IEA (2022), Clean Energy Technology Innovation, IEA, Paris https://www.iea.org/reports/clean-energy-technology-innovation, License: CC BY 4.0
About this report
Innovation in clean energy technologies needs to accelerate to get on track with the Net Zero Emissions by 2050 Scenario. While most of the CO2 emission reductions can be achieved by 2030 with existing technologies, the path to 2050 relies on technologies that are not yet ready for widespread uptake, particularly in sectors that are hard to decarbonise such as heavy industry and long-distance transport.
There has been important progress in 2021-2022, including in R&D in key areas such as low-emission hydrogen-based steelmaking, small modular nuclear reactors, and lithium-free batteries. Despite the Covid-19 pandemic, governments are spending more and more on energy R&D – which could reach USD 40 billion in 2022 assuming steady growth – and venture capital investments in clean energy start-ups reached an all-time high in 2021. Furthermore, governments are supporting major R&D and demonstration projects, such as through the US Bipartisan Infrastructure Law, the EU Innovation Fund, Japan’s Green Innovation Fund and China’s 14th Five-Year Plan, with an increasing focus on heavy industry, hydrogen, CCUS and other critical energy technologies. Still, more efforts are needed this decade to reach Net Zero Scenario milestones.
The IEA Clean Energy Technology Guide contains information on over 500 individual technology designs and components that can contribute to getting on track with the Net Zero Scenario. There were important developments in 2021-2022 across various sectors, such as in sodium-ion batteries for electric vehicles (EVs), direct reduced iron solely based on electrolytic hydrogen for steelmaking, and integrated heat pumps and storage in buildings.
Why is this technology important? Sodium-ion batteries have the potential to completely avoid the use of less abundant critical metals, and are the only battery chemistry currently under development that does not require lithium. Its main drawback is its lower energy density, which means that it is better suited to stationary storage and lower-range EVs.
What happened? The world’s largest battery manufacturer, CATL, announced that it would begin production of sodium-ion batteries by 2023. This chemistry was previously considered a promising technology, but only prototypes had been developed. As a result, the IEA assessment of sodium-ion battery technology has increased from TRL 3/4 (early prototype) to TRL 6 (full prototype at scale), with possible upgrades to TRL 8/9 (first commercial operation) in 2023 if announced progress materialises.
What remains to be done? In the Net Zero Scenario, today’s early-stage EV technologies, including advanced battery designs and alternative chemistries such as sodium-ion batteries, reach market maturity by 2030, helping to reduce costs. For more information, see the IEA Global EV Outlook.
Why is this technology important? Solely electrolytic hydrogen-based direct reduction processes for iron and steel production are among the most advanced technologies available to produce primary steel with nearly zero emission. Hydrogen is used instead of coke from coal to reduce the iron.
What happened? Hybrit, the most advanced project for this technology, produced fossil-free steel for the first time in November 2021. Pilot trials are ongoing and expected to be completed by 2024. The project aims to demonstrate industrial-scale production in 2026. It benefits from public funding of nearly EUR 150 million through the European Union Innovation Fund and is supported by the Swedish Energy Agency. A number of other demonstration projects have been announced as well. As a result, the IEA assessment of hydrogen-based direct reduced iron has increased from TRL 5 (large prototype) to TRL 6 (full prototype at scale).
What remains to be done? In the Net Zero Scenario, steel production based solely on hydrogen from water electrolysis is commercially sold at industrial scales by around 2028-2030.
Why is this technology important? Small modular reactors (SMRs) are advanced nuclear reactors with a capacity below 300 MW, with lower capital costs, inherent safety and waste management attributes and reduced project risk. Their modular design enables economies of scale through line manufacturing and shorter lead times. They are expected to make substantial contributions to decarbonising power, heat and hydrogen production in the 2030s.
What happened? In 2021 several countries announced new SMR developments. In China, construction started on Linglong One, the first commercial-scale SMR project. In the United States, the Utah Associated Municipal Power Systems and NuScale expect their first SMR to generate power in 2029. In Canada, Ontario Power Generation expects site preparations and licensing for the country’s first commercial, grid-scale SMR by the end of 2022, with completion by 2028. The United Kingdom announced support through the Advanced Nuclear Fund for SMR design and demonstration in the early 2030s. The IEA therefore assesses SMRs at TRL 6 (full prototype at scale), and they will move past TRL 7 (pre-commercial demonstration) when they have successfully operated for a few years.
What remains to be done? In the Net Zero Scenario, SMRs reach markets around 2035. By comparison, current best estimates point to the operation of first-of-a-kind commercial-scale demonstrators at the end of this decade. Several demonstrators will be needed to test different modular sizes, technology designs and use cases, and varying regulatory environments across regions. The next steps in SMR development will require further government support and international collaboration.
Why is this technology important? Ensuring a sustainable and available supply of the critical minerals required for clean energy technologies has climbed up the agenda. Technological innovation can help increase recoverable resources, expand the diversity of lithium supply and reduce the environmental impact of extraction activities. One example is the extraction of lithium from geothermal brine using direct lithium extraction technologies, which are more efficient than traditional desiccation methods, significantly reduce surface area requirements, and can also produce heat or electricity depending on local conditions.
What happened? Several projects have been announced in California, South America, the United Kingdom and Europe as pressure mounts to secure lithium reserves. Current IEA assessment places this technology at TRL 7 (pre-commercial demonstration).
What remains to be done? This year the IEA has introduced geothermal lithium brine extraction to the Clean Technology Guide. In the Net Zero Scenario between 2020 and 2040 lithium demand increases a hundredfold, meaning that all available sources are required.
Why is this technology important? Heat pumps are important energy efficiency technologies that can support the electrification and decarbonisation of heating and cooling in buildings. They can also offer significant demand-side flexibility if coupled with active controls and storage systems. Active control systems are particularly important to reduce risks such as grid congestion and to integrate high shares of renewables power generation. They coordinate the operation of multiple heat pumps through a dedicated platform at the utility level – while maintaining household comfort.
What happened? At the end of 2021 the ViFlex project expanded its platform for testing heat pump flexibility and its support to the electricity system to cover all eastern German states. Preferential heating tariffs are applied for the units that take part in the pilot. The IEA currently assesses this technology at TRL 5/6 (large prototype).
What remains to be done? More demonstration projects and field trials will be needed to demonstrate full technical feasibility in different country and regulatory contexts at commercial scale and develop viable business models for heat pump flexibility. This will be necessary to ensure economic competitiveness, convince building occupants to participate and stimulate manufacturers to bring to market integrated control systems and services for heat pumps.
Governments have a major role to play in shaping energy innovation priorities, including by allocating public budgets for energy R&D and demonstration. In 2021 public energy R&D spending rose to USD 38 billion globally, almost 90% of which was allocated to low-carbon energy R&D. However, at 5% the increase was slower than the annual average of 7% from 2016 to 2020. We estimate that China was the largest source of public energy R&D spending growth in 2021 in absolute terms, as it entered the first year of its 14th Five-Year Plan (2021-2025), staying slightly ahead of the United States.
While it remains early to draw firm conclusions on the impacts of Covid-19, there are signs that it has not been a significant setback, and may be followed by a major boost to spending as economic recovery takes effect. Governments around the world earmarked funding increases in 2021 as part of stimulus packages, much of it for hydrogen, CCUS and energy storage.
In 2021 energy R&D spending by listed companies reached around USD 117 billion – 5% higher than pre-pandemic levels in 2019. Much of the growth came from companies headquartered in China, which accounted for 35% of the total in 2021. Had Chinese companies kept energy R&D spending at 2020 levels, the global trend would have been a dip and not a rise.
- Spending on oil and gas fell for the second consecutive year to below USD 20 billion, back to levels comparable with the 2015-2018 period.
- Renewable energy R&D saw its largest single-year year uptick in corporate spending since 2015. At USD 10 billion, our estimate stands about 60% higher than five years ago.
- Automotive, the biggest area of energy-related corporate R&D spending, was up 8% in 2021 to USD 51 billion, which represents a return to 2018-2019 levels.
Heavy industry and the long-distance transport sector are in need of some of the most transformational changes in technology to accord with the Net Zero Scenario. This turns the spotlight on companies outside those typical to the energy sector, which allocate only part of their R&D to energy efficiency or fuel switching.
- Cement companies spent USD 2.3 billion on R&D, a sharp increase compared to 2020 and up 170% from 2015.
- Iron and steel producers spent about USD 20 billion on R&D, and steady annual growth has delivered 110% more spending since 2015.
- A similar increase has also been seen in chemicals (USD 48.7 billion in 2021) and pulp and paper (USD 2.0 billion).
- However, R&D spending by long-distance transport companies dropped significantly – by 12% in shipping to USD 2.9 billion, 7% in aviation to USD 9.8 billion, and 1% in rail to USD 2.6 billion, sectors badly hit by the pandemic.
Early-stage venture capital (VC) typically supports entrepreneurs with funding for technology testing and design. This is often a very good fit for technologies with lower upfront capital needs, and – increasingly according to our data for 2021 – it is being directed to more “asset-heavy” technologies, including in aviation and heavy industry, indicating rising investor confidence in clean energy.
A new high was reached in 2021 as energy technology start-ups raised USD 6.9 billion of early-stage VC funds, a doubling of 2020 levels. Energy VC in 2020 was impressively resilient to the economic impacts of the pandemic, even maintaining year-on-year growth in the number of deals. In 2021, growth was supported by continued investor confidence in energy transitions, recognition that the transitions present major market opportunities for disruptive new energy technologies and buoyant VC markets. Preliminary data for the first half of the year suggest further growth in 2022.
The increase in 2021 was primarily led by electric mobility and battery start-ups, which together accounted for about 40% of year-on-year growth and 45% of the early-stage total. The most notable trend in early-stage mobility investment is a shift away from companies developing EVs towards battery manufacturing and critical minerals, as well as attention to riskier mobility concepts, such as small electric aircraft. Another notable trend is rising early-stage funding for innovative approaches to avoiding fossil fuel use in heavy industry, such as with hydrogen.
Later-stage VC focuses on scaling up promising businesses by funding larger projects, factories and contracts. These funding rounds are much larger. In 2021 later-stage energy VC funding also grew by 60%, led by energy storage, batteries, hydrogen and fuel cells.
In the past few years, and notably in the wake of Covid-19, many countries have developed new policies in support of clean energy technology innovation. In 2021-2022, several governments made announcements of large-scale public funding programmes, notably for hydrogen technology development, CCUS, industry decarbonisation, energy storage, batteries and EVs. Governments are using a range of financial tools to support projects, including direct grants, loans, loan guarantees and tax credits. A selection of recent support programmes for clean energy innovation are featured in the table below, and more information is available in the IEA policies and measures database.
Budgets allocated to technology areas that are critical to follow the Net Zero Scenario are increasing. For example:
- Hydrogen accounts for about 40% of announced budgets under the US Bipartisan Infrastructure Law, 40% of the budgets for the first confirmed projects under Japan’s Green Innovation Fund, and 25% of announced energy-related budgets under the France 2030 recovery plan. The US Inflation Reduction Act also includes up to USD 13 billion of tax credits for clean hydrogen projects. Several countries – such as Australia, China, France, Germany, Japan and the United States – are seeking to build low-carbon hydrogen supply chains and accelerate new technology development.
- CCUS accounts for about 50% of the budgets for the first batch of projects under the EU Innovation Fund and over 15% of announced budgets under the US Bipartisan Infrastructure Law. In the US, the Inflation Reduction Action also increases available funding for CCUS projects – including retrofits at existing facilities – and tax credits for direct air capture projects. Canada is ramping up support for CCUS projects, including for direct air capture, CO2 transportation and permanent CO2 storage.
- Cross-cutting technology projects for industry decarbonisation are also benefiting from more focus. They account for about 50% of announced energy-related budgets under France 2030, 50% of the budgets for the first batch of projects under the EU Innovation Fund (including CCUS) and 20% under Japan’s Green Innovation Fund. The US Inflation Reduction allocates USD 5.8 billion for advanced industrial facilities deployment, including support for energy efficiency, electrification, low-emission fuels and heat, and CCUS.
- Biofuels account for 10% of the budgets for the first batch of projects under the EU Innovation Fund. The US Inflation Reduction Act extends support to second-generate biofuels, and grants nearly USD 250 million to low-carbon aviation fuel development alongside dedicated tax credits.
At least USD 90 billion in public funding need to be allocated globally by 2026 for demonstration projects in clean energy technologies for them to be commercially ready by 2030 and help deliver net zero emissions by mid-century. Given the urgency and scale of the challenge, there is a need for enhanced international collaboration in clean energy demonstration, especially in sectors where technologies are large and complex. To avoid waiting for consecutive multi-year projects to be concluded, new approaches will be needed that accumulate learnings in parallel and transfer them effectively among stakeholders.
There have been important developments in 2021-2022, with governments, companies and multilateral initiatives announcing new demonstration projects. These are reflected in a new addition to IEA tracking of clean energy innovation progress: a publicly available database of clean energy demonstration projects. It includes project-by-project information including location, sector or technology, TRL, status, funding and timeline of operations, when available.
Data remain scarce overall, especially when it relates to breakdowns of funding and timelines of operations, making the comprehensive aggregation of public funding for clean energy demonstrators challenging. Based on available information and tracking of a subset of projects that have attracted over USD 5 billion in committed public funds for this decade, we estimate that public investments is unlocking up to three times more in private funding.
Most demonstration projects tracked by the IEA are located in Europe (nearly 50% of projects). Australia, the United States, Canada, China and Japan account for much of the rest, while few projects are located in emerging and developing economies outside of China (less than 5% of the sample). Within the sample, Europe hosts most industrial demonstrators (e.g. cement, iron and steel, chemicals) and many projects in CCUS, biofuels, and energy storage and batteries. The United States counts many CCUS projects, and Australia projects in energy storage and batteries, power and grids, and hydrogen.
- Industrial CCUS. The second batch of large-scale projects that were allocated funding from the EU Innovation Fund includes four CCUS projects in cement production, (including first-of-a-kind facilities in Bulgaria and Poland), three in chemicals production (including a first-of-a-kind CO2-to-methanol plant using renewable hydrogen in Sweden), and two in refining (including for CO2-based synthetic aviation fuels production in Sweden). In the United States, HeidelbergCement and Fortera seek to demonstrate new CCU technology that produces cementitious materials from CO2 captured directly from kiln exhausts.
- Direct air capture and storage. In Iceland, a first-of-a-kind 4 kt CO2/year project began capturing CO2 from the air and storing it underground; the companies behind the project – Climeworks and Carbfix – also announced the construction of a 36 kt CO2/year extension as part of a plan to demonstrate multi-megatonne capacity by 2030.
- Hydrogen production. Air Liquide started operations at Bécancour, the world’s largest facility for electrolytic hydrogen production in Canada, a first-of-a-kind at 20 MW and producing about 3 ktH2/year. In China, Sinopec announced construction of a large-scale 260 MW electrolyser to produce 20 ktH2/year starting mid-2023.
- Aluminium. Carbon-free aluminium smelting made progress at ELYSIS (Canada), which expects commercial-scale demonstration in 2023 and large-scale production by 2026.
- Cement. US start-up Brimestone raised funds to build the world’s first pilot plant to produce ordinary portland cement from calcium silicate rocks instead of carbon-containing limestone, with the view to demonstrate net carbon-negative cement production.
- Iron and steel. Alongside Hybrit (see first section above), ArcelorMittal announced construction of a 2.3 Mt DRI plant in Gijon with expected zero-emission production by 2025, in collaboration with the Spanish government, and of the first industrial scale facility for DRI made solely with hydrogen – though not yet low-emissions hydrogen – in Hamburg. Japan is also launching hydrogen-based steelmaking projects under the Green Innovation Fund with a focus on DRI and electric furnaces.
- Aviation. INERATEC announced construction of the world’s largest facility for low-emissions hydrogen-based synthetic aviation fuel in Frankfurt, with planned capacity of 3.5 kt/year, or 10 times more than its pilot plant in Werlte. In the United States, GEVO started front-end engineering and planning the Net-Zero 1 project to produce sustainable liquid hydrocarbons for use in aviation and road transport based on renewable power.
- Shipping. The FirstBio2Shipping project in the Netherlands, which received funding from the EU Innovation Fund, plans to develop the first industrial plant converting biogas into low-carbon bio-liquefied natural gas for use in maritime shipping as drop-in fuel to replace heavy fuel oil from 2023. Japan is accelerating plans to develop hydrogen- and ammonia-powered engines for shipping through its Next Generation Vessel Development project under the Green Innovation Fund. Different consortia expect to demonstrate commercial-scale hydrogen propulsion by 2026 and ammonia by 2028.
Recent policy developments to support clean energy innovation
|Country/region||Policy/programme||Funding||Technology coverage||Proposed activities or developments, 2021-2022|
|Australia||Technology Investment Roadmap
|AUD 22 billion||Hydrogen, energy storage, materials, CCUS||Funding for low-emission technologies to support decarbonisation and economic recovery. In the first year, AUD 2.5 billion has been committed to projects including CCUS and hydrogen.|
|Australia||Clean Energy Innovation Fund||AUD 200 million||Transport, grids, solar PV, CCUS, energy management systems||Largest dedicated early-stage cleantech investor, created in 2015-2016 to invest AUD 200 million. Lifetime investments to mid-2021 reached AUD 118 million, with 11 new commitments in 2020-2021.|
|Canada||Investment Tax Credit (ITC) for CCUS
|CAD 2.6 billion until 2025, CAD 1.5 billion/yr over 2026-2030||CCUS, permanent CO2 storage in particular||ITC rates of 60% for DAC projects, 50% for capture in other CCUS projects, 37.5% for transport, storage and utilisation equipment. Rates will be reduced by 50% in 2031 to set incentives for quick action.|
|Canada||2030 Emissions Reduction Plan
|CAD 9.1 billion||Transport, oil and gas, industry, buildings, power, waste, agriculture||Sector-by-sector path to reach net zero by 2050, with a focus on new technology development (see Looking ahead to 2050). First National Climate Change Science Plan expected for late 2022.|
|China||14th Five-Year Energy Innovation Plans
|Annual increases of 7% in public energy R&D spending||Transport, industry, hydrogen, CCUS, power including nuclear||Stronger emphasis on energy innovation for the 2021-2025 period, as reflected in the 14th Five-Year Plan for a Modern Energy System (2022). Also see IEA Tracking of Clean Energy Innovation in China.|
|European Union||Innovation Fund
|EUR 10 billion (possible variations with carbon price)||Industry, CCUS, renewables, energy storage||Funding for demonstration of innovative technologies. Results from first call at end of 2021 (EUR 1.1 billion), second call expected in Q3 2022 (EUR 1.5 billion), third call to open at end of 2022 (EUR 3 billion through REPowerEU Plan, if approved).|
|EUR 10.5 billion||Nuclear modular reactors, hydrogen, renewables, industry||Investment programme supporting the goal of achieving carbon neutrality by 2050, launched in 2021-2022. Seeks to reach all innovation players from conception up to industrialisation.|
|Japan||Green Innovation Fund
|JPY 2 000 billion||Offshore wind, solar PV, hydrogen, CCUS, transport, digital||Funding for business-led decarbonisation, from R&D and demonstration to social implementation. Large, long-term projects (minimum JPY 20 billion, maximum 10 years in duration). About JPY 1 500 billion allocated by mid-2022.|
|Spain||PERTE ERHA: Strategic Project for the Recovery and Economic Transformation of Renewable Energy, Renewable Hydrogen and Storage
|EUR 16.3 billion
(public & private)
|Renewables, hydrogen, energy storage, EVs, biogas||Supports: energy storage R&D projects in the framework of the Recovery, Transformation and Resilience Plan, with the creation of the Iberian Centre for Research in Energy Storage; value chain for renewable hydrogen; energy communities pilot projects.|
|United Kingdom||PERTE ERHA: Strategic Project for the Recovery and Economic Transformation of Renewable Energy, Renewable Hydrogen and Storage
|GBP 1 billion||Offshore wind, nuclear SMRs, energy storage, hydrogen, CCUS||Funding to accelerate commercialisation of technologies, systems and business models in power, buildings and industry. Nearly all the funding is already committed to the fund's ten technology themes.|
|United States||Office of Clean Energy Demonstrations
|USD 21.5 billion||Hydrogen, CCUS, grid-scale energy storage, nuclear SMRs||Funding through the Bipartisan Infrastructure Law for demonstration projects and commercialisation. By May 2022, 37% of the USD 21.5 billion had been allocated to hydrogen hubs, 22% to grids and energy storage, 16% to CCUS, and 2% to industrial emissions avoidance.|
|United States||Inflation Reduction Act (IRA)
energy innovation-related provisions
|Over USD 6 billion in grants, 8.6 billion in loans or guarantees, and tax credits||Hydrogen, industry decarbonisation, CCUS, biofuels, aviation, power, nuclear||Funding for energy technology development projects (including demonstrators) via grants, loan and loan guarantees, and tax credits, such as through the Office for Clean Energy Demonstrations, the American Innovation and Manufacturing Act, the Clean Air Act, and the Department of Energy Loan Programs Office.|
In Energy Technology Perspectives 2020: Special Report on Clean Energy Innovation, the IEA issued five key principles to accelerate clean energy technology innovation and get on the Net Zero Scenario trajectory. Significant progress has been made against each of these since 2020, but further efforts are needed.
- Target pressing innovation gaps in sectors where emissions are harder to abate and technologies to deliver drastic CO2 emission reductions are not available on the market at large scale yet (e.g. heavy industry, long-distance transport, CCUS, hydrogen production and use, critical minerals). Enhance publicly available tracking mechanisms to evaluate the outcomes of innovation programmes – including demonstrators – to help identify gaps.
- Further increase public spending on clean energy R&D and demonstration, which remains smaller than budgets allocated to other sectors of the economy. Set incentives for private-led energy innovation, support innovative start-ups and entrepreneurs, and engage with corporates in collaborative technology projects, particularly in hard-to-decarbonise sectors.
- Identify opportunities to develop new energy technology supply chains, as the focus shifts from fossil fuels to new resources such as critical minerals. Support all steps in emerging energy technology supply chains and engage collaboratively with regional and global partners where relevant.
- Set incentives for enabling infrastructure development (e.g. electric mobility, renewables integration, district heating and cooling, CCUS, and hydrogen). Take the initial investment risk in large-scale demonstration projects to unlock private co-investment.
- Work across borders to ensure that no essential technology area remains underfunded because of high risks, particularly for demonstration projects. Exchange experiences with other clean energy innovation policy makers about good innovation policy practice. Support networks for the rapid exchange of knowledge between researchers in overlapping fields and cross-fertilisation between sectors and improve relevant data collection frameworks to facilitate tracking progress. Accelerate inclusion of emerging and developing economies in multilateral initiatives for energy technology and innovation.