Private-sector energy R&D covers a diverse portfolio of technologies related to electricity generation and use, exploration and extraction, efficiency, clean and sustainable fuels, and transportation. Energy innovation can be influenced by public-sector policies, research, and funding which complements and stimulates industrial R&D. This cooperation is important due to infrastructure and capital costs for deployment, public and economic interests related to energy, and the ability of governments to support long-range research.
Technology developments and economic growth also influence R&D priorities. Over the last year, revised estimates of "technically accessible" natural gas and oil reserves in North America have rapidly reshaped the global energy landscape. In addition, growth in China, India, and the Middle East will increase energy demand in absolute and as a portion of the global total. This shift creates opportunity for innovation.
Leading U.S. R&D Firms
Economic, investment, technical changes caused some changes in the top ten list of energy R&D spenders for 2012. Most notable is the absence of battery technology firm A123, which entered bankruptcy this year after investing $77 million in 2011 and $45 million through the first two quarters of 2012. Another change involves our decision to remove Cree from the list of energy R&D firms to focus the list more on energy generation and related technologies.
General Electric (GE) continues to invest more in energy technology R&D than any other firm. Though embedded within overall R&D reporting, our 2011 estimate places GE's energy-related R&D at more than twice the next largest R&D performer, Exxon Mobil. Based upon R&D/sales ratios, GE's 2012 energy R&D is expected to decline slightly from 2011 levels. Overall, most firms with end 2012 with R&D investment levels within $1-3 million above or below their 2011 levels. USEC is a significant exception to this investment trajectory. Through three quarters USEC has already surpassed its 2011 total by $41 million.
U.S. Industry Perspectives
More than any other segment, 48% of the energy and related technology respondents were concerned with the size of their 2012 budget. Much of this concern stems from 2012 budgets failing to reach the levels of strong 2010 and 2011 budgets. Concerns over R&D budgets within the energy technology industry look to continue, with more than half (54%) of the respondents becoming more pessimistic over the last six months. This concern, thus far, is only partly represented in the current plans for 2013. While 38% of the respondents expect reduced 2013 R&D budgets, another 33% expect increases, and 29% expect no change in their budget over last year. These concerns and negative outlooks may more reflect the respondents' original hopes for better 2013 budgets. Now, due to variety of factors these budgets are likely to be closer to 2012 budgets than 2011 budgets.
Energy technology respondents are extremely positive with regard to technology development. Fully 73% report positive technological gains have been made in the last year and that strong potential exists to increase the level of energy technology innovation in the U.S. They also express strong concerns that increasing globalization may cause the benefits of these gains to bypass the U.S., with 83% of respondents seeing the U.S. at risk of losing technological leadership in its key energy technologies in the next three years.
U.S. and Global Industry Forecast
The energy segment will experience limited increases in R&D over the next year. As market demand and economic conditions continue to dampen sales for many renewable energy technology firms, R&D growth rates will continue to be flat. Brighter prospects may come from the major petroleum and natural gas producers.
U.S. energy industry R&D investment is concentrated in a small number of firms, with the top 10 firms accounting for 80% of all R&D. The generally flat growth of these firms combined with $100 million in annual R&D eliminated through industry bankruptcies since the end of 2011, leads to a slight 0.2% increase in U.S. energy industry R&D in 2013, reaching $5.83 billion. Depending on the extension of various research and production tax credits, even this level of growth may not be attainable. Globally, the situation is somewhat better with energy industry R&D reaching $15.95 billion in 2013, up 1.6%. from 2012.
Market Transformations Influence R&D Priorities
New estimates of U.S. conventional and unconventional reserves are large enough that the International Energy Agency projects the U.S.—consumer of 18% of the world's energy—will be energy self-sufficient within a decade and will overtake Saudi Arabia and Russia as the largest producer of oil and natural gas.
Accessibility of shale gas, tight oil, and other unconventional reserves is the result of decades of public and private technological progress in drilling, fracturing, and geologic characterization. The largest points of energy consumption or conversion in the U.S. economy—electricity generation, industrial processes, and transportation—will all be affected. For example, shale gas could influence planned replacement of hundreds of megawatts of generating capacity due to low capital cost versus coal and nuclear, moderate carbon profile, and abundant supply that should keep marginal fuel costs low.
Implications for future R&D funding priorities can be inferred. Industry-driven applied research and engineering will increase productivity and lower the cost of unconventional hydrocarbon extraction. Additional advancement is needed in water technologies, fracturing media, geo-characterization, environmental assessment, and down-hole materials and sensors. Even cleantech innovation contributes: carbon management R&D now involves synergistic applications like enhanced oil recovery.
A smaller but important market transformation is also occurring in nuclear energy as demand for plant construction rises in China and the Middle East, while other countries want new safety technologies or reduced dependence on nuclear power after Fukushima.
Shifting Momentum in Cleantech
Emerging clean energy technologies often require public-sector support to reach commercial viability. In the U.S., resources have been constrained by the wind-down of ARRA funding and by economic conditions overshadowing policy on climate change. However, other countries continue to mandate greater sustainability and efficiency, which will drive innovation. In addition, some technologies are gaining momentum in the private sector based on market demand.
Biofuels and related bio-based chemicals are a good example. Although bio-ethanol deployment faces competition with food markets, R&D on cellulosic feedstocks is promising, having achieved progress that justifies scaled-up development. Blendable fuels from thermochemical technologies are also coming closer to commercialization.
Grid-related R&D is also advancing with a mix of public and private support. Connection of intermittent renewables and vehicles to the electricity grid will continue to drive government support for R&D in grid-scale storage and energy systems integration. Commercial deployment of demand-side management technology like smart meters continues, while improved reliability and security will likely be the emphasis of industry-sponsored R&D and capital investment.
Conversely, the near-term solar R&D outlook is weak. While technological progress in efficiency and cost has continued, global over-supply of photovoltaics from China has led to a sharp reduction in investment. Government programs like SunShot will continue, as will deployments of both photovoltaic and concentrated solar power systems, but recovery of private sector innovation will take several years.
Similarly, transportation electrification has lagged expectations. Limited electric vehicle sales are attributed to insufficient range, high cost, and long charging time using current technology, and the slow market contributed to recent bankruptcies of several high-profile battery technology companies.
More broadly, China’s proactive energy policy combined with the scale of its economy and infrastructure development will propel global clean energy research. Energy intensive industries are main drivers of China's growth in energy consumption, so the current Five Year Plan calls for lower industrial and per-capita energy use while increasing availability of clean energy.