Clean energy sectors increased energy research spending but did not compensate drop
By Simon Bennett, IEA Energy Technology Analyst and Remi Gigoux, IEA Energy Data Manager
Investment into energy research, development and demonstration (RD&D) has delivered crucial breakthroughs that have contributed to an increasingly sustainable, accessible and affordable global energy system.
But despite this success – as well as repeated calls by governments to specifically increase clean energy R&D spending – public and private investment into energy R&D has been declining.
Preliminary data for 2016 show that the total public RD&D budget of IEA member countries was $16.6 billion.
While these funding levels are among the highest since 1974, accounting for inflation and relative purchasing power, this represents the fourth straight year of decline.
Companies are also spending less than they were three years ago. This is cause for concern.
In 2016, energy efficiency topics represented 21 per cent of the total, while renewables represented 19%. Transport technologies are the biggest recipients of efficiency research funds, while bioenergy and solar get the bulk of renewables funding.
This kind of funding has delivered some of the crucial breakthroughs leading to the incredible cost reductions we’ve witnessed in technologies like solar and LEDs.
Although China’s RD&D spending statistics are not published by the IEA, we estimate China’s public funding for energy RD&D to be lower than that of the United States but higher as a share of GDP.
When state-owned enterprise (SOE) budgets are included, the total is likely at a similar level to US spending.
In World Energy Investment 2017, we found that China’s public energy RD&D budget represents around 0.1 per cent of GDP (including SOE spending), placing it near the top of our dataset, alongside Finland and Norway.
While governments have a key role in shaping energy markets and ensuring that the direction of technological change is in line with society’s goals, the private sector can often be better placed to identify the best-performing innovations.
The good news is that in our study of the publicly reported research spending of corporations, we found that those companies active in energy sectors are spending more in total on energy research than governments. Most of the companies are headquartered in IEA member countries.
But, as we noted in Tracking Clean Energy Progress 2017, the sectoral splits are different between the public and private sectors.
While governments are spending more on energy efficiency and renewables, the private sector is spending more in the oil, gas, networks and utilities sectors.
This explains why corporate energy research spending has also declined in recent years, as cutbacks following the sharp oil-price drop knocked out $3.5 billion from the research budgets of oil and gas companies since 2014 — more than Japan’s total public energy R&D budget.
The increase in spending by companies active in clean energy sectors has not compensated for this drop.
As discussed in the newly released IEA Insights Paper “Early-Stage Venture Capital for Energy Innovation” and a previous commentary, venture capital funding is successfully propelling new energy software technologies forward, but the risks associated with the early development stages of hardware technologies are often considered too high for the private sector.
In addition to trying to maintain and raise research budgets, governments can use existing funds to target key research gaps.
They can also build capacity to ensure that the outputs of innovation policies, as well as the investments, are being tracked for better policy making.
The IEA will continue to lead the way with its efforts to compile and disseminate reliable energy RD&D statistics.