Who’s Filling the Energy Innovation Funding Gap?

The energy industry, once known for breakthrough technologies, has backed off of innovation in recent years and is still dominated by conventional fossil fuels – and will continue to be for decades.  That’s according to the Financial Times.

A Boston Consulting Group (BCG) survey has found that only 64 percent of energy companies rank innovation as a priority. That’s compared to the automotive sector, with 91 percent, and media and entertainment firms, at 85 percent. Only two energy companies, Royal Dutch Shell and Sinopec, made BCG’s list of the world’s 50 most innovative companies.

BCG energy partner Maurice Berns says an older and more conventional workforce drives a “risk-averse” culture.  Contributing to the energy sector’s relative lack of interest in innovation are the facts that the energy industry is more capital-intensive than other industries, its assets are long-lived, and projects have very long development times. As a result, energy groups rarely score highly in surveys of companies admired for technological innovation.

Statistics on investment in research and development confirm the survey findings.  The Breakthrough Institute, a California-based think-tank, found that US energy firms reinvest less than 1 per cent of revenues in research and development. In contrast, IT, semiconductor and pharmaceutical companies typically reinvest 15 percent to 20 percent of turnover in R&D and product development.

Critics of the industry say it is too complacent. Many believe big energy companies and governments should be coming up with technologies to mitigate global warming and helping humanity end its addiction to fossil fuels.

Annual federal government spending on cleantech in the US is actually in decline. Some $44 billion was spent on the sector in 2009, much of it through the Obama administration’s fiscal stimulus. But by 2014 it will have fallen by 75 per cent, to $11 billion.

U.S. federal R&D spending on energy has typically been in the range of $4 billion to $6 billion a year – a modest sum compared with the $19 billion a year it spent on NASA and the $33.5 billion each year funneled into health research.

Steve Minnihan, senior analyst at Lux Research, an innovation-focused research consultancy says the funds flowing into energy innovation are a drop in the bucket.  Last year, global investment in renewables stood at $268.7 billion, according to Bloomberg New Energy Finance – five times what it was in 2004 and the second-highest level on record.

Even so, the figure pales in comparison to the $644 billion in global spending on oil and gas exploration and production, a forecast for this year by Barclays.

Minnihan says that if a utility were to invest $1 billion in installing solar power, it would be addressing just 0.0025 per cent of our global power demand.  He doesn’t expect any “game-changing” energy source or form of power generation to appear for at least another 50 years.

The major changes likely to occur in the short term will likely come from improvement in energy efficiency, including in lighting, heating, and ventilation systems, which can have a huge impact on demand. Another bright spot is the development of more fuel-efficient vehicles, such as those that use stop-start systems, which can increase a car’s efficiency by 5 percent to 10 percent.

And, as venture capitalists are investing less in cleantech, corporations are stepping in to fill the void via partnerships and funding to help start-ups develop their technologies and find new applications.  For example, Mitsubishi helped Artimis Intelligent Power apply its pioneering hydraulic drive technology to wind turbines and eventually bought the company.  Another prime example is GE, which is providing $200 million in funding for businesses and entrepreneurs with ideas on improving the world’s energy future as part of its Ecomagination challenge.

Furthermore, Michael Holman, research director at Lux Research, said that capital-intensive energy storage companies are benefiting from partnerships with big corporations, such as PG&E, to drive down their high development costs.  He believes this partnership model should provide a fertile environment for energy innovations over the next decade.  He also points out that the U.S. military will drive funding for early-stage clean energy, particularly in biofuels and energy storage.  His comments were part of a recent panel discussion on energy innovation funding during a conference organized by Columbia University.

To read the original Financial Times article cited in this story, click here

To read the CleanTechIQ story on clean energy innovation funding, click here



Post Comment

Your email address will not be published. Required fields are marked *

Featured News Topics