IEA Points to Slowdown in Energy R&D Investments

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Decades of energy-related research & development (R&D), made by governments, companies, industry groups and investors, have created the foundation of today's energy economy. But that foundation could be weakened by the recent slowdown in energy R&D investment, which could lead to a host of negative consequences for future decades, the International Energy Agency (IEA) (Paris, France) said in a recent research report.

But before peering into the future of energy innovation, let's consider its recent past:

• The shale boom that made the U.S. the world's largest oil and gas producer was made possible by years of corporate R&D, spearheaded by Mitchell Energy, with generous amounts of government and investor funding.
• Renewable energy, such as solar and wind, has captured a significant share of the global electric generation market thanks to decades of mostly public investments starting in the 1970s.
• The current generation of nuclear reactors was made possible by decades of mostly governmental investment in R&D after World War II showed the destructive capabilities of the atom.

There are many more examples. It is no exaggeration to say that the world's energy sector, indeed any complex system, has achieved its current capabilities precisely because it was able to stand on the shoulders of the giants who came before.

Global energy innovation is at "a pivotal moment amid signs of slowing momentum in financing and shifting priorities," according to the IEA's new report, "The State of Energy Innovation," released April 2. The report discussed the central role of innovation in advancing national energy and industrial strategies, and key opportunities to accelerate the pace of progress. "Today, the industrial strategies of countries around the world are putting increased emphasis on economic competitiveness, security and resilience, making progress on innovation more important than ever."

As the importance of energy (and environmental) innovation increases, the report said future progress could be threatened by flattening investment trends.

Spending on energy innovation has widespread social and economic pay-offs that can generate good value for taxpayers, the IEA said. Estimates for the United States suggest that government R&D spending can generate long-term economic returns to society that are 30 times higher than the costs, it added. The agency further noted that its review of 40 years of a major U.S. energy R&D program found that the net economic benefits of public R&D spending added up to an annual return on investment of 27%, and a cumulative benefit-to-cost ratio of 33:1.

"The State of Energy Innovation" report said that worldwide government spending on energy R&D grew about 5% in 2023, reaching a total of about of $50 billion that year. Traditionally, China, the U.S. and Europe have made the largest public investments in energy R&D in recent years, but preliminary results for 2024 suggest that the U.S. slowed its investments last year, Europe's investments fell while China showed no sign of slowing.

On the corporate side, the IEA said spending on energy R&D has been rising since 2015, reaching more than $160 billion in 2023, but preliminary data for 2024 suggest a slowdown is taking place there too. The automotive industry has accounted for the lion's share of energy R&D spending since 2015, it added.

Turning to the venture capital (VC) community, the IEA said that sector cut its investments in energy-related startups about 23%, to about $27 billion, in 2024. That followed a similarly sized cutback in 2023. In 2022 and 2021, by contrast, that sector had an "unprecedented" flow of investments in energy technologies.

"To a large extent," the report said, "energy VCs are suffering from a wider malaise affecting venture capital, as global macroeconomics, including high interest rates, hinder private equity investments." That industry's current fascination with artificial intelligence (AI) may be another reason why capital may be drawn away from energy innovation per se.

The VC community's apparent waning of interest in energy innovation has been "compounded by uncertainties about political commitments to climate policies," the IEA said in a none-too-subtle poke at the Trump administration.

"Innovation is the lifeblood of the energy sector, particularly in today's fast-moving times with the global energy mix shifting and major trends such as electrification having far-reaching effects," IEA Executive Director Fatih Birol said in a statement accompanying the release of the report. "A wide range of technologies now appears to be coming close to market, offering hope for improvements in energy security, affordability and sustainability over the long term. But we require investment, both public and private, to scale up innovative solutions. The payback may not always be quick, but it will be lasting."

In compiling its report, the IEA surveyed nearly 300 energy innovation practitioners, who identified 10 policy priorities that could accelerate energy innovation, including:

• Raise public energy R&D and demonstration spending to attract private sector co-funding, boosting competitiveness and growth.
• Ensure that the overall level of public and private support remains stable in priority areas through economic cycles, maintaining access to operating capital.
• Cooperate to bring a global portfolio of large-scale energy demonstration projects to fruition, especially for near-zero emissions steel and cement, aviation (including fuel production) and carbon dioxide (CO2) removal.
• Ensure that publicly funded research supports accessible training datasets so that energy innovators can grasp the full potential of AI-driven R&D.
• Support access to testing facilities and "living labs," which can significantly shorten times to market for building energy management, geothermal, long-duration energy storage, heat networks and others.
• Work to reduce bureaucracy and align processes with innovators needs.
• Tailor support to each technology's innovation needs. (In sectors such as building energy efficiency, the practitioners said, the critical bottlenecks are largely non-technical.)
• Strengthen energy innovation systems in emerging and developing economies.
• Maximize innovation impacts from public investments in first-of-a-kind projects by sharing findings and policy experiences during project implementation.
• Foster markets that give confidence in robust future demand for the products of the most successful innovators. Government support can spur demand, competition and competitiveness, energy innovators said.

Many of these recommendations likely will fall on deaf ears given the current U.S. political leadership. President Donald Trump's "America First" policies suggest a "go-it-alone" approach on matters ranging from energy to defense to trade. He has initiated the process to withdraw the U.S. from the Paris Agreement on climate change, called global warming "a scam," acted to kneecap government support for clean energy technologies and vowed to boost production of hydrocarbons, the burning of which releases CO2 and contributed to global warming.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).