New IEA report highlights recent progress and emerging risks across the energy innovation landscape worldwide, with investment trends uneven across different regions and sectors
The range of new energy technologies under development globally is broader and appears more promising than ever before, yet the global energy innovation landscape is at a pivotal moment amid signs of slowing momentum in financing and shifting priorities, according to a new IEA report released today.
The report - The State of Energy Innovation - provides a first comprehensive global review of energy technology innovation trends drawing upon a new dataset covering more than 150 innovation highlights and a survey of nearly 300 practitioners from 34 countries. The findings reveal both the central role of innovation in advancing national energy and industrial strategies, and key opportunities to maintain the pace of progress.
The report shows that energy innovation has delivered major economic and security benefits. Public research and development (R&D) investments in response to energy crises in the 1970s, reaching 0.1% of GDP, drove the expansion of nuclear power and reduced many countries' reliance 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, the industrial strategies of countries around the world are putting increased emphasis on economic competitiveness, security and resilience, making progress on innovation more important than ever.
Recent years have seen a steady increase in innovation activity. 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.
"Innovation is the lifeblood of the energy sector, particularly in today's fast-moving times with the global energy mix shifting and major trends such as electrification having far-reaching effects," said IEA Executive Director Fatih Birol. "A wide range of technologies now appears to be coming close to market, offering hope for improvements in energy security, affordability and sustainability over the long term. But we require investment, both public and private, to scale up innovative solutions. The payback may not always be quick, but it will be lasting."
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. The only sector to see growth in VC funding during this period was artificial intelligence, which offers potential to accelerate energy innovation but may also draw capital away from the energy sector.
Innovation efforts have also become increasingly global. China overtook Japan and the United States in 2021 as the leading country for energy patenting, with over 95% of its patents focused on low-emissions technologies. Since 2000, patenting globally for low-emissions technologies has grown 4.5 times as fast as it has for fossil fuels. Investment patterns differ across regions, with China directing about half of its energy patenting and 90% of its VC funding towards mass-manufactured technologies such as batteries and electrolysers. Europe has a similar focus but is more active in large-scale engineering projects, while the United States maintains a diversified innovation portfolio across fossil and clean energy technologies.
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 final investment decision and 95% of demonstration funding is 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 nonetheless ensure that a global portfolio of projects bridge the "valley of death" for key technologies to meet climate goals.
The report stresses the importance of maintaining momentum and addressing structural gaps in the global innovation system. Public energy R&D investment today stands at just over 0.04% of GDP in IEA member countries - less than half the level seen in the early 1980s despite new energy security and climate challenges. The report recommends targeted policies to increase public energy R&D spending, support technology developers through economic cycles and strengthen international cooperation to bring clean energy demonstration projects to market. The evolution of global energy innovation will play a decisive role in determining countries' long-term economic resilience and ability to meet energy and climate goals.
The State of Energy Innovation: Explore report
