Global investment in renewable energy sources in 2014 rose almost 17 percent year-on-year to $270.2 billion with investments in developing countries growing by 36 percent, finds a new UNEP Global Trends in Renewable Energy Investment 2015 report prepared by the Frankfurt School-UNEP Centre in collaboration with Bloomberg (BNEF). Overall, the research underscores the positive role that renewables can and need to play in the transition to a low-carbon economy.

Nevertheless, renewable energy sources (excluding large hydro) still account for only about 9 percent of the world’s electricity generation and in order to improve that share, according to UN Secretary-General Ban Ki-moon, “more private and public investment incentives – including putting a price on carbon to provide markets with the right policy signals to move them to invest in climate solutions” are indispensable. The figures in the UNEP report seem to bear this out. Research and development (R&D) spending on renewable energy technologies in 2014 rose to $11.7 billion, with government R&D coming in at $5.1 billion and corporate R&D at $6.6 billion, respectively.

Source: Global Trends in Renewable Energy Investment 2015, Frankfurt School-UNEP Centre/BNEF.

Two things stand out: Europe remains by far the largest ‘green’ investor – spending $4.3 billion in 2014 – in renewable energy R&D and China’s government leads the way with $1.7 billion committed in 2014, compared to $788 million in the US and $1.4 billion in Europe.

Source: Global Trends in Renewable Energy Investment 2015, Frankfurt School-UNEP Centre/BNEF.

Now, more recent IEA research lends support to the notion that as much as ‘clean-energy’ innovation is essential for meeting the world’s climate goals, clean-energy deployment is not “ramping up fast enough”. In particular, funds currently allocated to renewable energy R&D are insufficient. In her speech at the launch of “Energy Technology Perspectives 2015: Mobilising Innovation to Accelerate Climate Action” IEA Executive Director Maria van der Hoeven admonished the international community over this danger and emphasized the genuine link between energy technology innovation and R&D investment:

“But we all know clean-energy deployment is not at the level where it needs to be. It is now crucial for governments and other stakeholders to take effective decisions for energy sustainability. This will not be possible by relying on yesterday’s technology and policies. It is clean-energy innovation that will get us on the right path. (…) With current policies, energy-related carbon emissions will exceed 50 gigatonnes of CO2 in 2050 – this is about three times more than what would be required to meet the 2DS. (…) The deployment of innovative technologies is crucial in making this 2DS scenario possible. (…) We are setting ourselves environmental and energy access targets that rely on better technologies. Today’s annual government spending on energy research and development is estimated to be USD 17 billion. Tripling this level, as we recommend, requires governments and the private sector to work closely together and shift their focus to low-carbon while technologies. (…) The shale gas and shale oil boom of the last few years was virtually unthinkable at the dawn of this century. If we only stick to the beaten path of today, we will miss the game-changers of tomorrow.”

Source: IEA

The above chart from the ETP 2015 report looks at public-sector allocation of funds to energy research, development and deployment (RD&D) as a percentage of total government R&D. While overall R&D spending has plummeted from a peak of 11 percent in the 1980’s it has remained relatively flat at about 4 percent since 2000. Meanwhile, in absolute terms, public expenditures on energy RD&D are on the rise again since the 2000’s reaching about $17 billion in 2013, which is still below its $20 billion high in the 1980’s.

This is the backdrop for the IEA’s call for a concerted push for clean-energy innovation as current government support (investment) in RD&D falls short of what is needed to achieve the energy transformation. In particular, the IEA report stresses the critical importance of initial government spending in leveraging as well as steering subsequent private-sector/ corporate investment: “[Despite recent success stories,] research and development alone are insufficient for moving new technologies from ideas to commercial products. Governments have a key role to play in creating the initial market opportunities that send a signal to innovators and drive investment.” The following IEA chart compares total R&D spending of China, the EU, Japan and the US and projects the trajectories out to 2025.

Source: IEA

It shows that China is poised to lead the world in total R&D spending by 2019 – due in no small part to a surge in government investment in renewable energy RD&D. The previous chart already illustrated nicely how the composition of energy fields that received government support changed over time. Over the last decade, funds got increasingly diverted into energy efficiency and renewable energy at the expense of fossil fuels and especially nuclear (2013).

In this context, it is interesting to look at Germany’s R&D government expenditures for two reasons. First, Germany is a first-mover in the clean-energy space and, second, because of the impending German nuclear power phase-out by 2022. A DIW Berlin study entitled “Deep Decarbonization in Germany” (Februar 2015) provides figures with respect to government support – pursuant to the 6^th Energy Research Program of the Federal Government – of energy technology research and development:

“From 2006 to 2013 the annual budget of the federal energy research program was increased by more than 100% to 809 million EUR. Dominant fields of support are energy efficiency and renewable energy with shares of around 37% each, which have also experienced the strongest increase in public expenses with 170% and about 150% increases in the mentioned period respectively. In addition, the Federal States (Länder) granted research promotion of 253 million EUR in 2012.”

Amazingly, the chart below shows that Germany is still allocating over 200 million Euros a year to research efforts in the fields of ‘fusion research’ and ‘nuclear safety research’. While spending on the latter is prudent in light of the fact that this broad research area comprises reactor safety, nuclear waste final storage and disposal, as well as radiation and, more importantly, is critical and thus obligatory for the operation but also for the decommissioning and dismantling of nuclear power plants and their reactors, government spending on the former seems increasingly questionable and may be better spent on driving clean-energy innovation.

In this respect, one then has to wonder why disproportionately more money is actually spent on fusion research (see chart). Interestingly, the “Report of the Federal Government on Energy Research 2014 – Research Funding for the Energiewende” published by the German Federal Ministry for Economic Affairs and Energy (BMWi) attempts to justify government spending on fusion research as follows: “Germany has outstanding scientific expertise in the field of nuclear fusion by international comparison. Therefore, it seems advisable to continue nuclear fusion research in order to ensure that this energy source’s potential can be evaluated for the future.”

Too bad that German policymakers do not display the same confidence in the currently still running German nuclear fleet, which could be invaluable for achieving global climate goals by disseminating German state-of-the-art nuclear technology for peaceful purposes to developing countries. This potential pipeline is being shut because it is hard to see why a country would consider German nuclear technology without innate domestic operating experience and as a result business is ceded to countries like Russia.

Source: “Forschungsbericht Energieforschung 2014” (BMWI) in English

Nevertheless, with regard to government investment in clean-energy technology research, the steady upward trend is impressive. Yet, as both aforementioned studies – i.e. UNEP and IEA – have made very clear, far more R&D spending is required. Note, continued R&D spending globally will lead to technical progress – i.e. improvements in efficiency and effectiveness – and eventually leverage cost reductions as already seen, for example, in the solar PV sector thereby making renewables more competitive vis-à-vis fossil fuels.

It also goes without saying that R&D efforts have to focus on the most promising technologies which is why the participation of the private sector is so critical in this endeavor. Additionally, it is crucial to remember that while innovation will put long-term downward pressure on the costs of renewables, simple subsidies will only lead to the short-term expansion of renewables. Consequently, policymakers around the globe should firmly err on the side of investment in R&D instead of just shelling out subsidies given the degree of technological maturity in the renewable energy sector.