Every innovation journey is different, steered by diverse government policies, advances in complementary technologies or even unforeseen events, but in many cases, innovation remains slow and risky until demand for the technology strengthens. R&D and demonstration are typically expensive, and when cheaper alternatives can already be found on the market, there are fewer incentives to innovate. In contrast, pressing needs or promising business opportunities can induce much quicker innovation. For example, increasing demand from the US aerospace industry stimulated solar PV innovation. The oil crisis in the 1970s sparked energy security concerns globally, and in countries like Denmark, strong interest in alternative sources of energy enabled faster wind technology development. The rapid emergence of microelectronics since the 1990s and electromobility since the 2010s have supported the lithium-ion battery industry.
By supporting demand for clean energy, decision makers can help accelerate innovation. The drivers of innovation in any sector are multiple and complex, but there is strong evidence that policy plays an important role. Well-designed policy support, co-ordinated among innovation stakeholders, can facilitate the building of large prototypes, carrying out capital-intensive demonstration projects, and scaling up new products. Down the road, this can help shorten each individual step in the innovation journey and compress them together.
Spending on clean energy R&D hit a record high last year, despite the global energy crisis, geopolitical volatility and macroeconomic uncertainty. Public spending on energy R&D rose to nearly USD 44 billion globally in 2022, over 80% of which was allocated to clean energy. To bring clean energy demonstration projects in line with the needs in the NZE Scenario, in 2022 16 governments committed USD 94 billion in public funding for large-scale demonstration projects by 2026. The IEA is monitoring clean energy demonstration projects to improve global understanding of technology coverage, total public funds spent and private co-investment unlocked as a result. Major policy developments of the past few years, such as the Inflation Reduction Act in the United States, the Net Zero Industry Act in the European Union, and China’s latest Five-Year Plan, will also have an impact on clean energy innovation and technology development.
On the corporate side, energy R&D spending by globally listed companies exceeded USD 130 billion in 2022, up 10% year-on-year and returning to the pre-Covid trajectory. Spending by companies developing renewables increased by 25% on average annually between 2020 and 2022, compared with just 5% over the 2010-2020 period; meanwhile oil and gas companies’ R&D budgets were stable over 2010-2022. Beyond traditional energy companies – such as in aviation, rail, shipping, chemicals, cement and iron and steel – much lower shares of R&D budgets are typically spent on clean energy, indicating further opportunities to push clean energy innovation. The role of start-ups is also growing. Clean energy venture capital investments nearly doubled between 2010 and 2020, and then more than doubled again post-Covid-19, reaching USD 7 billion for early-stage and USD 35 billion for growth-stage start-ups in 2022, with notable increases in electric vehicles and batteries, renewables, and energy efficiency.