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Research and Development

Research and development refers to a deliberate investment of effort, whether by a government or a private organization, to bring a technology to commercial production. R&D activities can range from basic research to commercializing a product to improving a product that has already been commercialized.

R&D Priorities

We recommend that public agencies, such as the U. S. Department of Energy, undertake research and development as follows. Details are in our assessments of individual energy production technologies.

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Expected costs and benefits for electricity R&D, in billions of dollars.

See the individual production analyses (solar, wind, nuclear, fusion, and ocean power) for information on potential cost and market share, and our Environmental Impacts of Energy analysis for information about GHG and non-GHG impacts.

For R&D time, we assume 5 years for technologies that are commercially deployed today but not at full potential, 10 years for those near but not at commercialization, 25 years for those not near commercialization, and 40 years for fusion and space-based solar.

For R&D cost, we assume $460 million per year for nuclear technologies, based on an analysis of advanced reactors 1; $830 million per year for renewables, based on a wave energy analysis 2; and $65 billion total for fusion and space-based solar, based on an analysis of ITER 3.

A 7% discount rate is used throughout.

Our model for the effectiveness of public R&D is as follows. We model that, after the R&D period, an electricity gains 2% of its potential market share every year for 50 years. The market share is based on what a mature form of the technology could undercut by the levelized cost of electricity. The financial benefits of displacing more expensive electricity, greenhouse gas reduction (valued at $50/ton), and non-GHG external benefits of electricity are assessed.

Current production is assessed at 2022 levels from the Energy Institute Statistical Review of World Energy 4, except production of Geothermal power is taken from the International Renewable Energy Agency (2021 value) 5. The levelized cost of other forms of electricity are derived from the U.S. Energy Information Administration 6, and lifecycle greenhouse gases for existing power plants is taken from Roser 7. For non-greenhouse gas external costs of power, see our discussions of other energy sources.

Our model incorporates an overall rise in electricity demand, as forecast by Enerdata 8, and a decrease of carbon-intensity of electricity, as also forecast by Enerdata 9. We assume a 11% chance of an R&D program being successful, based on experience in the pharmaceutical industry 10.

Problem:
Need for Clean Electricity
Solution:
The Department of Energy Should Increase Energy R&D - U.S.

Current Investment

Research and development is necessary to bring new energy technologies to commercial production, which in turn are necessary for a complete transition away from fossil fuels. Worldwide, corporations spend on energy R&D as follows.

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Worldwide corporate spending on energy research and development in 2018. Source: IEA 11.

There is social benefit to research and development; when one company develops a new product, it does not capture all the benefits as the product spreads to other companies. Thus, even in the presence of an economy-wide carbon price, there is justification for governments to invest in R&D 12. Current public investment is as follows.

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Government investment by International Energy Agency member countries in 2018. Source: IEA 13. IEA member countries are responsible for about three quarters of all worldwide public energy R&D spending 11. Spending includes direct expenditures as well as subsidies for private R&D.

Value of R&D

Evidence suggests that research and development carries a large social benefit.

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The scenarios portrayed above represent different assumptions of the value of R&D and the cost. Source: 14. See also Matt Clancy's exposition of the work 15.

Evidence from small business grants 16 also suggest that these are highly cost-effective research and development tools. R&D carries significant spillover effects, in that when R&D is funded in one field, it can advance progress in another 17.

References

  1. Deutch, J., Greenstone, M., Jackson, S., Madia, W., Meserve, R., Reicher, D., Rempe, J., Samore, G., Sell, C., Sharp, P., Turnage, J. "Final Report of the Task Force on the Future of Nuclear Power". Task Force on the Future of Nuclear Power, U. S. Department of Energy. September 2016. ↩

  2. Previsic, M., Contributing Authors: Epler, J., Hand, M., Heimiller, D., Short, W., and Eurek, K. "The Future Potential of Wave Power in the United States". Prepared by RE Vision Consulting on behalf of the U.S. Department of Energy. August 2012. ↩

  3. Kramer, D. "ITER disputes DOE’s cost estimate of fusion project". Physics Today. April 2018. ↩

  4. Energy Institute. "Statistical review of World Energy". Accessed July 30, 2023. ↩

  5. International Renewable Energy Agency. "Geothermal". ↩

  6. U.S. Energy Information Administration. "Levelized Costs of New Generation Resources in the Annual Energy Outlook 2022". March 2022. ↩

  7. Roser, M. "Why did renewables become so cheap so fast?". Our World in Data. December 2020. ↩

  8. Enerdata. "Total electricity generation". Accessed March 25, 2024. ↩

  9. Enerdata. "CO2 intensity of electricity generation". Accessed March 25, 2024. ↩

  10. Kola, I., Landis, J. "Can the pharmaceutical industry reduce attrition rates?". Nature Reviews Drug Discovery 3, pp. 711-716. August 2004. ↩

  11. International Energy Agency. "World Energy Investment 2019". May 2019. ↩ ↩2

  12. OpenStax Economics. Principles of Economics. OpenStax CNX. May 2016. ↩

  13. International Energy Agency. "Energy Technology RD&D Budgets 2019". October 2019. ↩

  14. Jones, B. F., Summers, L. H. "A Calculation of the Social Returns to Innovation". National Bureau of Economic Research, Working Paper 27863. September 2020. ↩

  15. Clancy, M. "What are the Returns to R&D?". New Things Under the Sun. May 2021. ↩

  16. Clancy, M. "An Example of High Returns to Publicly Funded R&D". New Things Under the Sun. May 2021. ↩

  17. Bloom, N., Schankerman, M., Van Reenen, J. "Identifying Technology Spillovers and Product Market Rivalry". Econometrica 81(4), pp. 1347-1393. July 2013. ↩