MISSION INNOVATION BEYOND 2020

Challenges and opportunities

A paper by the MI Secretariat on the clean energy innovation landscape for input into discussions about the role and priorities of Mission Innovation beyond 2020

Mission Innovation Beyond 2020: Challenges & Opportunities

Executive Summary Mission Innovation (MI) is the leading intergovernmental platform aiming to dramatically accelerate clean energy innovation. It was launched by world leaders at COP21 in November 2015 with members (responsible for >80% clean energy R&D investment) pledging to seek to double their own clean energy innovation spend over five years.

To help inform options for MI beyond 2020, this paper summarises recent developments, challenges and trends in the clean energy landscape based on expert interviews and desk-based research.

Section 1 Key Trends Affecting Clean Energy Innovation p3 Summarises insights gathered through expert interviews – including trends that will affect clean energy innovation over the coming decade and priorities and recommendations for future global collaboration. Section 2 Energy Innovation Landscape p4-6 Profiles the energy innovation landscape, including the various “supply-push” and “demand-pull” mechanisms for accelerating systemic transitions. Key message: Given that new innovations have long incubation times, the literature indicates that timelines can be shortened by a system-wide approach to innovation that includes developing a clear and long-term vision, increasing skills, strengthening networks, investing in demonstrations, nurturing markets and building user acceptance. Section 3 Public and Private Sector Investment p7-10 Provides an overview of public and private sector investment trends and priorities in clean energy Innovation. Key message: Public and private investments in clean energy innovation are increasing slowly, to ~$23 bn by the public sector and $50-55 bn private sector investment in 2018. However, they are still a small share of total R&D budgets and public investment in energy innovation is half the level as a share of GDP that it was in the late-1970s. Section 4 Energy Innovation Needs p11-15 Summarises key trends affecting innovation needs, priorities in different sectors and considerations for the future. Key message: Trends of rising energy access, electrification, digitalisation and net-zero targets in some countries are shifting innovation priorities, with major challenges including providing grid flexibility, integrating and adapting technologies, reducing energy demand and demonstrating and scaling solutions for harder-to-abate sectors. Section 5 Global Collaboration p16-18 Assesses the benefits and barriers of international collaboration and priorities for the future. Key message: Coordinated experimentation can reduce costs and risks, increase confidence amongst innovators and investors and build larger market niches, but priorities need to be aligned, trust established, and mechanisms need to be efficient to achieve impact.

Acknowledgements We would like to thank the MI Secretariat team who conducted interviews, surveys, the literature review and who drafted this paper: Jennie Dodson (UK), Helen Fairclough (UK), Jia Zhang (China), James Wood (UK), Stephanie Klak (Canada), Tomas Baeza (Chile), Irmgard Herold (Austria), Aliki Georgakaki (EC) and Jean-Pierre Rodrigue (Canada). Thank you to expert contributors, members and our collaborating organisations for providing input and reviewing this paper including the MI Innovation Challenges leads, the IEA, IRENA, Global Covenant of Mayors, World Economic Forum, University of East Anglia and the Rocky Mountain Institute.

This paper does not necessarily reflect the views or position of Mission Innovation members or other organisations, either individually or collectively.

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Mission Innovation Beyond 2020: Challenges & Opportunities

Section 1: Key Trends Affecting Clean Energy Innovation Overview Whilst the global community has delivered significant successes in driving cost reductions in key technologies such as wind and solar photovoltaics over the past decade, the rate of progress in innovation is still insufficient to deliver affordable and widely available solutions across all sectors of the economy to meet energy access, climate change and energy security goals. To inform discussions about the future of Mission Innovation, this section summarises key trends and future priorities for global collaboration over the coming decade, based on expert interviews with senior MI officials and stakeholders.

Key Trends R&D to systemic innovation that includes innovation in policy, business models, Level of consensus on key priorities “The creation of radically new, market design, financing and social science A lack of consensus and mixed policy transformational solutions combined and connecting to deployment. signals (domestically and internationally) is with speeding up the cost reductions of Innovation system capacity: Effective creating uncertainty for stakeholders, available technologies, and ensuring national systems of innovation (NSI) are including investors. Given the urgency to access to technologies in emerging and essential to enable countries to absorb, deliver affordable and sustainable energy adapt, distribute, diffuse and deploy and solutions, experts noted that collaborative developing countries that will be major maintain clean energy technologies. NSIs efforts could adopt a mission-oriented deployers, will all be fundamental pillars include education and skills, RD&D funding approach in order to tackle key challenges. of the clean energy transition.” and enabling policy. Experts recognised, however, that the appetite for proactive industrial policies Access to innovations: Rising energy varies between countries. will be central areas of focus in the future. demand in developing countries could lead Immediate cost reductions and to an uptick in fossil fuel use, unless there infrastructure needs (e.g. electric vehicle is support for access to new technologies “The more that the commitment to act is charging, CO2 storage) must be balanced and investment in local RD&D to develop global, the more likely we are to see with investing in radical innovations to appropriate innovations. rapid movement towards innovation reduce future demand and enable energy Availability of finance: More financing across the world, including global clean access to all (e.g. ultra-high-efficiency PV, is required at all stages of technology energy collaboration.” energy-as-a-service, chemical energy maturity, but this needs to be combined carriers, Virtual Reality as an alternative to with financial innovation to manage risks travel, direct air capture). and streamline the investment process Polarisation of public and political e.g. standardised processes leading to opinion: As awareness around climate Moving from technology to whole-system lower financing costs for large businesses risks grows, increasing interest in clean innovation: As the energy system to adopt new technology and for energy from the public and investors will becomes more integrated innovation governments to procure more efficiently. drive demand for low-carbon solutions. policy needs to broaden from technology However, the inertia and enormity of the energy system, resistance from Recommendations for future global clean energy collaboration incumbents, and the potential for citizen Bold vision – set a clear and ambitious global vision recognising the speed and scale of resistance during rapid transitions could transition required. This could include an action plan for 2030 with targets & milestones polarise demands and create tensions. that groups of governments and businesses commit to supporting over the next decade. Governments need to strike a balance Focus on sectors – focus innovation efforts around themes and sectors rather than between the need for urgent action, specific technologies, for example, electrification, urbanisation or hard-to-abate sectors. maintaining public support and avoiding lock-in to inefficient pathways. Embed collaboration with the private sector – design collaborations from their inception with the private sector, for instance through the development of joint technology Technology trends roadmaps, sectoral coalitions or public-private deals. Improving power system flexibility: Systemic innovation – enhance efforts beyond technology innovation including sharing Falling costs and increasing uptake of best practice in innovation policies, behavioural sciences, strengthening capability, renewables (e.g. solar and wind), resulting business model innovation and market creation to nurture new innovations. in greater decentralisation of energy supply and increasing electrification, Strengthen involvement of developing countries - as major deployers of low-carbon requires innovative solutions that improve energy, greater involvement of developing countries will improve the development of flexibility and manage energy supply and appropriate technologies, stimulate markets and improve take-up of innovations. demand (e.g. digitalisation, batteries, Enhance international collaboration funding – increase availability of funding for cross- longer term energy storage). border collaborative innovation, for instance through national commitments or a multi- Harder-to-abate sectors: experts indicated national fund. that innovation in harder-to-abate sectors Political leadership - re-engage global political leadership to reaffirm their commitment to that are difficult to electrify e.g. steel, innovation and enhance resource for central coordination. aviation, agriculture, cement and shipping 3

Mission Innovation Beyond 2020: Challenges & Opportunities

Section 2: Energy Innovation Landscape

Key messages • Innovation is the result of a complex system (rather than linear chain) affected by both “supply-push” and “demand-pull” activities, with innovation policies needing to extend from earlier stage research & development through to nurturing markets. • New innovations historically take decades to reach significant market shares. Energy has had some of the longest incubation times due to low levels of private R&D, long asset lifetimes and lack of a ‘premium’ product. • Actions that can shorten innovation lifetimes include: a clear and long-term vision, coordinating experimentation, investing in demonstrations, strengthening networks and building cultures.

The Energy Innovation Ecosystem and reconfiguration (Figure 2a). 2,3 Demand driven: Changing the structure of Research and innovation occurs incentives, such as through taxes or Innovation is a complex, uncertain, throughout these stages as innovations banning something, can cause shifts in dynamic series of interconnected reach different levels of maturity with market forces that drive demand for 1 processes (Box 1). Clean energy multiple feedback loops and dead-ends as innovation. This can require big policy innovation to deliver energy access, it goes through cycles of ‘learning-by- shifts and can result in windfall profits and climate change and energy security goals, searching’ and ‘learning-by-doing.1 losses for small groups as well as other will require a socio-technical transition, unintended consequences. which may result in a realignment of Loose structures in niches enable technologies, behaviours, businesses, experimentation and radical innovation in Planned: The creation and pathway to a markets, rules and infrastructures. Current the invention phase resulting in multiple new system is planned, similar to the thinking has moved beyond a “linear” solutions. Landscape changes such as new approach for planning a large model of innovation through research, regulations or customer demands can infrastructure works. This can result in development, demonstration and challenge the existing regime, alongside picking the least optimum ‘winners’ and deployment (RDD&D). Instead a systems new networks, cultures and user practices requires the ability to control complex approach proposes that complex and enabling innovations to breakthrough, dynamics within societies and technology ongoing interactions driven by “supply- coalescing around a dominant design as it systems. push” and “demand-pull” activities shaped diffuses, resulting in reconfiguration of Goal orientated: Co-evolve both supply- by actors and institutions at multiple levels the regime and landscape as it matures. push and demand-pull pressures to results in the transition to new There are three potential strategies for modulate system dynamics towards technologies occurring over four broad opening up existing systems to change:4 phases: invention, breakthrough, diffusion

Box 1: Types of innovation Source: Freeman and Perez (1988), Ryan (2004) Incremental innovations: Innovations that occur continuously, that are not the result of deliberate R&D, but are a result of “learning-by-doing” and “learning- by-using”. Radical innovations Discontinuous events, usually as a result of deliberate R&D in an enterprise or university. They lead to growth of new markets and investments, but are relatively small in aggregate economic impact. Changes of technology systems: far reaching changes in technology, affecting several branches of the economy, as well as giving rise to entirely new sectors. They are based on a combination of radical and incremental innovations affecting more than one or a few firms. Changes in “techno-economic paradigm (“technological revolutions”): major influence on the behaviour of the entire economy created through many clusters of radical and incremental innovations, not only creating a new range of products, services, systems and industries, but Figure 2a: Description of socio-technological transitions based on Schot and Geels (2008) also affecting almost all other branches of the economy. 4

Mission Innovation Beyond 2020: Challenges & Opportunities desired end goals. This approach is particularly dependent on the nurturing of Table 2a: Types of innovation policy instruments. Source: Edler (2017) niches, whether for new technologies or Enhance innovation supply Enhance supply & demand Enhance innovation demand social behaviours, which are then able to penetrate the dominant regime.5 Direct Investment in R&D Pre-commercial procurement Private demand for innovation Fiscal incentives for R&D Innovation inducement prizes Public procurement policies Speed of transitions Training & skills Standards Behavioural insights New innovations typical take several Cluster Policy Regulation decades to reach significant market shares Innovation network policies Technology foresight following invention.6 Energy generation Policies to support technologies have had some of the collaboration slowest rates e.g. 37 years for solar PV compared to 5 years for the compact pull”) with potential policy tools ranging actors to stimulate knowledge fluorescent light bulb and the LCD TV.6 The from R&D funding, to building new accumulation, experimentation and long- formative period of technology institutions and trialling new technologies term investments.11 and business models at scale (Table 2a). development is important. Substitutability Demonstrating high capital cost Indeed, levels of innovation have been reduces the formative phase length as technologies: At the demonstration stage, found to be strongly correlated to both new institutions or infrastructures are not investors typically face high capital risks, 7 levels of public R&D investments and needed. Formative phases can be and the level of investment required market creation.8 compressed through aggressive innovation through government support is at its efforts, such as during WWII, which Interestingly, although international highest (although a lower share overall).12 combined strong technology push and collaboration typically focuses on supply- Public support is likely to be critical for demand-pull, price insensitivity and side activities (e.g. public R&D funding), demonstration and infrastructure in sharing of intellectual property (Figure some evidence from the solar PV sector technologies such as CCUS, hydrogen, EV 7 2b). suggests that these are mainly effective at charging and direct-air capture.11 fostering innovation within national A major challenge for the energy system is Nurturing niches: Governments and borders, whilst demand-pull policies the need for transitions in some of the institutions can nurture initial market increase innovation across borders, and least innovative sectors of the economy. niches where innovations can develop to therefore there is a need for international Private sector R&D intensity for the power drive down initial costs and improve coordination to address spillover issues.9 sector and energy-intensive industries is performance while being initially sheltered around 0.5-1% of turnover, or 3% for from market forces and hostile incumbent industrial engineering companies, Mechanisms for accelerating actors. For instance, government compared to 10-15% for highly innovative system transitions procurement, public-private partnerships sectors such as pharmaceuticals and The choice for policy makers is therefore and feed-in tariffs in numerous countries biotechnology.1 The expensive and risky not one of choosing between R&D or have been crucial to help support development stages, the long lifetimes of deployment, but how to create the renewable energy technologies in early or assets and lack of a ‘premium’ market synergy of incentives that will nurture the pre-commercial stages.11 reduce the “demand-pull” incentives for niches and pathways leading towards the private sector to support radical Strengthening networks: The presence of desired goals as rapidly as possible.6 innovation and scale-up. nodes both nationally and internationally Articulating a clear vision: Long-term that facilitate and strengthen interactions Current evidence therefore suggests that visions or ‘missions’, can galvanise (e.g. cooperative RD&D projects, mobility clean energy transitions require synergistic innovation across different sectors and schemes) between different actors policies from earlier stage innovation actors. The mission-oriented approach (government, finance, knowledge or development (“supply-push”) all the way proposes that public investment must be business) enables new ideas to be tested through to market creation (“demand- proactive and bold, creating direction, and and transferred to new markets or areas involving public investment throughout of application faster by coordinating the entire innovation system, (i.e. knowledge flows and strengthening invention, breakthrough and diffusion).10 relationships (Figure 2c).12,13,14,15 This approach requires long-term Enhancing expectations: The uncertain commitment from both public and private nature of innovation means that expectations of future markets, technologies and policies can have a “The main system functions that crucial influence on decisions, whether by triggered the positive build-up of the policymakers or investors, about which Japanese PV innovation system were innovations to invest in and develop.16 guidance of research, as policies were Expectations are often shared amongst based on a shared vision, and policies people in the same industries or were for the long-term, thereby technology areas, potentially resulting in providing certainty and support to self-fulling trajectories of technological Figure 2b: Historical timelines and formative development.17 stages of innovation of energy technologies. entrepreneurs to set up projects and Adapted from Bento (2016) invest in PV technology.” Twomey (2014)

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Mission Innovation Beyond 2020: Challenges & Opportunities

Values and culture: The clean energy transition will rely on shifts in behaviour and acceptance of new technologies by society, such as new routines for using and fuelling vehicles, shifting to different forms of transport or more individual control over household energy provision.12 Successful rapid social transitions in the past have been facilitated through early, open and transparent public engagement and a role for trusted institutions that provided a combination of information, technical assistance and response to consumer concerns (e.g. around safety).11 Focusing on relevant timescales: emissions reductions and energy access need to happen now. This means that investments and efforts need to balance Figure 2c: Energy Innovation Actors (adapted from (OrgVue, 2018) and (Frenkel, et al., 2015)) iterative innovation for energy efficiency and close-to-market solutions for the short-term, with investments in potentially radical, game-changing innovation for the long-term, whilst being careful of lock-in to inefficient pathways.6,7

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Mission Innovation Beyond 2020: Challenges & Opportunities

Section 3: Public and Private Sector Investment Summary Key messages Investment in clean energy is essential • Global public sector spending on clean energy innovation is rising, by 5% in 2018 to accelerate innovation by de-risking to ~$23 bn annually. However, as a share of GDP energy RD&D investment has early stage technologies and stimulating halved since the late-1970s and is lower than in some other sectors, e.g. health. private sector interest. • Global private sector funding in clean energy RD&D was estimated at $50-55 bn Section 3 provides an overview of public in 2018. and private sector investment trends in • Further robust assessment would be beneficial of the level of RD&D investment clean energy, challenges in fostering needed. However, higher investment alone is not enough; improving market investment and key priorities for the conditions and providing policy support is vital to improve the impact of future. investments. Why invest in innovation?

Public funding for research, development Table 3a – Range of investment mechanisms from the public and private sector. Source: IEA and demonstration (RD&D) is important in - Technology Innovation to Accelerate Energy Transitions 2019 most sectors. As outlined in Section 2, this is particularly true of the energy sector Instrument Description Purpose where high capital requirements, the need 100% Grants Funding awarded to researchers in Address private underfunding of for a wide portfolio of technologies, public or private institutions for projects research and direct efforts towards regulatory uncertainties and economies of selected by government agencies. government priorities. scale, all make the contribution of the Co-funded Funding for private research projects is Compared with 100% grants, co- public sector essential in the innovation grants contingent on use of own funds by the funding reduces the risk of “crowding company, ranging from 5% to over 50% out” and uses public funds more process.18 Table 3a outlines a number of of costs. efficiently. public and private investment Research by Governments can use their ownership Support national champions that are 12 mechanisms. state-owned rights to direct the level and type of committed to preserving the returns Historically, the public sector has provided enterprises research undertaken. to RD&D within the country. Direct corporate strategy towards national crucial support for basic and applied interests. research, as well as early-stage high-risk Public Government can employ researchers as Provides funding and job stability for finance to innovative companies. This de- research civil servants and establish long-term researchers working on strategic risks and fosters innovation, helping to labs research programmes. topics free from commercial “crowd-in” other sources of funds.19 pressures. VC and seed Capital, usually equity, is provided to Government VC funds create a As sectors mature and consolidate, funding new small enterprises in the expectation market for risky, commercially innovation activity increasingly focuses on that a small proportion of the oriented innovation and can give a incremental improvements around a investments can be sold for a substantial social direction to capital market- dominant design, such as manufacturing profit several years later. based technology selection. processes and increasing scale of Loans and Public loans can bridge funding gaps for Public lenders can be more tolerant production, with increasing shares of loan companies on the verge of profitability, of risk in the pursuit of public goods, private sector investment.20 This typically guarantees enabling them to construct lending at lower than market rates. demonstration plants or first-of-a-kind attracts funding from a different type of facilities. investor than at earlier technology Tax Lower tax rates or rebates for R&D Encourage firms to undertake more maturity levels (e.g. direct funding from incentives expenditures; tax allowances; payroll tax RD&D in all sectors, raising skills and large companies or utilities instead of deductions; tax refunds for not-yet keeping local firms competitive. Venture Capital for start-ups).20 profitable start-ups. Targeted tax Favourable tax treatment for a specific Stimulate more activity in a part of The public sector also assists as incentives sector or type of R&D. the innovation chain or strategically technologies mature by the direct creation shape a sector. of markets, through procurement and bold Prizes Funding awarded to winners of Use the prize money (or other demand policies that have enabled new competitions to meet a specific reward) to stimulate innovation and technologies to diffuse.21 Upscaling of technology performance target or help policy makers of technology economically viable robust solutions is a outperform rivals. status at reduced public cost. significant challenge and hence governments have an important role to its comparably small magnitude - the Total investments are currently rising, play during this transition as these highest share of energy spending in global with estimates showing total public energy solutions struggle to reach scale and government RD&D investment was 5% in RD&D spending growing by 5% in 2018 descend on the learning cost curve.22 the 1980s, and (b) its “boom and bust” reaching a total of ~$28 bn (PPP) globally, profile - as seen in its rise following the oil with $23 bn of that in low carbon energy.23 Public Sector Investment Trends crises of the 1970s, and its subsequent The increase was mostly additional Two defining characteristics of public collapse, with corresponding impacts on funding for low-carbon energy 24 sector energy RD&D investments are: (a) knowledge depreciation, and gradual technologies. recovery after the year 2000 (Figure 3a). 7

Mission Innovation Beyond 2020: Challenges & Opportunities

However, as a share of GDP public energy RD&D funding has fallen significantly since the late-1970s (Figure 3b) 25. Norway OECD public R&D spend compared with IEA figures on invested 0.1% of GDP in energy RD&D in public RD&D spend on energy and health 2017, the highest level amongst IEA (billion USD) members, with other leading countries including Finland, Switzerland and 1400 70 Hungary.26 In terms of absolute spending, 1200 60 the United States, China, Japan, France 1000 50 and Germany account for ~70% of all global clean energy RD&D.26 800 40 600 30 In contrast to the fluctuating trend of investment for energy, overall RD&D 400 20 budgets in the OECD have consistently 200 10 Totalpublic energy/he risen since the 1980s (Figure 3a). alth RD&D (billionUSD) Throughout this period, spending on 0 0

health RD&D has typically been 2 to 3

1982 1984 1988 1990 1992 1996 1998 2000 2004 2006 2008 2012 2014 2016 1986 1994 2002 2010 2018 times higher than that on energy (see Totalpublic RD&D spend (billionUSD) 27 Total R&D - axis 1 Energy R&D - axis 2 Health R&D - axis 2 right axis of Figure 3a). Public Sector Investment Areas Figure 3a: trends in public sector energy RD&D since 1982 in IEA member countries compared with total Since 1980, 42% of the cumulative energy public RD&D expenditure from the OECD and on health R&D expenditure from the OECD STAN database. RD&D budget has been allocated to nuclear technologies. $254 bn has been invested in nuclear over that time, three times the investment on the second largest area, energy efficiency (Figure 3c).24 Nuclear and fossil fuels dominated investments until 2000, with RD&D becoming progressively more diverse since then. Investment in nuclear fell to 22% in 2018 (the first year it has not received the largest proportion).24 Budgets for energy efficiency and renewables grew significantly during the 1990s and 2000s, while RD&D budgets on fossil fuels, (which peaked in the 1980s and early 1990s), have declined since 2013. Since then the share of expenditure on energy efficiency has remained level, while the share of renewables declined and funding for cross-cutting technologies Figure 3b: Total public energy RD&D budgets Figure 3c - IEA members cumulative public energy has doubled over the last 10 years. as a percentage of GDP by country for 1980 and 2017 RD&D investments from 1980 to present by (selected MI members). Source IEA Data Services. technology. Source: IEA Data Services

Private Sector Investment Trends Major listed companies and their private R&D investment was directed to Monitoring private R&D investment is subsidiaries account for 60-70% of all improvements in energy efficiency in challenging due to the lack of robust public activity and investments, although they industrial processes, followed by data and distinction in data classifications only make up 20-25% of the number of renewables, consumer technologies and e- between low-carbon or conventional actors. VC investment is small at just over mobility (including battery technology).32 energy activities. The focus of analysis is 7%.30 VC funding differs across regions, In Europe, Asia and the Pacific, private therefore on broad trends (Figure 3d). with investment levels lower in Europe R&D investment is more evenly distributed These show that private sector than in the US; however, specialised across thematic areas and has remained 32 investments in clean energy R&D reached cleantech VC funds are frequently present relatively stable over time. The rest of between EUR46-50 bn in 2018 ($50-55 in countries with high innovation activity the world has seen an increasing focus on bn), with levels remaining stable or (e.g. Germany, the UK). Increasingly, new energy efficiency in industry and consumer 33 increasing slightly over the past five clean energy technology development technologies. years.26,28 This suggests that around 6- comes from actors outside the 'energy 26 ,31 8.5% of total global business R&D sector’ e.g. ICT and involves intangible Private sector actors expenditure is going into clean energy, assets or incremental non-energy specific The type of financial actors investing in compared to 11% dedicated to innovation at low costs. clean energy innovation differs across information and communication, and technologies and the type of finance may almost 10% to the development of Private Sector Investment Areas pharmaceuticals.29 Between 2010 and 2015, the majority of 8

Mission Innovation Beyond 2020: Challenges & Opportunities influence the direction of technology development. An EU study of innovative, investment- ready energy projects (Table 3b) found that the most suitable investors are corporate investors (such as utilities, oil and gas companies and manufacturing conglomerates) and venture capital funds who have sufficient risk appetite and capital. 34,35, Angel investors and family offices also play a role but there is less transparent Figure 3d – Estimates of global private sector investment on low-carbon energy R&D data on their activities. Crowdfunding UNEP/Bloomberg NEF consider a subset of technologies and companies (lower estimate); JRC (f) and IEA can play a minor role, although it may be include over 2500 parent companies and subsidiaries; JRC (p) use patents as a proxy to account for all hindered by legal frameworks. companies filing for patents in the sector (larger dataset but time lag). Accelerators, incubators, growth and Table 3b – Investment preferences per investor type (Source: European Commission (2018) Building the expansion capital funds, commercial investment community for innovative energy technology projects ). banks and institutional investors are generally not a good match, due to a Level of match / suitability: mismatch with their requirements in terms of the maturity of the venture and Investor type Typical maturity of venture Typical amount per transaction the amount of capital that is required. Own resources, family & friends TRL <7 €20 – 100K Major reasons why private sector Accelerators & incubators TRL < 7 €10 – 150K stakeholders do not invest in clean Angel investors TRL 7-9 €50K – 1M energy innovation vary but include those Crowdfunding All stages €20K – 5M described below and in Figure Venture capital fund TRL 7-9 €300K – 5M 34,36,37,38,39,40 3e. Family offices All stages €500K – 10M High investment volume (capital- Growth/expansion capital fund Commercial €5M – 100M intensity) and long pay-back time: Corporate investor TRL 7-9 €20m - €100M Energy technology innovations often Commercial bank Commercial €20m - €100M require a long development period, and Institutional investor Commercial > €25M even longer before a positive cash flow can be realised. Entrepreneurs (optimistically) expect an average of four years to reach positive cash flows, which would be considered long for investors, such as VC funds, aiming for an exit in five to seven years.34 Preference for incremental innovation: Faced with long timeframes, uncertainty and competition from other regions and sectors, energy companies prefer to focus on incremental innovations in their core competence and outsource R&D activities involving more risk.41 'Transactional' issues can also play a major role in a lack of financing, such as a lack of financial and market understanding by innovators, an underdeveloped business plan, or a lack of technical knowledge on the part of the investor. Additionally, networks may not Figure 3e:- Reasons for not investing in EU clean energy innovation. Green: Intrinsic issue; Orange: be sufficiently developed to foster Transactional issue. (Source: European Commission (2018) Building the investment community for investment. innovative energy technology projects ).

potential development pathways, the transition across all sectors, is estimated in Future levels of public and private multi-purpose nature of technologies and the order of $3.5 tn per year to 2050 R&D investment the lack of clarity on which features of the (deployment funding).43,44 Current There is little firm evidence about the energy system to preserve and why.42 As (including planned) investments range future levels of clean energy RD&D such these estimations are indicative from $1.8-2.6 tn annually. investment needed. Determining this is rather than highly accurate. complex, given the number of different The only global estimates for levels of The total investment for the clean energy public sector RD&D investment needed in 9

Mission Innovation Beyond 2020: Challenges & Opportunities clean energy suggest $100 bn annually (or ~0.1% global GDP), similar to the levels spent on clean energy deployment subsidies and to investment as a share of GDP in the late-1970s.45,46,47,48 In Europe, leading up to 2030, a minimum of EUR 20 bn needs to be invested in clean energy RD&D activities, although this only assesses areas of ‘high importance’ and therefore cannot be compared to current investments (see Figure 3f).41 If these funding gaps are at all indicative of what is needed, cumulative annual public and private RD&D investment may need to increase by 2-5 times annually. Further robust assessment would be beneficial of the level of RD&D investment needed Figure 3f: Investments needs in Europe up to 2030 in R&I activities of high importance to the compared to subsidy levels and total clean energy transition, as identified in the EU Strategic Energy Technology Plan investments in deployment. Fostering Investment and comprehensive mapping and guidance on available instruments, Increasing its Impact information and matchmaking Supporting the clean energy transition events. cannot be addressed by increased RD&D 5) A healthy innovation-ecosystem: investment alone.22 Increasing the impact Businesses tend to outsource or of current investments and fostering a separate R&D activities to reduce risk. market that is self-sustaining is necessary Having the capacity to absorb and for the long-term success of the clean support these activities outside the energy transition. company environment would ensure an outlet for private R&D funds. This 1) Monitoring and evaluation: More ensures that lack of skills and attention should be paid to resources do not become a monitoring and verifying that bottleneck in private sector investments have the desired impact 34 and to ensuring that RD&D budgets innovation. are impact driven.22 This will increase the incentives for investors (both public and private) to continue supporting RD&D. 2) Market creation for innovative, close- to-market energy technologies, to reduce uncertainty over market uptake and produce a profitable business case.36,39 Tools like price signals (such as carbon and fossil fuel prices38), and policy signals such as long-term targets and incentives.49 Having a stable support framework of incentives could provide certainty for investments in innovation. 3) Designing policy support measures that take into account the type of financing that 'prefers' to invest in each technological area36 and maintaining the incentives for RD&D, along with market development, to avoid technology lock-in.50 4) Coordination and building capability in different types of financing36 by providing assistance to both investors and innovators on how to identify and navigate funding opportunities. An example of this would be 10

Mission Innovation Beyond 2020: Challenges & Opportunities

Section 4: Energy Innovation Needs Overview Key messages To mitigate climate change, deliver • Solutions needed to deliver affordable clean energy in all sectors are under energy access for all and provide a development, but many of them are not market ready or have not been secure energy system over the next demonstrated at scale. two to three decades will require a • A system-wide approach to innovation is needed that includes behavioural profound transformation. sciences, financial innovation, energy efficiency, demonstrating technologies at scale, nurturing markets, technology integration and radical service models This section examines some of the that reduce demand. key innovation needs described in • Future programmes should consider whether to have a greater focus on the literature that could be vital over innovation that responds to the trends of rising energy access, electrification, the next decade to deliver these interconnected goals. digitalisation and net-zero targets.

Trends influencing innovation Varied pathways: To limit global warming to well below 2˚C and as close as possible to 1.5˚C, the recent IPCC report recommended that the world should reach net-zero CO2 emissions by mid-century.51 There is not one pathway to achieve this. Four illustrative models demonstrate the trade-offs (Figure 4a). In the P1 scenario, rapid reductions in energy demand through social, business and technological innovations enable rapid decarbonisation of the energy supply. The P4 scenario is a resource and energy-intensive scenario with later emissions reductions mainly Figure 4a: Model pathways to achieve net-zero emissions by the middle of the century They vary in achieved through carbon dioxide removal level of technological innovation, projected energy demand, use of BioEnergy Carbon Capture & (CDR) technologies. Historical comparisons Storage (BECCS) and Agriculture, Forestry and Other Land Use (AFOLU). Source: IPCC (2018) suggest that these technologies will face barriers to move through a rapid formative by 30–40%, driven by a virtuous cycle of companies are setting net-zero stage due to the new infrastructure, falling costs, technological improvements greenhouse gas targets,59 which will institutional structures and business and deployment.55,56 Direct low-carbon require innovative social and technological models required, so there are significant electrification could occur for heating, solutions across the whole economy to risks associated with relying on them.7 transport and industry, potentially both reduce demand and mitigate resulting in electricity capacity needing to emissions. Delivering these targets will Rising energy demand: 550 million people increase by 2 to 6 times, with electricity require rapid cost-reductions and scale-up have gained access to electricity since potentially providing 40-75% share of final of technologies for all sectors (i.e. beyond 2011; however, in 2017, approximately energy demand by 2050.57,58 power), with the International Energy 13% of the world’s population (992 million Agency estimating that only 7 out of 39 of people) still did not have access to Digitalisation and decentralisation: The clean energy technologies are being electricity,52 whilst 2.8 bn people were integration of large amounts of variable deployed fast enough to meet their ‘well living with no access to clean forms of renewable energy is driving innovation to below’ 2 ᵒC scenario.60. As full energy for cooking.52 Current policies provide flexibility, as well as an decarbonisation is difficult in some sectors could lead to energy demand rising by 40% assessment of the security implications of (e.g. cement, agriculture) carbon dioxide by 2050,44 with 90% of the future growth an increasingly decentralised energy removal (CDR) from the atmosphere is in energy demand predicted to come from system.57 Emerging solutions include also likely to be needed through developing and newly industrialised intelligently-connected networks, use of afforestation or technical options such as countries.53 For instance, energy demand electric vehicle (EV) batteries for storage, mineralisation or BioEnergy with Carbon for space cooling could more than triple by behaviour change and smart controls to Capture and Storage (BECCS). 2050 without significant energy efficiency provide dynamic pricing, supply and measures – consuming as much electricity demand-shifting, and expansion of mini- as all of China and India today.54 grids. Digitalisation also enables better optimisation of energy use in buildings and Increasing electrification: Solar predictive maintenance of equipment. photovoltaic (PV) module prices have fallen by around 80% since the end of Whole economy transitions: An increasing 2009, while wind turbine prices have fallen number of countries, regions and 11

Mission Innovation Beyond 2020: Challenges & Opportunities

Innovation needs

Industry: Heavy industry currently accounts for around 18% of global CO2 emissions and 25% of energy demand.58 As globally competitive industries, they are unlikely to be transformed solely through a single government’s policies and therefore international coordination will be needed to develop, demonstrate and create markets for low-carbon solutions.9,12 The greatest innovation challenges are in cement, steel and chemicals that either require high-temperature heat and/or where the fundamental chemical processes involved release CO2 and where direct electrification using low-carbon electricity cannot eliminate emissions.58 Figure 4b: Innovation needs to achieve a high-level of penetration of variable renewable energy. Source: IRENA (2019) Innovation priorities include the use of hydrogen as a reducing agent in the However, the current weight to power emerging and developing economies.62 production of steel and chemicals; using ratio of batteries, ranges and recharge alternative, lower-carbon binding The nature of innovation and RD&D varies times are reducing their uptake in heavy- materials in cement; sustainable biomass significantly depending on climate, the duty transport sectors, such as shipping, for plastic and chemicals production and type of building, the local energy system, aviation and trucks. Innovation in carbon capture, utilisation and storage and the access to technology and building alternative battery chemistries to improve (CCUS).* 12, 58 materials and whether the need is for new cost, density and efficiency, alongside build or building retrofit. There are four In the longer-term, more radical more sustainable manufacturing major areas of innovation – 1. Building innovations such as entirely new cement techniques will be needed.12 Catenary Performance, 2. Advanced Building chemistries, 3D printing to reduce shipping overhead wiring or electrified roads could Technologies, 3. Systems and Integration, needs and novel building materials could further extend the range of battery EVs for and 4. Cross Cutting. lead to greater improvements. freight.58 Innovation in Building Performance Shipping is likely to favour direct drop-in Transport: clean energy solutions for involves thermal comfort, minimising 58 alternatives for existing engines, with transport are likely to involve: demand and benchmarking. Construction hydrogen (e.g. stored in liquid organic materials are important from operational • Batteries hydrogen carriers) and ammonia likely to and embodied perspectives. • Hydrogen-based fuels (hydrogen, dominate in the long-term.58 ammonia, synfuels) produced via Advanced Building Technologies include Pathways for clean fuels for aviation are electrolysis using low-carbon building integrated renewable and particularly challenging. Long-distance electricity or via steam methane secondary energy sinks and /or sources, aviation is likely to rely on bio or synthetic reforming or methane pyrolysis with energy transformation systems e.g. heat jetfuels.58 Biofuels could also play a minor CCUS pumps, fuel cells, and energy storage for role in shipping and trucking. Currently • Bio- or synthetic fuels balancing demand.63 • Modal shifting and reducing demand only biodiesel and bioethanol production are commercialised, and there are limits Systems and Integration are essential to Electric engines using batteries or fuel cells on the availability of sustainable exploit the wider potential for clean are more efficient at converting stored feedstocks. Scaling up production of buildings. This will involve flexibility, AI energy to kinetic energy. They also reduce advanced low-carbon fuels needs based control to enable buildings to be local air pollution and noise and are innovation in cellulosic ethanol and ‘smarter’ and benefit from predictive therefore considered more likely to biomass-to-liquid (BtL), power-to-fuels (via maintenance and optimisation, and to link 58 dominate transport in the future. H2 + CO2) as well as direct production of responsively with the whole energy Whether batteries or hydrogen fuel-cells liquid fuels and hydrogen from sunlight.58 system. dominate will depend on rates of cost reductions and performance Buildings: Globally, buildings account for Cross cutting innovation will aid improvements, transport distance and almost a third of final energy deployment and will include identifying which refuelling infrastructure dominates. consumption, with space heating and and mapping performance, new road cooling, and the provision of hot water, maps, development of business models, The cost of lithium-ion battery packs for accounting for approximately half of this policy investigations, knowledge and skills EVs has reduced by 85% from 2010-2018, consumption.62 Demand for space cooling reaching an average of $176/kWh.61 is expected to increase 3x by 2050 in

* Note: Utilisation of CO2 will need to be in cycle such as in concrete, aggregates and carbon products with a long lifetime or a closed reuse fibre to ensure that it doesn’t contribute to emissions. 12

Mission Innovation Beyond 2020: Challenges & Opportunities

64 transfer, and communications. Table 4a: Summary of priority innovation topics for the next decade Power: Innovation to integrate higher- Early-stage R&D Cost reductions and Systemic innovation levels of variable renewable energy (VRE) demonstrations in the power sector is a priority. Solutions need to facilitate flexibility and Collaborative R&D Collaborative Innovation in the balancing in a decentralised multi-vector programmes bringing demonstrations of capital- integration and together the best intensive technologies operation of the energy power grid. This will require software and digital products to manage demand- researchers and innovators and/or procurement system such as: to deliver radical agreements to rapidly response and energy supply. Underlying • better data to this will be the need for more and better innovations that will be reduce costs and nurture manage multi-vector essential for clean energy niches for solutions likely to data, that is reliable and secure and energy system understanding or influencing user beyond 2030. underpin clean energy • building optimisation 65 transition in industry and • behavioural science behaviour. Digital products could have a • advanced energy heavy-transport and to on use of energy and significant impact on the energy system as materials with improved enable high penetration of demand shifting they can rapidly diffuse due to their performance for renewables: shorter innovation cycles, lower capital batteries, solar 12 • hydrogen Innovation in services to costs and potential for rapid prototyping. conversion and • advanced biofuels reduce demand (e.g. buildings To create viable solutions, systemic • energy storage energy as a service) • converting sunlight to innovation is needed that goes beyond • carbon capture, liquid fuels and Innovative finance technology to include innovation in utilisation and storage hydrogen models that enable business models and markets. Thirty (CCUS) emerging innovations have been identified • carbon dioxide removal emerging technologies that could facilitate greater use of solar (CDR) technologies to access funding such and wind energy (Figure 4b).66 as or peer-to-peer lending. A related major need is innovation to produce a broader range of energy storage solutions, particularly to balance demand current levels through to 2050 (against detail in Annex 1). 40% increase in business-as-usual over longer time periods (i.e. weeks to More in-depth analysis is needed on scenarios)44 and in harder-to-abate sectors months). This includes batteries, but also where focused international effort has the alone could halve the cost of phase-change materials, thermal storage, greatest potential to deliver affordable decarbonisation.58 Innovation needs pumped hydro, and conversion to storable clean energy over the next decade and include more energy efficient equipment, fuels such as hydrogen or ammonia. The what the targets should be. scale-up of renewable mini-grids in shifting towards circular economy design, geographies where grid access is not reducing material requirements through There are a number of other topics that available will require tailored energy improved product design, innovation in have not traditionally fallen within the storage solutions that can enable greater service models (e.g. providing thermal framework of global clean energy electricity supply for economic activities comfort as a service in homes) and innovation collaboration but could play a and cooking.67 behavioural shifts (e.g. switching to car- major role in delivering the low-carbon sharing or public transport). Demand-side transition in the coming decades. Whilst the costs of solar and wind energy innovations have been shown to provide have fallen significantly, further high social returns on investment and Carbon dioxide removal: Carbon removal investments will be needed, depending on would reduce the investments needed in technologies such as bioenergy carbon the policies and priorities for low-carbon new power generation and the likelihood capture and storage (BECCS), direct-air power supply in different countries.66 that unsustainable use of biomass or very capture, increased use of timber and These include: high amounts of CCUS will be required in mineralisation may be necessary to reach the future.69, 70 However, at present net-zero or negative emissions across • floating offshore wind to reach wind innovation investments and systems economies. Currently there are no resources in deeper waters typically privilege energy-supply dedicated research, development and • ongoing and radical improvements to technologies over innovation to reduce deployment (RD&D) programs and only a solar energy, including higher- demand.71 Initiatives, such as the Global handful of pilot-scale facilities are efficiency materials, floating PV, 74 Cooling Prize or Japan’s Toprunner currently operating. However, the integration in buildings and vehicles, Programme,72, 73 demonstrate how potential scale, cost and uncertain impacts recyclability and resource use innovation can both improve and redesign means there are varied opinions on the • ocean and geothermal energy for existing products to reduce future extent to which this should be a priority specific applications demand. for R&D investment, partially depending • modular nuclear reactors which may on predictions of cost reductions and be able to provide other energy Priorities for the next decade deployment pathways of mitigation services that solve challenging technologies.75,76,77 emissions problems, such as process This paper provides a high-level summary heat and hydrogen production68 of innovation needs in different sectors. Social acceptance & behavioural changes: Across these, several topics emerge as the rate and cost of the clean energy Energy demand: Improving energy priorities, with different types of transition will depend on social intensity by almost 3% per year could innovation required over the next decade acceptance and shifts in public, business, 44,51 maintain energy demand at approximately depending on maturity (Table 5a, further institutional and financial behaviour. 13

Mission Innovation Beyond 2020: Challenges & Opportunities

For instance, consumers frequently do not buy energy-efficient products – despite the lower lifetime costs, other people’s behaviour has a major impact on our energy choices and whether energy demand is freely available or optimised can make a huge difference to costs (e.g. in one study cost of charging EVs was 70% lower if demand was constrained to off- peak). 78,79 This suggests that behavioural and social sciences should play an incresing role in the design, testing and use of innovations. Agriculture: feeding the world and forestry were responsible for 24% of global greenhouse emissions in 2010.80 Technical challenges include net-zero ammonia production, reducing methane emissions from ruminants, energy- efficient cold chains to reduce food spoilage and low-cost alternative sources of protein.81 These could be essential priorities for a future innovation programme.

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Annex Section 4: Examples of technology innovation needs

The listed technologies have high potential in terms of emission reduction and describe necessary innovations to be expected in near, intermediate and longer term. Market viability, compatibility with other elements of the energy system and consumer value is also taken into account. Assuming all RD&D activities are implemented concurrently, initial commercialisation is targeted in the specified timeframe.

Technology Near Term (2025) Intermediate Term (2035) Longer Term (2050) Energy storage • System designs to improve cost/ • Emergence of new battery chemistries • Seasonal, / batteries performance/weight of batteries • Wireless charging environmentally • Increased power and energy density, high cycle • Battery or fuel cells for short distance friendly, high-density life aviation and shipping low-cost thermal • Deployment of High-Power EV Charging Stations • Longer-term storage – including thermal energy storage • Next generation power electronics storage, capacitors, compressed air, fuel • Physical and cybersecurity pumps, flywheels, molten salt, pumped • Hybrid energy storage systems hydro and power-to-x Hydrogen • Improved plant efficiencies and asset life • Improved cost/performance of low- or zero- • Utilisation approaches • Solid oxide fuel cells and electrolysis cells to carbon H2 production pathways for high energy intensity reach industrial scale • Progress of chemical looping, methane manufacturing • Progress on hydrogen capable pipeline materials cracking, biomass gasification, solar fuels and operating pressures, reduction of storage • System design for H2 distribution tanks costs infrastructure for integrated transportation • Higher efficiency compression technologies and industry applications • H2 fuelling demonstrations, • Hydrogen in Steel and chemical production • Hydrogen capable heat appliances e.g. boilers • Hydrogen and ammonia in shipping • High-efficiency electrolysis (targeting capex $250/kw) Alternative • Improved cellulosic conversion technology • Improved biochemical, electrochemical and • Affordable low-carbon Fuels • High-efficiency bioelectricity generation thermo-chemical conversion pathways of drop-in fuels • Biomass in iron and steel industry biomass • Sunlight-to-fuels • Biokerosene or alternative biojet fuels • Synthetic fuels (H2 + CO2) – Power-to-gas / • Increasing sustainable feedstock supply Power-to-Liquids • Algae harvesting Electrification • Interoperability standards • Integrated grid architecture across voltage- • DC grids • Common modelling framework levels • Non-synchronized grids • Non-traditional contingency planning • Innovative control approaches, technologies • Electric cement kilns • Cybersecurity, assure system trust to visualize data and enable faster controls and electric furnaces • Automated and distributed decision-making • Material innovations including wide bandgap semiconductors • Internet of Things (IoT) Materials • Chemical recycling of plastics • High-value bioproducts and input to • Low-carbon cement and • Using timber or pozzolan based concrete to chemicals concrete chemistries substitute for Portland cement; • Lightweight, strong materials with low-cost • Novel biomaterials for • Phase-change material for thermal storage manufacturing construction • Improved sorbents and solvents for direct air capture of CO2 Smart cities • Thin insulating materials for deep retrofit • High efficiency electric heating systems • Flexible power management systems (heat pumps) • Improved sensors and controls • Tunable PV systems (e.g. PV windows) • Thermal storage • Wireless sensors and controls • Technology-enabled urban planning and design • Hybrid heat pumps Carbon • Second generation CCUS pilot plants • Industrial CCUS applications (e.g. cement, • Efficient, low-cost, large- Management • CCUS retrofit demonstration steel) scale CO2 removal (e.g. • Improved post-combustion capture • Natural gas CCS, methane cracking direct air capture) • CO2 storage infrastructure • Fuel cell carbon capture • Demonstration of sequestration in alternative • Sub-surface CO2 management at gigaton geologic media scale • Testing of large-scale biological sequestration • Demonstration of large-scale (gigaton) • Direct air capture demonstration biological sequestration Sources: Breakthrough Energy - http://www.b-t.energy/landscape/; IEA innovation gaps analysis- https://www.iea.org/topics/innovation/innovationgaps/;, IRENA. 2019. Innovation landscape for a renewable-powered future; Energy Transitions Commission. 2018. Mission Possible: Reaching net-zero carbon emissions from harder-to-abate sectors by mid-century. and several technology roadmaps

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Section 5: Global Collaboration

Overview Key messages International collaboration in research, • Collaboration appears to be increasing but is hindered by development and demonstration (RD&D), transaction costs, IP conflicts, lack of pooled funding and plays an important role in identifying common perceptions of competitiveness. priorities, challenges and innovation gaps, • There has been a shift towards non-binding, voluntary and short- bringing teams together to work on common term collaborative structures which enables flexibility but can problems, sharing best practice and risks and hinder long-term and multilateral RD&D. creating larger markets giving companies the • Designing collaborative initiatives and activities well requires confidence they need to invest. This section aligning incentives of partners, building trust and creating structures summarises the literature on the challenges, for impact. benefits and learnings of global collaboration.

Table 5a: Barriers and Incentives by type of stakeholder Why collaborate on clean energy? As societies and economies become more Entity Incentives Barriers Government interdependent in an innovation-driven • Acquiring valuable know-how • Desire for domestic ownership of most from partners of the value global economy, international • Economic growth • Budgetary process to approve funding collaboration consisting of joint efforts • Sharing the cost of R&D abroad between public or private organisations in demonstrations and subsidies • Regulatory and policy differences different countries can increasingly bring Technology • More opportunities for • IP leakage and loss of control efficiency benefits and maximise the Developers fundraising during high-risk early • Potential loss of first mover competitive impact of R&D investment.82 R&D stages advantage • Ability to speak directly with There is little robust evidence on the technology end-users economic benefits or levels of clean • Access to markets energy innovation collaboration. One Technology • Ability to liaise with technology • Potential loss of first mover competitive study in 2015 estimated that international Users developers to tailor R&D process advantage collaboration through to 2025 could to actual needs • Potential reduction of market share reduce the costs of the clean energy • Sharing the cost of supporting • Risk of investing in innovation transition by $550 bn.53 However, the technology development desire to collaborate does appear to be External • Spreading costs • Sharing the returns with other partners increasing, with varying incentives for Funders • Spreading risk • Loss of overall strategic control different types of organisations (Table 5a). Mission Innovation has tracked an additional $1.3 bn allocated for 59 new international collaborations between MI members since 2015.83 Benefits of collaboration Accelerating knowledge diffusion: Clean energy innovation needs diverse technical expertise and skills to identify the technologies and pathways that most effectively meet goals in different contexts. The cross-border sharing of academic, industry, and government expertise and experience increases the Figure 5a - Growing complexity of interactions and integration of activities from networking to diffusion of knowledge and increases collaboration (Russell & Smorodinskaya, 2018). Includes indicative trends showing how the level of technical and institutional capacity so integration varies by partnership type -a voluntary multi-lateral initiative could also result in high facilitating an increased rate of integration, but requires a greater degree of planning, resource investment and strategic alignment innovation.53

Support decision making through improves market and investment analysis, capital costs and require significant identification of gaps:53 Knowledge and helps to align strategies, funding flows technical, time and monetary resources to sharing between nations greatly aids in the and policy aid whilst reducing duplication scale up to a demonstrable or commercial understanding of the landscape of current of efforts. stage – they are high risk investments. Collaboration can increase learning rates, investments, the challenges they address Reducing risks and sharing costs: Clean spread costs and increase potential for and the gaps they leave. This fosters an energy technologies typically have high understanding of global priorities,84 value capture, lowering uncertainty and 16

Mission Innovation Beyond 2020: Challenges & Opportunities reducing risk.53 distribution of IP between participants, Future Collaboration and power disparity can lead to IP loss. IP Stimulate private interest through larger “The fundamental question is not whether discussions must be a core part of and more certain markets: 53, 85 Through to collaborate internationally, but rather collaboration design from the beginning. joint targets, bulk procurement, reverse how best to do it and with whom”85 auctioning, dynamic standard setting and Lack of Pooled Funding: Despite the Future effort should focus on the international harmonisation, collaboration opportunity to de-risk RD&D investments mechanisms of collaboration, and how can provide predictable and long-term by sharing costs, pooling of resources is these reduce barriers to collaboration. signals, helping to stimulate firm interest rare at a government level likely due to and market growth by making clean the perceived loss of control of funds.53 (1) Public-Private Collaboration85 energy investments lower risk and easier While binding terms outlining the use of Policy makers must tap into the private to analyse and assess. money can alleviate concerns, this adds sector’s investments and capabilities. bureaucracy and can reduce the There are challenges in doing so, often due Types of Collaboration responsiveness of the partnership. to cultural differences or diverging Collaborative models for energy interests. innovation can be categorised on three Legal, Policy and Technical Differences: fronts (Figure 5a, Annex Section 5): there is an increasing interest in (2) Streamline and design initiatives for innovation in non-technical areas, such as impact84 1. Strength of the commitment; is it a regulatory systems, financial tools and Hundreds of collaborative initiatives voluntary or binding arrangement. market development. However, already exist and yet the mechanisms are 2. Breadth of the agreement; does it collaboration can be difficult in these not widely used, and their activities are cover a single technology area, or also areas due to varying regulatory systems not necessarily leading to sufficient focus on areas such as regulation, from nation to nation. Fundamental investment and impact. Streamlining the policy creation. differences in context can greatly reduce landscape could reduce capacity 3. Range of actors involved; do they vary the impact and value of collaborative constraints, whilst designing partnerships geographically, involve the private projects overall, or can lead to differences more effectively promotes impact (Box sector.85 in value gained by partners. 2).53, 85 Different collaborative structures have Transaction Costs: Bureaucracy and (3) Monitoring & assessing impact relationship management can become varying merits and limitations. There has Building monitoring and evaluation of been a shift towards voluntary exponentially more onerous as the number and size of organisations impact into collaborative initiatives engagements since the 2000s, with enables learning for continual governments and stakeholders favouring partnering increases. Mitigating transaction costs requires robust and improvement, evidence to attract further more numerous, flexible and shorter-term collaborators and demonstrate value to initiatives.85 The choice of which type to proactive coordination amongst partners, which itself requires administrative funders and an opportunity to share “use” is contingent upon the particular learning.12,53,85 needs of the collaborators, their resource and time. institutional setting and broader political Lack of Flexibility:53 The public sector can . and strategic objectives. See Annex 1 for feature rigid funding cycles and further detail. commitments to long-term strategies. Box 2: Lessons for global collaboration For instance, a binding bilateral framework These features reduce the ability of Aligning Incentives – Understanding between two countries with synergistic government partners to rapidly adapt to the needs and constraints of each technology development needs and changing circumstances potentially leading partner is essential to identify capacities, using a highly specified work to missed collaboration opportunities, or participants with aligned interests plan to coordinate parties, with impact delays in implementing projects. promoting long term cooperation and focused goals can reduce costs and risks Competition or Collaboration: In global- increasing the likelihood of impact. for both countries. Whereas a voluntary traded sectors, competition between multilateral, allows the pooling of more nations is inevitable. This can lead to Collaboration Model – Non-binding diverse know-how and expertise, perceived competing national interests,53 agreements are the dominant potentially leveraging economies of which can hamper cooperation, as parties collaboration model due to their scale.82 reduce their knowledge sharing, are flexibility, speed and lower resistant to fund partnerships and commitment. However, binding Barriers to global collaboration deprioritise international activities. frameworks offer stability and can be Collaboration remains a difficult useful for long-term R&D programmes, endeavour. To be effective, collaborative Institutional capacity: some countries may where risks and costs must be initiatives need to align the incentives of lack the resources to develop and manage managed and shared. all participants and stakeholders (Table multiple separate bilateral collaborations. 5a), although within a complex area such They may therefore prefer multilateral Co-ordination of Initiatives - as energy this can be challenging within a frameworks (e.g. Eureka, MI Innovation Complementary initiatives can explore single government, let alone Challenges, IEA TCPs) as mechanisms to co-location for conferences and internationally.53 Barriers include: collaborate. meetings to develop synergies and economies of scale effects and Intellectual Property:53 IP is a vital tool for minimise unnecessary duplication of technology developers to capture the effort. value from their investments. Collaborations increase the complexity of 17

Mission Innovation Beyond 2020: Challenges & Opportunities

Annex Section 5: Collaboration Models

Types Characteristics Examples Purpose A global initiative working to reinvigorate and accelerate global clean energy innovation through Flexibility –Members can pick and Mission Innovation This type of collaboration usually eight ‘Innovation Challenges’ - choose areas of the collaboration (MI) takes the form of a non-binding creating multiple programmes that which best suit its strategic aims,

symbolic or indicative agreement tackle key clean energy technology and the initiative is more agile, between parties, with broadly areas. able to adjust its aims to maximise

Lateral specified aims and targets. This impact. - flexible approach to collaboration

aims is often followed through into Speed – Parties can act faster, Multi initiative functioning, with parties The CEM is an international forum most importantly in the beginning having the flexibility to pursue Clean Energy focusing on clean energy of the collaboration, with no Ministerial (CEM) technology deployment, policy and

targets without a defined formal contract having to be methodology Plans are developed best practice regulation. designed. By reducing incrementally, building bureaucracy, changes can be collaboration functions as the enacted faster and more Voluntary partnership develops. This lack of efficiently. formality is used to allow adjustment of the collaborations Attracting Members – The flexible

This R&D consortium brings aims to better suit changing commitment to this programme together governments, to develop circumstances, as well as to attract lowers the barrier to entry for a long-term platform for a broader range of members. It is members, supporting the rapid sustainable U.S.-China joint R&D, particularly suited to multi-lateral U.S.- China Clean development of a network of with a focus on reducing energy efforts where conflicting strategic Energy Research collaborators. This can be vital for use in buildings, capturing and objectives could prevent the Center (CERC) clean energy, where building a storing emissions and to design Bilateral/Regional formation of a binding agreement. global consensus is vital for cleaner vehicles. achieving climate goals.

Types Characteristics Examples Purpose Similar to traditional legal Responsibility – A pre-defined An international agreement aimed contracts, a binding agreement work plan ensures all parties “pull

at fostering collaboration between sets out a clear a framework for The United Nations their weight”, avoiding the free- all countries in the world to all members to abide by, most Framework rider problem. This clarity in

stabilize greenhouse gas Lateral

- often by prescribing targets to be Convention on organisational structure also makes concentrations in the atmosphere met by a defined date. These Climate Change communication and operation at a level that would prevent Multi agreements also lay out the (UNFCCC) simpler and clearer for members. dangerous interference with the responsibilities for each actor in climate system. the collaboration, providing a Funding – The certainty of a fixed framework for all future work. contract makes binding agreements This provides a stable A co-funding mechanism set up by much safer investments, as

foundation, allowing members to EU-India Co-Funding the between the Government of members can more reliably predict engage in long term planning and Mechanism for India and the European future actions and impact, building

coordination. Legal assurances Research and Commission to support joint a stronger business case and de- Binding also enables parties to engage in Innovation projects between European and risking through defined division of a higher degree of integration, as Cooperation Indian universities, research cost. issues in areas such as IP, security institutions and companies. and shared funding can be tightly Longevity – These traditionally defined and controlled. Coordinates the research efforts result in longer running Monitoring of collaboration programmes52, as their higher of EU Member States and selected Bilateral/Regional impact is also a key part of global partners. It utilises ’joint upfront cost incentivises members European Research agreements, ensuring that programming’, addressing research to extract maximum value from the impact is specific and Area Net (ERA-NET) partnership. Greater accountability challenges which cannot be tackled measurable, with all parties effectively by national research and monitoring also means mutually responsible monitoring initiative impact and thus value is programmes operating in isolation. themselves and their partners. better monitored.

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