Energy innovation has a commercialisation problem

Dependable market demand that translates into offtake contracts is the key factor that drives innovation through the steps of scale-up and adoption. For CO2 capture and storage and methane management technologies, uptake has been delayed by fragmented markets and few incentives for polluters to choose cleaner alternatives, despite an increasingly diverse set of available and effective technologies. Developers of technologies enabling the supply of low-emissions hydrogen- and bio-based liquid fuels for transport (road, aviation and shipping) have faced similar challenges, but may find that a rosier outlook emerges as buyers seek to insulate themselves from fossil fuel market volatility in the wake of the energy crisis.

For some technologies, the bottlenecks are more embedded in the system. The adoption of proven technologies to enhance electricity network resilience is often slowed by regulatory frameworks designed to ensure that no risks are taken with grid availability, but which lead to an entrenchment of older, less flexible and less responsive technologies. In the buildings sector, infrastructure compatibility and long investment timelines, combined with regionally variable policies or preferences, and misaligned landlord-tenant incentives stymie demand for proven building envelope technologies and materials, or the use of the latest thermal storage in heat networks. Societal support for a new technology also influences how quickly it moves from TRL 9 to sustained deployment. The outlook for small modular nuclear fission reactors, which are on the cusp of commercial availability, will be shaped by whether communities welcome new installations.

Innovation does not end with commercialisation at TRL 9. The period when customer demand drives investment, learning and tailoring of the product for its end-users is just as important as the earlier R&D steps. This is when processes are optimised and costs fall most quickly. Government policy is crucial to smooth the pathway by which the first-of-a-kind versions of a technology transition to sustained demand and profitability. Not all technologies can nor should make it – for some, what was once a promising solution to a problem gets outcompeted by a better approach, or the problem itself fades away – but for others a misalignment between R&D support and market demand can be fatal.

Start-ups with venture capital backing cannot afford to stall their development for years until a regulation or tax incentive encourages buyers to switch. But until such demand is in place, there is no chance of progressing down the cost curve towards cost parity with incumbents that have decades of refinements and economies of scale behind them. Policies including public procurement, performance-based payments or tax credits can complement earlier-stage technology development work and be established in advance, thereby providing a demand signal for private sector innovation. Examples of these instruments from a wide range of governments are included in the IEA Innovation Policy Explorer, alongside other examples of creative approaches to innovation policy.

While initial development was publicly funded, often in public laboratories, lithium-ion batteries owe much of their subsequent success to private sector researchers responding to clear demand signals from governments aiming to deploy electric vehicles. The modularity and manufacturability of the technology have then favoured rapid innovation cycles, leading to a virtuous cycle of increasing deployment, falling costs, consolidation of designs, investment and incentives for technology improvement. This dynamic spurred technical progress long after TRL 9 was reached: energy densities  increased, safety improved and charging got ever faster.

The scale-up and deployment of lithium-ion batteries has also enabled the wider uptake of several related technologies, including electric vehicles, charging infrastructure and modern grid solutions such as virtual power plants. Together, these battery-enabled technologies account for almost half of all technologies tracked in the Guide that have entered large-scale deployment over the past 5 years.

The rapid uptake of lithium-ion batteries has also created market incentives for public and private R&D aimed at other battery chemistries that could reduce reliance on critical minerals, offer transformative improvements in performance, or unlock new end-use applications. Following recent developments, there are now fourteen battery chemistries in the Guide, nearly triple the number we had in 2020, and many of them have promising near-term commercialisation prospects. Similarly, patenting data shows that successful deployment has accelerated innovation as batteries' share of energy patents has doubled between 2020 and 2023.