In 2023, global clean energy R&D spending continued to rise, driven by a 13% increase in U.S. government spending and significant corporate investments, totaling USD 160 billion. Despite a slower growth rate than in previous years, the momentum remained strong, particularly in the automotive sector. Three main factors fueled this trend: government commitments to emission reduction, strategic funding in areas with deployment gaps, and the recognition of investment opportunities in clean energy technologies.
However, 2023 was challenging for smaller, innovative clean energy companies. Rising inflation and higher interest rates made venture capital (VC) more expensive and less accessible. Many investors withdrew from VC funds or reduced the amounts offered to start-ups, prolonging their path to profitability. This trend is expected to continue through 2024, with emerging market and developing economies (EMDEs) particularly under-represented in energy innovation investment. In 2023, only 6% of public and 3% of corporate R&D spending came from EMDEs, excluding China.
Public spending on energy R&D globally increased by 7% in 2023, reaching nearly USD 50 billion. While China remained the largest public spender, the United States contributed significantly to this growth. Government initiatives, such as those in Korea, Japan, Austria, and the United Kingdom, continued to support clean energy R&D. Despite this, public R&D spending in EMDEs outside China remained low, at 6%.
Corporate R&D spending also grew, with large firms investing to maintain competitive advantages. The automotive sector, in particular, saw substantial investments, supported by government loans for electrification R&D. Chinese firms increased their R&D spending significantly, driven by rising revenues and the need to innovate. Thirteen of the top twenty energy-related corporate R&D spenders were automotive companies, while Chinese firms PowerChina, PetroChina, and State Grid Corporation also ranked high.
Venture capital investment in energy start-ups declined in 2023 due to macroeconomic conditions, with early-stage funding falling by 4% and growth-stage funding by 21%. Despite this, specialist VC funds targeting clean energy and climate segments grew, offering longer-term returns and specific emission reduction criteria. Early-stage deals for energy start-ups are expected to rebound in 2024, although growth-stage funding challenges will persist.
In 2023, energy-related VC deals focused more on early-stage companies and project developers rather than hardware. Start-ups in the United States, China, Europe, and India attracted significant VC investments. European energy efficiency start-ups saw increased growth equity, while the number of growth-stage deals declined globally. Government policies supporting hardware developers during periods of high capital costs could help maintain momentum in clean energy innovation.
Corporate venture capital (CVC) investment in energy start-ups fell sharply in 2023, with significant cuts in the oil and gas and automotive sectors. Industrial companies partially offset this decline with large investments. Maintaining momentum in clean energy innovation may require targeted measures, such as non-dilutive project debt or equity, to support early-stage and smaller companies in a capital-constrained environment. Governments’ continued expansion of clean energy R&D budgets and policies promoting low-emission technologies will be crucial in addressing climate change challenges.