There is Record Government Funding for Energy, According to a New Report
Governments around the globe spent a lot of money on energy research and development last year, according to data presented in the newly released World Energy Investment 2023 report. As presented, government investment in newer technology hit record highs in 2022. The report lays out how unevenly the money is distributed. It’s no surprise that ever-increasing amounts have been allocated to clean energy technologies. Understanding these allocations can be helpful to both the public and private investors involved or seeking to be involved in an industry that is considered a necessity for life.
The report also shows that investment in energy innovation increased. But cautions that a weaker economy may lead to a reduced ability to fund newer ideas, especially those that rely on private capital. This could possibly create a period where the fast pace of innovation, improvement, and efficiency tapers.
In addition to possible increased economic weakness as a risk, countries are turning their focus closer to home. Many are investing in their own clean energy industries. This also risks decelerating the “clean energy” pace – cooperation between countries helps lubricate development, and poorer countries, potentially with a larger carbon footprint per capita, benefit from the assistance of the global community. The report shows an expectation that sharing of information and technology decreased in 2022, but the G7 and G20 are starting to address the barriers to energy R&D investment and the disparities between countries.
The report also shows that investment in clean energy technologies is significantly outpacing spending on fossil fuels, as affordability and security concerns triggered by the global energy crisis strengthen the momentum behind more sustainable options.
Public spending on all energy research and development is estimated to have grown by $US 44 billion or 10% in 2022, with 80% estimated to have been spent to benefit “clean energy.” As far as non-government investments, listed companies in energy-related sectors, demonstrated a similar rise in R&D budgets in 2022, while early-stage venture capital investment into clean energy start-ups reached a new high of $US 6.7 billion. These solid outcomes came despite higher costs of capital and pervading economic uncertainty.
Early-stage equity funding for energy start-ups had its biggest year ever in 2022, with increases in most clean energy technology areas. Funding for start-ups in CO2 capture, energy efficiency, nuclear and renewables nearly doubled or more than doubled from 2021, which was already much higher than the average of the preceding decade. This type of funding supports technology testing and design and plays a critical role in honing good ideas and adapting them to market opportunities.
Growth-stage funding, which requires more capital but funds less risky innovation, rose by only 1% in 2022 and was very weak in Q1 2023, indicating that the value of growth-stage deals for energy start-ups could fall by nearly 60% in 2023. Prevailing macroeconomic conditions have slowed the amount of capital available and raised the cost of scaling up businesses.
The report indicates that early-stage equity funding for energy start-ups is booming, led by clean mobility and renewables, but later-stage funding is eroding.
Take Away
Overall, the World Energy Investment 2023 report shows that there is an increase of 10% in investment in energy innovation. This increase is both in government-related funding and public/private sector investment. The pace has helped many companies blossom and brought ideas to light, but there are some risks that this may have peaked.
Outside of newer energy solutions, fossil fuels represent about 20% of the capital allocated to energy.
Managing Editor, Channelchek