Hydrogen walkback leaves energy R&D floundering

Hey Reader, welcome to The Energy's weekly data newsletter. This week we explore the decline in energy R&D identified by the International Energy Agency.

Energy breakthroughs need R&D

Without public support for research and development the world would not have the solar panels we rely on today, nor floating LNG, lithium-ion batteries or geothermal energy.

UNSW researchers invented the solar cell technology that powers more than 85% of all new solar panel modules, and they continue to break records in solar efficiency as new technology emerges.

But fresh data from the International Energy Agency shows public investment in energy R&D plummeted to a new low in Australia in 2025, amid a global slowdown of around 2%.

Big boosts to public R&D spending in Australia in 2022 and 2023 were largely due to hydrogen, and Australia wasn’t alone in singling it out as a technology to get behind.

More recently, private investors have pulled back from hydrogen, telling the market green hydrogen remains too costly. Australia’s tax incentive for hydrogen production remains.

But in lieu of hydrogen, public funding has not grown in other areas.

Looking more broadly, public funding of energy R&D as a percentage of GDP has been falling - halving from around 0.06% in 2013-14 to around 0.03% today.

*Source: EEC, using DISR, Science, Research and Innovation Budget Tables; ABS, Australian National Accounts*

Why it matters

IEA analysis shows the economic benefits of public energy R&D are far greater – even a hundredfold larger – than their costs.

But, the IEA says, technical specialisation does not automatically translate into industrial competitiveness - case in point being Australia’s invention of solar cell technology but China’s complete dominance of solar panel production.

Turning innovation into industrial competitive advantage “requires close attention to manufacturing advantages, and strategic trade or knowledge partnerships”, the IEA says, something that aligns with what the expert panel reviewing Australian R&D has identified.

It says there are currently too many programs, spread too thinly. “We should be ambitious and target our efforts to build scale in areas of national need and global opportunity,” the expert panel said in their initial conclusions.

Following the market

The R&D review panel also concluded public investment cannot substitute for private initiative.

R&D investment by Australia’s businesses is currently less than 1.7% of GDP, well below the OECD average of 2.7%, but there were green shoots in venture capital funding of energy in 2025.

And the main focus of this private funding is grid-related innovation, according to the IEA.

The Dalrymple BESS, designed and built by ElectraNet with partial public funding from the Australian Renewable Energy Agency, gets a nod in the IEA’s latest innovation report which points to the emerging market for grid-forming inverters.

Australia should be at the forefront here, given our rapid transition away from a coal-dominant grid to one increasingly led by inverter-based resources.

But overshadowing all VC investment in recent years has been the large pull of artificial intelligence, which has displaced energy innovators.

Total venture capital investment across all sectors, 2015-2025

Perhaps that’s why Australian startup Neara, operating at the intersection of grids and AI, recently reached unicorn status?

Expert view

"Australia’s energy transformation is well underway, and it is heartening to see an increase in public and private investment in the deployment of clean energy infrastructure. However, investment in energy R&D is not keeping pace.

Our future economic prosperity hinges on our ability to innovate, which requires a commensurate investment with the scale of deployment. It’s clear we don’t have all the answers to meet 82% renewable electricity by 2030, 62-70% emissions reduction by 2035 or net zero by 2050.

Our research institutions are ready and willing to take up the challenges and opportunities, but they need more support. We need investment in innovation to meet our climate targets, reduce energy costs, realise Australia’s competitive advantages through commercialising homegrown clean energy technologies, strengthen social licence, and drive Australia’s productivity and employment.

In a challenging geopolitical environment where energy innovation is increasingly strategic, we risk being left behind.

Australia is the home to the invention of the modern solar cell, the vanadium redox flow battery, wi-fi and many other important discoveries. We need to make the downpayment on our future prosperity and ramp up the public support for our brilliant innovators."