The IEA’s recent report entitled The State of Energy Innovation finds that national industrial strategies are placing increased emphasis on economic competitiveness, security and resilience. This makes progress on innovation more important than ever.

The report documents the increasing focus on low-emissions, modular and mass manufactured technologies, as well as launching a set of 18 ‘races’ to encourage faster progress towards key demonstration milestones. It identifies areas where new approaches to policy support are being developed to use public funds more effectively, but also highlights areas where more efforts are needed to address barriers to scale-up and attract private capital. It also includes focus chapters on diversification of battery mineral supplies, application of artificial intelligence to energy innovation, and development of carbon dioxide removal technologies.  Its key findings have been summarised in a Power Engineering article:

Recent years have shown a steady increase in innovation activity. Namely, public and corporate energy 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.

Corporate energy R&D has outpaced economic growth, particularly in the automotive and renewable energy sectors. However, R&D spending as a share of revenues in the cement and steel sectors remains 20% to 70% below that of the automotive and renewables sectors, respectively, while the aviation and shipping sectors have reduced the share of their revenue spent on R&D over the past decade.

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. 

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 FID, with 95% of demonstration funding concentrated in North America, Europe and China. Sectors with urgent innovation needs to validate low-emissions options, such as heavy industry and long-distance transport, account for just 17% of the total. At a time of shifting government priorities, coordinated action can ensure that a global portfolio of projects bridge the ‘valley of death’ for key technologies to meet climate goals.

Focus on CO2 removal technologies: Innovation in CO2 removal is being spurred on by private capital mobilised by carbon credits. By 2024, a total of 140 start-ups had been launched to pursue 13 different ways of removing CO2 from the atmosphere and preventing its re-emission. However, most of the $4.8 billion spent to date has been on just two approaches – direct air capture and bioenergy with CO2 capture and storage. To bring others to the market, more effort is needed on monitoring long-term performance and procurement of high-quality credits.