By Mark Jaffe, EUCI energy writer
In the last 10 years more than $230 billion has flowed into energy startups, but in the face of economic and political uncertainty, that funding stream has slowed, according to the International Energy Agency (IEA).
Between 2015 and 2022, funding for a broad range of startups rose 570%, but in 2023 and 2024, investment cooled the IEA’s State of Energy Innovation study found.
“The year 2024 was characterized by uncertainty on multiple fronts, reflecting rising geopolitical tensions, anticipation of potential shifts in policy and continued wariness about high financing costs,” the agency said.
The IEA surveyed startup activities across a broad range of technologies, including nuclear, industrial heat pumps, geothermal, and carbon capture in 45 countries.
Public and corporate energy research and development (R&D) spending had been growing at an average annual rate of 6%.
Corporate R&D spending on energy innovation was more than $160 billion in 2023 with most of the money going to automotive projects by companies located in Germany, Japan, the United States, China, and the Netherlands.
Thirteen of the 20 biggest energy-related corporate R&D spenders were automotive companies.
“At the regional level, global corporate energy R&D spending has been boosted by Chinese firms, which have allocated increasing sums to R&D as their balance sheets have grown,” the IEA said. “Chinese corporate energy R&D spending has risen from around $18 billion in 2015 to over $62 billion in 2023.”
While, corporate R&D spending has been growing at a faster rate than growth in gross domestic product (GDP), the IEA said initial estimates for 2024 project a slowdown in some advanced economies.
Government energy R&D spending reached a global total of $50 billion in 2023 – a 5% increase from the previous year, and data available from 11 IEA member countries indicate spending increased in 2024, but more slowly.
“The 2024 growth rate for most of these 11 countries is expected to be below 5% – including around 1% or less for Canada and the United States – potentially signaling a slowdown,” the IEA said.
Faced with an energy crisis in the 1970s, total public spending on energy soared, especially for the nuclear sector, but current government spending is just 0.04% of GDP, less than half of what was spent in 1980.
Between 2015 and 2022, venture capital (VC) spending on energy technologies increased sixfold matching public R&D expenditures, but since then, it has cratered, the IEA said.
In 2024, venture capital in energy startups was $27 billion, a 23% drop from 2023, which had already seen a 20% decline from 2022. The shift from a low-interest environment that encouraged risk taking to a high-interest one played a key role.
“To a large extent, energy VC is suffering from a wider malaise affecting VC, as global macroeconomics, including high interest rates, hinder private equity investments,” the IEA said.
The only sector to see growth in VC funding was artificial intelligence. “The rush of funds in that highly competitive and fast-growing sector may even have drawn capital away from energy technologies,” the agency said.
Another element is political uncertainty about the commitment of some governments to climate-related policies. This is raising concerns among investors, the agency said, and “leading to a ‘wait-and-see’ approach to investment.”
Technology innovation was driven by the U.S., Japan, and Europe for the past century, but in 2021, China became the largest country for energy patents, overtaking Japan and the U.S.
“The global energy innovation landscape is at a pivotal moment amid signs of slowing momentum in financing and shifting priorities,” the IEA said.
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