New IEA Report Highlights Recent Advances and Emerging Risks in the Global Energy Innovation Landscape 512q5r

The report, “The State of Energy Innovation,” offers the first comprehensive global review of energy technology innovation trends, based on a new set of data covering more than 150 prominent innovations and a survey of nearly 300 professionals from 34 countries.

The data concludes that corporate energy R&D has outpaced economic growth, particularly in the automotive and renewable energy sectors, and emphasizes the importance of maintaining momentum while addressing the structural weaknesses of the global innovation system.

Public investment in energy R&D currently stands at just over 0.04% of GDP in IEA member countries.

Energy innovation is constantly evolving 5w5j64

Today, many new technologies are emerging that help improve the energy system and, therefore, the global economy. These innovations arise thanks to the of governments, market expectations, funding, knowledge sharing, and access to research and development (R&D). Although there are many technological options to achieve energy goals, progress still depends on a good innovation ecosystem and should not be taken for granted.

This report provides a global overview of progress and challenges in technological innovation in energy. It was published after the first IEA Energy Innovation Forum (2024) and aims to national strategies related to competitiveness, security, and climate change. It also highlights that without addressing certain weaknesses, progress could slow down. The data in the report comes from over 150 notable energy innovations across 45 countries, gathered with the help of experts and a survey of nearly 300 professionals worldwide.

Energy innovation spending brings major benefits 515a23

Public and private spending on energy R&D has grown by an average of 6% annually in recent years. In 2024, global public spending on energy R&D sured $50 billion, although the rate of increase could be slowing. This spending generates significant economic benefits. For example, R&D spending in the United States is estimated to generate 30 times the economic benefits compared to initial costs.

In the 1980s, in response to energy crises, IEA member countries spent up to 0.1% of their GDP on energy R&D, mostly on nuclear energy. Today, countries spend only 0.04% of GDP on energy R&D, with most going to energy efficiency, nuclear power, and renewables.

Energy innovation also affects countries' trade balances. For example, hydraulic fracturing allowed the United States to go from importing 46% of its oil and gas in 2000 to exporting 10% of its current demand. In China, innovation in electric vehicles (EVs) and batteries reduced oil imports by 8% in 2024.

Global Commercialization of Technologies

Today, photovoltaic solar energy, wind power, electric vehicles and their batteries, as well as electrolyzers and heat pumps, represent a market of around $200 billion annually, with 30% of their value being traded internationally.

Social benefits of energy innovation p1j

Energy R&D benefits not only the energy sector but also other fields. For example, research into rechargeable batteries led to the development of lithium-ion batteries, which were initially used in smartphones and later applied to electric vehicles and power grids. Other technologies, such as energy efficiency in household appliances and off-grid solar payments, have helped alleviate energy poverty and improve energy access.

The United States, Japan, and Europe led energy technology innovation for the past century, but the current innovation landscape has shifted.

China became the country with the most energy patents in 2021, suring Japan and the U.S. More than 95% of China's energy patents in 2022, the latest year with available data, were dedicated to low-emission technologies. Globally, between 2000 and 2022, low-emission energy patents were four and a half times greater than fossil fuel patents.

Today, more innovation efforts are focused on modular and small-scale energy technologies, such as batteries and electrolyzers, but international differences exist.

Approximately half of China’s energy patents and 90% of its venture capital (VC) are dedicated to low-emission modular technologies and mass manufacturing. Innovation in these areas has contributed to China’s leadership in various energy technology supply chains.

In Europe, around 50% of energy patents are dedicated to small-scale low-emission technologies, but it is also actively involved in large engineering projects that typically have a more uncertain long-term impact on competitiveness.

U.S. energy inventions are more evenly distributed between fossil fuels and both large and small-scale low-emission technologies, with its broad VC market able to invest in all of them.

Ambitious Policies Have Attracted Private Capital to Energy Innovation, but Headwinds are Increasing

Trends in venture capital highlight the importance of policies and markets in attracting capital to energy innovation. Fundraising by energy startups halved after the clean tech boom between 2011 and 2015 but saw a dramatic rebound between 2015 and 2022, increasing by 570%.

This change was driven by growing expectations, following the 2015 Paris Agreement, that policies would bolster low-emission technology markets, as well as low interest rates and the reduction of essential product costs such as photovoltaic solar energy and batteries. Even if only a small fraction of the 1,800 energy startups that raised VC funds between 2021 and 2022 reach their growth targets, the impact on energy by 2030 promises to be significant.

In total, $230 billion has been injected into energy startups since 2015, and expectations for this market continue to grow. Investors and governments are increasingly leveraging the venture capital model to refine energy technologies through rapid prototyping, manufacturing, and exposure to competition. Our latest projections place the total value of this market for key low-emission technologies at more than $2 trillion within 10 years, given current policies. Between 2010 and 2014, startups in China and Europe captured only 3% and 15% of the global energy VC, respectively. Between 2020 and 2024, their combined share rose to nearly 50%, while the U.S. remained the largest venture capital market.

Current conditions for venture capital financing are more difficult, raising concerns about cash flow. In 2023 and 2024, venture capital financing related to energy declined by more than 20%. While venture capital has generally decreased due to inflation, the situation is worsened by uncertainty over political commitments to the climate policies on which many startups depend to drive demand. This is particularly worrying for companies with demonstration or larger-scale projects, which are more expensive than earlier stages.

An exception to the general decline in venture capital is artificial intelligence (AI), which doubled its fundraising in 2024. While this represents an opportunity to attract capital to the intersection of energy and AI, it also raises the possibility that a wave of enthusiasm for AI may divert funding from energy innovators. Nevertheless, initial investment in energy storage and batteries remains strong, and in 2024, there was an increase in funding for startups working on technologies for nuclear energy, synthetic fuels, and carbon capture, utilization, and storage (CCUS), among other areas.

Corporate spending on energy R&D has grown three times faster than GDP, led by automotive companies, which now occupy 13 positions on the list of the 20 companies with the largest R&D budgets in energy. This growth highlights how regulation and competition drive spending on innovation. The spending has also been boosted by Chinese companies, which have allocated increasing amounts to R&D as their balance sheets have grown. Three Chinese state-owned energy companies are now among the top ten companies globally with the highest R&D spending in energy.

Races to demonstrate and scale innovative energy technologies are taking shape 4p5k64

Addressing climate change will require significant advances in innovation. For example, about 35% of the emissions reductions needed to achieve net-zero CO? emissions globally still depend on technologies that have not yet been demonstrated at commercial scale. Large-scale pioneering projects face various non-technical challenges related to financing, business models, public , safety standards, infrastructure, tariff design, and power purchase agreements. Overcoming these obstacles will be key to realizing significant benefits: the market size for innovative near-zero-emissions materials, such as steel and cement, is expected to exceed $25 billion by 2035 under current policies.

The IEA is monitoring 580 demonstration projects seeking to gain essential operational experience by 2030. About $60 billion in public and private funding has already been allocated to these projects in areas such as hydrogen-based fuel production, advanced nuclear designs, floating offshore wind, and carbon capture, storage, and utilization (CCUS). However, most have not yet made final investment decisions, and inflation and political uncertainty have caused delays. Funding is highly concentrated, with only 5% for projects outside North America, Europe, and China, and is focused on energy supply, while projects in the heavy industry and transport sectors represent just 17% of total funding for projects under construction.

In sectors like aviation, shipping, and heavy industry (cement and steel), R&D investment has not grown as much as in other sectors, such as renewables. Although cement and steel companies have increased their R&D spending, it has not been as much as renewable energy companies, which have invested much more in research, up to 70% more per unit of revenue. However, for heavy industry, more investment in research is still needed, especially in large demonstration projects, and this requires government and international cooperation.