IEA: new energy technologies need investments to scale up innovation

The range of new energy technologies under development globally is broader and appears more promising than ever before, despite signs of slowing momentum in financing across the global energy innovation landscape, according to the International Energy Agency (IEA).

Public and corporate energy research and development (R&D) spending has grown at an average annual rate of 6%, though initial estimates for 2024 indicate that growth may be slowing in some advanced economies, the IEA said in The State of Energy Innovation report.

Corporate energy R&D outpaces economic growth

Corporate energy R&D has outpaced economic growth, particularly in the renewable energy sectors, the IEA observed. However, R&D spending as a share of revenues in hard-to-abate sectors such as cement and steel remain 20% to 70% below that of the automotive and renewables sectors, respectively.

The aviation and shipping sectors have reduced the share of their revenue spent on R&D over the past decade, the report found.

“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,” said IEA Executive Director Fatih Birol.

“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,” he added.

Global review of energy technology innovation trends

The IEA report provides a first comprehensive global review of energy technology innovation trends drawing upon a new dataset covering more than 150 innovation highlights and a survey of nearly 300 practitioners from 34 countries. The findings reveal both the central role of innovation in advancing national energy and industrial strategies, and key opportunities to maintain the pace of progress.

The report shows technological advances in batteries and electric vehicles have lowered oil import needs in China, while shale technology innovation transformed the United States from an energy importer to a net exporter.

According to the IEA, venture capital (VC) funding for energy technologies surged more than sixfold from 2015 to 2022, reaching levels equivalent to all public energy R&D combined. This influx of private capital has supported around 1,800 energy start-ups.

Even if only a fraction of these firms succeed, they could have a significant impact on global energy systems by the 2030s. However, this investment trend reversed in 2023 and 2024, with VC funding declining by more than 20% amid tighter financial conditions, the IEA said.

Growth in VC funding for AI

The only sector to see growth in VC funding during this period was artificial intelligence, which offers potential to accelerate energy innovation but may also draw capital away from the energy sector.

Innovation efforts have also become increasingly global. China overtook Japan and the United States in 2021 as the leading country for energy patenting, with over 95% of its patents focused on low-emissions technologies. Since 2000, patenting globally for low-emissions technologies has grown 4.5 times as fast as it has for fossil fuels.

Investment patterns differ across regions, with China directing about half of its energy patenting and 90% of its VC funding towards mass-manufactured technologies such as batteries and electrolysers. Europe has a similar focus but is more active in large-scale engineering projects, while the United States maintains a diversified innovation portfolio across fossil and clean energy technologies.

Public and private financing earmarked for large-scale energy technology demonstration projects this decade has reached around $60 billion.

These projects are critical for commercialising emerging technologies but face delays due to inflation and policy uncertainty. Most projects have still not reached final investment decision and 95% of demonstration funding is concentrated in North America, Europe and China, the IEA said.