🕐 Last updated Thursday, 9 August 2018

What's changed?

RD&D investment by the public sector


The 2017 IEA preliminary estimate of government funding for low-carbon energy RD&D globally shows a boost to innovation investment of 13%, following a fall in 2016. (IEA, 2017). Governments play an indispensable role in clean energy RD&D as a vital source of long-term, patient finance and because many societal benefits (reducing GHG emissions and local pollution) are not yet sufficiently valued by markets.

	North America	Europe	Asia and Oceania	Rest of World
2012	7.296530441	5.404292	6.394819866	0.379157715
2013	6.878272327	5.221181	5.964687088	0.532621955
2014	6.865946104	6.584787	5.879336734	0.49667507
2015	6.635047229	6.795485568	5.632852182	0.587942398
2016	6.87596422	6.475207447	5.435000684	0.414820123
2017 est.	7.80689265	7.113363235	6.374249154	0.337817445
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The rise in 2017 mostly reflects growth in the United States and a surge of spending on renewable energy research in China. This pushes government RD&D investment for low-carbon energy above 75% of total public energy RD&D funding (which also includes fossil fuel extraction and supply). In North America, CCUS, energy efficiency and renewables RD&D funding were boosted by around 65%, 30% and 15%, respectively, in 2017. Further increases in 2018 are likely with the US government passing a spending bill in March 2018 that raises the budget available to the Advanced Research Projects Agency – Energy (ARPA-E) and the Innovative Technology Loan Guarantee Program, among others. In total, the 2018 US budget for energy research is 10-15% higher in fiscal year 2018, including hikes in energy-relevant defence research.

Taking a five-year perspective, however, government funding for low-carbon energy RD&D has grown at just 2% per year on average. In some countries, spending on certain technologies has returned to levels seen before the ramp-up of specific time-limited programmes, such as CCS in Canada. It remains to be seen if this will also be the case for renewable energy RD&D in Australia and Denmark. Some other significant declines that were reported in 2016, such as in energy efficiency RD&D budgets in Norway, indicate changes in 2017 that could signal a return to growth.

Through RD&D support, governments guide their economies towards activities they value as important. Governments thus have a dual role as a corrector of market failures and a shaper of market developments. Governments continually act to shape markets to realise social goods via actions such as: adjusting taxes, regulating market competition and antitrust behaviour, implementing trade and immigration rules, distributing revenues, providing access to education, prohibiting environmentally damaging activities and creating forums for exchanging information.

Policy instruments can also be used to enable access to finance for risky projects. As a result, much innovation by the private sector builds on publicly funded programmes for early-stage, higher-risk research (Mazzucato, 2011). Governments can “crowd in” other sources of funds in pursuit of long-term strategic missions. The commercial results of public energy RD&D investments can be dramatic. Within 20 years, China transformed its economy from a technology importer into a major manufacturer and exporter of several low-carbon technologies (Tan and Seligsohn, 2010).

Public sector data on RD&D spending is generally better quality and more detailed than data for the private sector, yet challenges remain. To arrive at our 2017 estimate, we have had to make uniform definitions about what is included within the scope of low-carbon energy technologies. Following the list of topics outlined by Mission Innovation, we have included all energy research that is not directly related to fossil fuels. (Carbon capture and storage is included.) The primary source of data is government submissions to the IEA, complemented by data provided in the framework of Mission Innovation and public spending documentation from a variety of countries.

The ultimate success of enhanced RD&D investment will be the long-term acceleration of clean energy technology improvements and cost reductions; finding needed technology solutions to various problems societies face. The question of how governments can fund innovation well and how much spending is optimal is an important one, and one for which clear answers are hard to find. As governments increasingly recognise the huge prize for success in this area as clean energy comes to dominate energy investments, public bodies will need to periodically evaluate their spending areas and constantly adapt their model. With over 40 years of extensive technology expertise, the IEA looks forward to continuing to channel cutting-edge expertise and good practices to help governments around the world.

Reported RD&D spending by firms in clean energy-related sectors


Publicly-reported RD&D investment by companies active in clean energy is estimated to have grown by 5% in 2017, continuing a growth trend over recent years. Clean energy RD&D spending by companies in the renewables and electricity generation and supply sectors rose by 5%, slightly more than the growth in the automotive sector.

Considerable growth has been seen since 2012 in sectors including electricity storage, smart electricity systems and energy efficiency, including insulation and lighting. Largely as a result of declines in RD&D spending in the oil and gas sector since 2015 as well as growth in the automotive sector, clean energy investment by companies could be as high as two-thirds of total corporate energy-related RD&D expenditure, up from one-half in 2012.

	Automotive	Renewables	Electricity	Nuclear	Other clean energy
2012	28.57	5.04	6.50	1.02	2.84
2013	32.27	4.55	6.21	1.04	2.94
2014	33.68	4.94	6.58	1.03	3.08
2015	34.46	5.06	7.20	1.04	3.43
2016	37.23	5.45	7.95	1.07	3.57
2017 est.	38.92	5.60	8.42	1.15	3.92
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2018 IEA data represent a major enhancement from data presented in Tracking Clean Energy Progress 2017. Our 2018 finding reflects a considerably expanded dataset of companies, notably including estimated spending on electric vehicle, biofuel and fuel economy technologies by automotive manufacturers, whose spending far exceeds the biggest RD&D spenders in energy supply. Given the level of RD&D being conducted by automotive companies that is directly relevant to clean energy, it is no longer possible to exclude these companies from our dataset if global trends are to be revealed. Spending by automakers alone represents two-thirds of the USD 30 billion increase compared to the much more limited and energy-sector-focused coverage reported for 2016.

While most corporate research is still conducted in or close to the countries where companies are headquartered, often because the institutional capacity has been built up locally over time, there is a trend towards expanding RD&D functions to other countries where companies operate, especially for new technological developments that require specific skillsets. This makes it very challenging to present representative regional breakdowns of corporate clean energy research. This is particularly true for the automotive sector, where the reported RD&D spending of the major European carmakers is over USD 10 billion higher than those in the US, yet much of the path-breaking RD&D of European carmakers is being undertaken outside Europe.

To help inform policy, some governments use surveys to learn about RD&D spending in industry. They include survey questions on energy for both energy-sector and non-energy sector firms. Canada and Italy survey companies at a level of detail that allows them to learn about private-sector RD&D spending on clean energy topics. Austria, Estonia, Germany and the United States currently collect information on energy RD&D at a more aggregated level. These surveys demonstrate that governments can and do collect valuable data about private RD&D spending trends, although no questionnaires yet distinguish clean energy from other energy categories.

A transition to clean energy is being experienced and anticipated by many companies in ways that are having a profound impact on how they approach energy reseach and innovation. This phenomenon is interacting with other megatrends, such as digitalization, leading to a number of very significant happenings that have implications for government clean energy RD&D policy, including:

  • Restructuring of corporate innovation to help deal with uncertainty, shorter innovation cycles and the need to develop consumer-oriented offerings
  • Trade-offs between funding RD&D for different clean energy pathways before revenues from these new areas become significant, especially in transport
  • Major differences between digital innovation and traditional hardware innovation, and how hardware improvements could get left behind

Furthermore, among energy companies differences exist between sectors. Oil and gas companies and electric utilities, on average, both spend around 0.25% of their revenue on RD&D each year, whereas thermal power OEMs and clean energy companies spend around 2.5% of their revenue on RD&D. This is reflective of the demands for innovation in the competitive markets for equipment and the less mature status of clean energy compared to oil and gas and coal mining.

Compared to sectors such as pharmaceuticals, consumer goods and automobile manufacturing, energy companies are not RD&D intensive. Automobile companies, whose in-house research comprises much of the world’s work on efficient vehicle technologies, spend, on average, 3.2% of their sales revenue on RD&D to stay competitive in a consumer-focused market.

Venture capital funding of energy innovation


The early commercial development of a new clean energy technology can be undertaken by a start-up company with venture capital (VC) funding. VC targets early-stage firms that are aiming to take an idea from the lab to the market, usually after basic research and testing in public or industrial research labs.

Early-stage VC investments in clean energy companies rose in 2016 and 2017, back towards pre-2012 levels. In 2017, we estimate VC investments in clean energy to have been USD 2.5 billion, above the four-year average. Recent growth has been driven almost entirely by clean transportation investments (compared to a pre-2012 focus on solar energy.)

The average transaction size has risen steadily since 2012, and reached around USD 9 million in 2017. Excluding very large transactions above USD 500 million, 2017 saw the highest average transaction value on record in clean energy.

The presence of China in the overall investment totals has risen dramatically on the back of just a few very large transactions in transportation, including the USD 1.5 billion Series A investment by Tencent in WM Motors, an electric car startup. Outside transport, investments of early-stage VC in clean energy have been in slight decline since 2014, mostly due to less money entering the sector in Europe and across Asia, plus a smaller drop in relative terms in the United States VC sector. In 2017, transaction value in electricity storage, hydrogen and fuel cells, almost doubled to USD 175 million, but this is still lower in real terms than in 2014.

In terms of total transaction volume, North America continues to dominate clean energy VC acitivity with over half of all early-stage deals involving US-based companies, compared to one-third in Europe. However, the shares have balanced somewhat since 2012, when North America represented two-thirds of transactions. China has yet to make its mark outside transport.

In 2017, the VC cleantech industry enjoyed a very healthy year in general, buoyed by sectors such as digital, shared mobility and automated vehicles. Yet, VC investment in startups developing new renewable energy hardware continues to suffer, with renewables-sector early-stage VC down 46% since 2015. Clean energy innovation and VC are often not well matched. The timeframe to learn about the viability of energy projects can be too long, the capital requirements for technology demonstration too high, and the consumer value too low and too stable. Such technologies may get attention when financial markets are hot, but not when they are risk averse. These concerns have so far prevented energy from joining the ranks of biotechnology and software as hundred-billion-dollar VC markets.

	Transport	Solar	Bioenergy	Other renewables	Energy efficiency	Other clean energy
2007-11 avg.	345.8826089	876.8620059	401.4716358	170.5126719	655.3498603	438.5334847
2012	122.0692153	188.0496063	93.40947691	69.51760755	427.0385829	432.0958208
2013	168.4630289	127.1276258	90.57131086	58.8367009	507.902242	293.020241
2014	428.4196492	191.2783274	62.02514086	54.99148451	569.5027153	302.4869131
2015	439.7434994	230.7098476	212.720068	27.35310915	419.9695468	264.8261701
2016	2895.238659	195.4781081	163.5235989	36.04314199	489.6539641	159.8170257
2017	1536.485947	130.511247	110.703742	11.318256	434.915576	264.524309
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Methodological notes


Public and private sectors’ efforts to stimulate rapid improvements in technology performance and cost remain essential for clean energy transitions, with investment on RD&D being a most commonly used indicator. The IEA plays a leading global role in collecting and presenting statistics on public-sector expenditures on energy RD&D. It supports its member countries as they estimate their annual spending against a detailed breakdown of technology categories using an agreed and common format. A number of other countries publish budgets and expenditures, but do not generally provide a breakdown of the data beyond broad classifications. In some countries, there is a large amount of public support for innovation that is not included in government budgets. In China, for example, a large share of research is funded and carried out directly by State Owned Enterprises (SOEs), but under governmental direction. Signatory countries to Mission Innovation are currently exploring options for improving data availability and common reporting in order to assist benchmarking and policy making.

Compiling data on energy RD&D is harder for the corporate sector, with many firms hesitant to report funding in any detail. Definitions of RD&D and categories vary. Energy and non-energy RD&D investment are often difficult to distinguish for companies that are active across several sectors, such as automakers with extensive RD&D programmes on biofuels. There is a great deal of scope for improving the quality and extent of public and private RD&D expenditure reporting.

The data presented in this report comes from several sources. IEA member governments report their national RD&D spending each year to the IEA secretariat. For other countries, the RD&D budgets of the relevant ministries and agencies are aggregated. For China, the government’s statistical records of public and private RD&D spending by industrial enterprises are used for energy-relevant sectors. In some cases, data for key State-Owned Enterpreises (SOEs) are from other public sources.

Corporate RD&D spending is taken from the annual reports of over 2 300 companies active in energy-relevant sectors and, where it has not been possible to acquire or estimate company-level breakdowns, allocated according to the firms’ share of revenue from that activity or sector. It includes spending by manufacturers of energy supply and storage equipment, energy-sector service companies and the automotive, carbon capture, insulation and LED lighting sectors. The underpinning assumptions of this IEA analysis are supported by interviews with heads of research and innovation in over 25 major energy-related companies. While our dataset for TCEP 2018 includes more energy sectors than in 2017, much of the increase in our estimate this year is related to RD&D spending in the automotive sector where the major carmakers have budgets that are much higher than those of energy-sector companies. Our estimate of public RD&D into clean energy technologies includes, wherever possible, energy efficiency (transport, industry and buildings), renewables, carbon capture and storage, nuclear, fuel cells, batteries and smart grids.

We acknowledge that this exercise is likely to underestimate considerably the true amount of spending worldwide on all types of energy RD&D, because of information gaps. Corporate clean energy research is particularly hard to separate from other energy and non-energy research in cases where primary sectoral classifications are not well-aligned with the full extent of innovation activities. This is especially the case for energy end-use efficiency. There are many non-listed companies and small and medium-sized enterprises missing from the dataset. In addition, some capitalised research expenditures are not consistently recorded in RD&D totals. Nonetheless, the numbers are generally taken at face value. Within the IEA’s consistent data set of government spending, sub-national public spending is often not included. IEA continues to constantly work on improving our methodology.

TCEP also now integrates innovation progress and needs into the heart of its analysis in an ‘Innovation Tracking Framework’. Each technology comes with a summary of key recent developments at relevant stages of the innovation value chain, from laboratory research to product development and pre-commercial demonstration. To track developments across key innovation gaps over the past year we developed a methodology that looks at the following aspects: investment patterns; major initiatives from the private or public sector; and general technology improvement using key metrics. Based on each of these gaps we assess key improvement metric/focus; how the challenge is currently being tackled and key initiatives in place; the stakeholder landscape; and opportunity within international initiatives.

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