Throughout history, innovation has delivered advancements that shape how we produce, use and transmit energy around the world. From the creation of the first steam engine in the 17th century and the electric battery 100 years later, to the development of the wide portfolio of modern energy technologies we use today – gas turbines, nuclear reactors, high voltage power lines, motors, and so much more – energy innovation has been a key driver of progress. It is an essential ingredient in global efforts to build a more secure, affordable and sustainable energy future.
In many ways, the outlook for energy innovation appears bright, as illustrated by findings in the IEA’s recent report on the topic, The State of Energy Innovation. The range of new technologies under development globally is broader and appears more promising than ever before, and the past two years have produced several important advances. For example, the world’s first small modular nuclear reactors are now under construction, and researchers developed a solid-state battery that could give electric cars 1 000 kilometres of range after less than 10 minutes of charging. These are developments that have the potential not only to transform energy systems, but also reshape economies.
Other technological advances are well underway in major projects around the world, but need further support before they can make an impact, including overcoming non-technical challenges. To track and encourage progress in 18 key areas, the IEA has recently identified 18 Races to First in energy innovation, which will be regularly updated as projects work towards the finish lines.
Artificial intelligence also presents a major opportunity. Historically, the process of developing energy technologies, bringing them to market and achieving widespread adoption has been measured in decades. AI could dramatically speed up this timeline – allowing for faster discovery and testing, as well as cost reductions. Other fields are showing what is possible; in medicine, AI has led to a 45 000-fold acceleration in the scientific rate of discovery of the three-dimensional structures of proteins, the building blocks of human cells.
However, there are also serious headwinds to consider. At a pivotal moment for global energy innovation, there are signs of slowing momentum in financing and shifting priorities that could slow down the amount of time it takes to discover or refine new energy technologies and commercialise them.
These competing dynamics are evident in the data. According to the report’s analysis, which draws upon an IEA dataset covering hundreds of energy technologies and a survey of nearly 300 practitioners from more than 30 countries, recent years have seen a steady increase in innovation activity. Public and corporate spending on energy research and development, or R&D, has grown at an average annual rate of 6% – though data for 2024 indicate that growth may be slowing in some advanced economies.
Within the private sector, spending on energy R&D has grown faster than the broader economy – with particularly strong momentum in the automotive and renewable energy industries. That said, spending in other parts of the energy landscape has been weaker. Cement and steel companies are investing a much smaller portion of their revenues on R&D than carmakers and renewable energy firms, while aviation and shipping firms are allocating less capital for R&D than they did a decade ago.
A pullback in venture capital spending, which has emerged as a crucial catalyst for energy innovation, is also evident. Energy sector funding from venture capital firms 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. Yet in 2023 and 2024, VC funding declining by more than 20% amid tighter financial conditions, which have persisted this year amid macroeconomic uncertainty.
Portions of this data point to a weaker backdrop for energy innovation, with consequences that could be felt around the world. But as countries increasingly develop industrial policies aimed at enhancing their economic competitiveness and national security – many of which include a focus on the energy sector – there is an important chance to close these gaps.
Our analysis makes clear that energy innovation delivers major economic and security benefits. In response to energy crises in the 1970s, public R&D investment reached 0.1% of GDP. That may not sound like a lot initially, but it amounted to over 100 billion dollars over the ten years to 1985, ultimately driving the expansion of nuclear power and reducing the reliance of many countries on imported fuels. Similarly, technological advances in batteries and electric vehicles have lowered oil import needs in China, while shale technology innovation transformed the United States from an energy importer to a net exporter.
Today, public energy R&D investment stands at just over 0.04% of GDP among International Energy Agency members – less than half the level seen in the early 1980s, despite new energy security and climate challenges. As the industrial strategies of countries put increased emphasis on economic competitiveness, security and resilience, support for innovation should be part of the programme.
In this regard, the policy review in The State of Energy Innovation shows a wide range of activities already underway. These activities go beyond funding commitments and increasingly include measures to improve innovation ecosystems and incentivise investment by the private sector. Governments are promoting new approaches to finance, procurement and testing facilities for advanced energy technologies as part of national competitiveness. We hope that future editions of the report will bring news of successes for these initiatives, providing evidence of how the public and private sectors can take on the risks of development and scale-up together.
