• Hydrogen subsidies under the IRA are pivotal for many startups, with geologic hydrogen presenting an additional, uncertain avenue.
• Market dynamics in 2025 will hinge on permitting reforms and the ability of data centers to secure reliable electricity, potentially via direct deals that bypass traditional grid routes.

References

• https://techcrunch.com/2025/01/02/2025-will-be-the-year-climate-tech-learns-to-love-ai/