Industry Breakout - Energy
The energy industry includes a broad array of companies, ranging from multinational oil and gas firms to large and small technology firms. Reducing costs of production is a large driver of R&D in the energy space, and materials development and advanced materials integration are increasingly important in shaping the industry’s R&D investment.
National and state governments have a significant influence on the energy industry and long-range research programs. Tax policies and incentives, renewable energy policies, climate change actions and strategic considerations shape economic prospects and, in turn, research directions for industry. Government laboratories (especially the U.S. Department of Energy’s national laboratories) are key components of an intensive energy R&D ecosystem.
Although biofuels still face challenges in reaching an economically competitive production level, this technology is still seen as the most significant development area by our industry survey respondents.
For 2014, we forecast the level of the energy industry’s R&D will exceed $7 billion in the U.S. (up 1.7%) and reach nearly $22 billion globally (up 4.8%).
Trends and Forecast
In this Global R&D Funding Forecast, the energy industry includes full scope of companies engaged in developing technologies to generate, transport, store and efficiently consume electricity and fuels. Production can come from traditional oil and gas fields, wind turbines or solar panels, and increasingly from biofuels, new oil recovery techniques and shale gas deposits. The firms in this industry may be standalone energy technology manufacturers or multinational energy producers with significant R&D operations.
Costs of production, materials and R&D all play a role in the direction and growth of the energy industry. Production costs, including both field production of oil and gas as well as the manufacturing costs of various energy technologies, are a significant factor in long-term planning and energy technology development. Many energy technologies rely on advancements in materials to allow for increased functionality and/or energy generation capacity. For example, developments in carbon fiber and composite material technologies enabled the substantial increase in wind turbine size, allowing for enhanced wind farm electricity production, and hence viable economics. Solar is another area where on-going materials developments for photovoltaic applications (e.g., crystalline silicon versus thin-film versus organic) will enable economically sustainable deployments in the future. And in the most extreme case, nearly all approaches to the development of fusion energy will require extreme performance from constituent materials.
Energy R&D expenditures are often as volatile as the energy markets themselves. With some current stability in terms of global oil and gas prices, and with the rationalization of some advanced energy technology companies, we forecast a 1.7% increase in U.S. energy industry R&D to $7.3 billion for 2014. Globally, we forecast a growth rate of 4.8%, due primarily to increasing R&D among Asian oil and gas firms, to reach $21.8 billion in 2014.
Factors Driving R&D Investment
R&D activities into new production technologies have led to the ability to access previously unobtainable oil and natural gas reserves and have increased the size, scale and energy output of a host of renewable energy technologies.
Within the energy industry, governments can play a significant role in modulating market demand, and therefore, whether energy-related R&D and technologies have a chance to be successful at large scale. Though this involvement is often necessary to reduce technology and market risks, it also creates financial and timing uncertainty for energy-related development.
The federal government, through grants, tax incentives and R&D at DOE national laboratories and extramural academic institutions, plays an integral and often technology-leading role in the research directions of the U.S. energy industry, sometimes extending to piloting, scale-up and translation-stage finance. Over the 2009-2012 period, alternative and renewable energy applications saw substantial increases in federal technology development support (e.g., through ARRA, ARPA-E and other DOE programs). Other government initiatives have been designed to build market demand and make larger-scale adoption of new technologies viable. That said, the substantial increase in natural gas production from shale resources has, at least temporarily, removed some of the energy price and national energy security pressure behind in development of alternative and renewable energy technologies. In the U.S., government-supported research in these areas continues, but private early-stage investment has waned. Elsewhere, governments are more active in deployment of alternative energy technology (e.g., China and countries in the Arabian peninsula).
State and local governments continue to be actively involved in providing resources to build regional “energy clusters” for economic development purposes and in the licensing and siting of major energy projects. State governments have also enacted incentives and energy portfolio standards and requirements that often determine the potential success of energy production projects.
The energy industry relies on a combination of in-house development (75% of respondents) and industrial collaborations (65%), making this level of industrial collaboration the highest among the five technology industries examined. This may reflect the role that EPRI and the DOE national laboratories play in convening industry members to address significant energy-related research.
From a future technology perspective, biofuels, despite all the technological and feedstock challenges, are seen by 55% of the industry respondents as a key area for energy technology development over the next three years. In contrast, only 28% of the industry respondents in our previous survey felt biofuels were a key area. Composite materials were also viewed by 55% of the respondents, up slightly from two years ago, as a key technology area for energy-related technology development in the near future.
Energy conversion technologies (e.g., heat to electricity; Stirling engines) appear for the first time in this year’s survey, with half of the respondents identifying this as a key development area. Four other areas, hybrid systems (50%), fuel cells (45%), photovoltaics (35%) and wind turbines (25%), were identified by this year’s respondents as important.
The environmental impact of energy production is an area of increasing R&D emphasis. These (often multidisciplinary) technology development efforts include technologies to manage and filter hydraulic fracturing fluids, technologies for reducing emissions and managing carbon, nuclear waste disposition and wildlife and micro-climate studies regarding the impact of wind farms and utility scale solar operations.