In 2023, global spending on clean energy R&D continued its upward trend, extending gains seen since the pandemic. Notably, US government spending on energy R&D increased by 13%, contributing to a global public energy R&D spending total of USD 50 billion. Corporate energy R&D spending reached USD 160 billion, with the automotive sector leading this growth, albeit at a slower pace than in previous years.
Three key factors drive this trend. First, government commitments to reduce emissions are being taken seriously, with research funding strategically directed to areas needing technological advancement. Second, there is growing recognition that clean energy technologies present significant investment and growth opportunities. Consequently, government incentives are steering sectors towards low emissions options, encouraging corporate R&D to maintain competitiveness. China, in particular, increased its energy R&D share in 2023.
For smaller clean energy companies, 2023 was challenging. Venture capital (VC) and venture loans became more expensive due to rising inflation and higher interest rates. These conditions made alternative investments more attractive, leading to reduced VC funding. Many investors either withdrew from VC funds or offered smaller amounts to start-ups, sufficient only to keep them afloat until economic conditions improved. Data from early 2024 suggests that start-ups will continue to struggle with raising capital throughout the year.
Emerging market and developing economies (EMDEs) remain underrepresented in energy innovation investment. In 2023, only 6% of public R&D spending and 3% of corporate R&D came from EMDEs, excluding China. High borrowing rates in these regions further complicate funding, with some start-ups facing rates as high as 25%. However, Indian start-ups saw an 85% increase in fundraising, raising EMDEs’ share of energy venture capital from 3% to 9%.
Government spending on energy R&D rose by 7% globally in 2023, with China and the United States leading. Clean energy R&D dominated global spending, but R&D for unabated fossil fuels also increased. US energy research budgets, including those for national laboratories and the Department of Defense, grew by more than USD 1.3 billion. China maintained its status as the largest public spender on energy R&D, though a significant portion of its growth related to fossil fuel technologies, causing a dip in the global share of clean energy R&D.
Corporate energy R&D spending grew by 7% to USD 160 billion, driven by the automotive sector and other industries under pressure to develop low-emissions solutions. Chinese firms significantly contributed to this growth, with rising revenues and the need to innovate to stay competitive. Major automotive companies, such as Volkswagen and Mercedes Benz, increased their R&D spending significantly.
In 2023, equity investors in energy start-ups adopted a cautious approach, delaying deals or reducing deal sizes amid economic uncertainty. Early-stage VC investment in energy start-ups fell for the first time since 2014 but is expected to recover in 2024. Energy VC investment did not decline as sharply as other sectors, and the number of specialist VC funds targeting clean energy continues to grow.
Corporate VC investment in clean energy start-ups dropped by almost 40% in 2023. Big corporations, particularly in the oil and gas and automotive sectors, reduced their investment activity. Some firms refocused their CVC on technologies closer to their core business, while others deepened start-up incubation efforts.
Despite these challenges, government policies are fuelling innovation spending, though high capital costs slow progress for some technologies. Governments are increasing R&D and demonstration project spending, inducing more corporate R&D in low-emissions technologies. However, equity funding for clean energy start-ups has lost momentum, highlighting the need for targeted measures to support these ventures through economic uncertainty.
China remains the biggest spender on energy innovation, driving corporate R&D growth and leading public energy R&D. The country’s increased spending on energy R&D has resulted in significant innovation, particularly in electric vehicles, batteries, and solar PV manufacturing. Globally, clean energy technology competition is beneficial for consumers and accelerates energy transitions. However, ensuring the free flow of knowledge and market access is crucial for stimulating further innovation.