Since 2015, the number of government policy measures to help start-ups get new clean energy technologies to the market has risen sharply as countries around the world (increasingly emerging market and developing economies) seek effective mechanisms to meet their energy, climate and economic goals. New firms have a key role in reorienting economies towards novel industries and renewed economic development.1Although governments have employed a variety of approaches to address a range of challenges and objectives, in many cases building on existing institutional practices, no resources exist to make countries aware of all their options or where to seek inspiration.

This report therefore reviews existing government initiatives and draws insights from their experiences to present possible policy options. It is a resource for policymakers seeking to develop new measures or improve those already in place, although in most cases it is too early to perceive the full impacts of these policies, especially since their objectives vary from helping individual companies access financing to improving the clean energy innovation system’s long-term productivity. Thus, our aim is not to prove which approaches are most effective but rather to present initiatives that can inspire action all around the world. We hope that analysts and other clean energy stakeholders also find value in the information and framework of this study, as it is part of an International Energy Agency work programme to help countries make better policies to accelerate clean energy innovation.

Strikingly, most of the world’s clean energy initiatives have been launched in just the past five years as governments began to recognise that some start-ups, such as Tesla, were accelerating the pace of energy transition, but that this important technology area has otherwise been struggling to translate high-potential R&D into market transformation. Since most programme managers are currently building on experience to date to fine-tune initiatives and extend their impact, this is an opportune moment to highlight their choices for the benefit of governments facing similar decisions today.

This report focuses on government support for start-ups – young small and medium-sized enterprises (SMEs) – striving to bring novel clean energy technologies to market. Although these companies are generally less than seven years old and have not yet commercialised any profitable products or shared dividends with investors, they could provide part of the solution to the significant societal challenges we are facing.

Our definition of “clean energy technology” in this report is very broad, covering all elements of energy production, distribution and end use (including products and services that can help consumers avoid energy consumption in providing energy services). What start-ups in these technology areas have in common is that they are all developing products that can meet energy needs with a lower environmental impact, based on new approaches to hardware design, new scientific principles and advances in software. In general, technologies of interest are those compatible with energy systems that have net zero greenhouse gas emissions.

Likewise, we use the word “government” broadly. While most case studies are national or supranational, clean energy activities in some countries have a longer history at the state, provincial or municipal level. Among innovation-related policy measures, we generally limit our analysis to those that clearly aim to support clean energy start-ups, although we have also reviewed some initiatives that are broader in technology scope than clean energy, or for which larger companies are also eligible. While most policy measures cited in this study use evaluation or judging processes to offer support to selected groups of individual start-ups at the post-research stage, some mechanisms are available to all eligible start-ups or investors (e.g. tax relief).

Although broader, non-targeted frameworks such as competition policy, bankruptcy legislation and contract enforcement are not covered in this report, they are important factors in determining how successful a start-up will be in developing new technologies. In fact, a well-designed support policy for clean energy start-ups will never be sufficient on its own to meet innovation policy goals: the most successful regions address a wide range of innovation system needs. These needs vary widely between countries, and there is rapidly growing interest in clean energy innovation in emerging market and developing economies where resources to address them continue to be scarce compared with advanced economies.

Using the measures reviewed in this report, policymakers aim to tackle ten gaps currently hindering public and private innovation:

Governments

1. Limited consideration of the specific needs of different clean energy technologies that can make generic support measures incompatible.

2. Low awareness of the pathways different types of new technologies follow from laboratory to market, including how start-ups are involved, the barriers they face and their disruptive impacts.

Investors and incubators

3. Continued lack of investor attention to the fact that innovators require longer timelines to perfect technologies, as well as ongoing policy support, to address urgent developmental and environmental challenges, despite a recent upsurge of investment in some clean energy technology areas.

4. Scarce knowledge of energy technology, policy and regulation details.

Innovators

5. Excessive risk perception by high-potential inventors (especially from certain social groups underrepresented among business founders), which makes them hesitant to launch new technology businesses.

6. Insufficient non-dilutive capital to enable start-ups to experiment and learn about their early-stage technologies and business models.

7. Lack of entrepreneur awareness on how to access capital, infrastructure and business services in a timely manner at each stage of the innovation process.

8.Limited awareness of overseas market opportunities, and of funds and incubation services available for clean energy technologies in other countries.

Corporations

9. Lack of awareness among energy suppliers and users on the status and potential of new clean energy technologies, and on where to access information.

10. Insufficient interactions among firms (of all sizes) in unconnected technology areas that could work together to catalyse new approaches.

To address these challenges, governments can extend support to start-ups in a variety of ways adapted to their energy, innovation and other policy objectives as well as regional market deficiencies. When designing specific measures, policy makers should ask:

• Is there a financing gap that can be closed by public funds catalysing private capital?
• Is the market undersupplying a specific type of technology or entrepreneur, such as female founders?
• Is there a lack of connectivity and co‑ordination between innovators and investors?
• Is more publicity and awareness-raising needed to raise the confidence of high-potential innovators?
• Who is best placed to channel public resources: a government agency or a third party?
• Which technology readiness levels (TRLs) should be targeted to meet the policy goal and what are the TRL-specific requirements?
• Can any existing public resources such as research scientists and laboratories be mobilised to fill gaps in the innovation system?
• Could the region – and the world – benefit from extending the policy measure to overseas start-ups and, if so, should support be conditional on the location of the start-up’s subsequent business activities?
• Can the chosen instrument make a significant difference given the amount of public funding available?

The answers to these questions, combined with the local and institutional context, will determine how governments could provide assistance to start-ups. In general, however, support falls into four categories: financing; infrastructure; services; and networking. Initiatives are often similar in the types of support they provide in each category, but programmatic packages can employ various combinations. Furthermore, policy measures can provide support directly or indirectly. Direct support is provided by a government body to start-ups without intermediaries, whereas indirect support is delivered by funding intermediaries such as private incubators or funds. Governments often have to choose between direct and indirect support, and this report illustrates how the two options can lead to qualitatively different outcomes.

Following this introduction, Six reasons governments support clean energy start-ups sets out the reasons for government interest in the clean energy start-up policy area and the breadth of choices available. The following chapters present the design decisions made for existing policy measures according to the four areas of support (financing, infrastructure, services and networking). These chapters draw their information from 14 case studies representing diverse policy features, geographies, national contexts and lengths of experience (hyperlinks lead to case study summaries). Finally, the chapter on Policy insights outlines the qualitative insights gained from analysing this non-exhaustive sample.

Case studies were selected based on recommendations and desk research in early 2021 and are chronicled separately in a set of summary documents accompanying this report. We conducted 22 interviews in mid-2021 with responsible government officials, programme operators and start-up support recipients. While interviewees and other contributors of written material have had the opportunity to review the material, any interpretation or presentation errors are the authors’ own.

This report intersects the worlds of energy technology analysis and venture investment, both of which use professional jargon that makes clear communication between them difficult. Our Glossary provides useful definitions.