Boom in clean energy investment but bumpy road for start-ups

21 June 2023 | Muriel Cozier

‘Start-ups that develop hardware face difficulties paying for research staff and for prototype testing.’

Finance and investment in clean energy is booming, but early-stage companies looking for support to develop ideas will struggle, according to a report from the International Energy Agency. The World Energy Investment 2023 report shows that government and corporate spending on energy research and development hit record levels during 2022, as did venture capital investment in clean energy technologies. This development comes as affordability and security concerns triggered by the global energy crisis turned momentum behind more sustainable options, the report says.

Authored by Simon Bennett, IEA Energy Technology Analyst, the study shows that public spending on energy R&D grew by 10% in 2022 to almost $44 billion, with 80% of that spent on clean energy. This investment is backed by policy support for increased innovation in many countries, as governments seek to have a more resilient and diversified clean energy supply. The report cites the US Inflation Reduction Act as an example of policy that is providing a boost to clean energy innovation.

The report also asserts that the 2022 revenues of the energy sector provides an opportunity to increase spending in coming years. ‘Energy companies have a major opportunity to increase clean energy R&D budgets in 2023 and beyond, even if it is just to maintain the average ratio of R&D to revenue. There is also a good strategic case to take advantage of public support in areas like clean energy manufacturing […]’ the report says.

Start-ups were also big beneficiaries of the increased clean energy spending. ‘Funding for start-ups in carbon dioxide capture, energy efficiency, nuclear nearly doubled or more from 2021,’ the report says.

However, growth-stage funding was more difficult to come by, rising by only 1% in 2022, with indications that the value of growth-stage deals for energy start-ups could fall by nearly 60% in 2023. The report states that ‘Prevailing macroeconomic conditions have dented the amount of capital available and raised the cost of scaling up nascent businesses’.

Compounding this downbeat analysis, the report adds: ‘Start-ups that develop hardware face difficulties paying for research staff and for prototype testing, despite the importance to energy transitions of developing improved clean energy hardware solutions. Growth in early-stage funding for energy start-ups developing such equipment is flat, while VC growth-stage investment fell in 2022.’

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