The state of energy innovation 2026
Energy innovation is a long-term commitment, yet the prospects for a new energy technology can transform much more rapidly, as in the past year. Several macrolevel developments have reordered the drivers for developing and deploying innovative energy products. Many governments have elevated energy security, supply chain resilience, domestic leadership in artificial intelligence (AI), industrial
production and affordability among their energy and economic policy priorities. Markets are responding with stronger demand signals in these areas, but the effects will vary between technology fields, leading in some cases to an acceleration of an innovation process that typically plays out over years or even
decades in the energy sector, and to greater risks in others. Addressing climate change remains a key driver for innovation but is now more conditional on its reinforcement of other goals.
It is testament to the achievements of technology innovators over the past 25 years that technologies such as solar photovoltaics (PV), batteries, light-emitting diodes (LED), advanced nuclear, virtual power plants, next-generation geothermal and several other recent market entrants are mature and competitive enough to be boosted, not sidelined, by these shifts in policy priorities. Despite already having a market foothold, substantial scope remains in all these technology areas to improve performance and reduce costs through R&D and the type of rapid learning that comes only from widespread manufacturing and deployment. The ways in which these policy priorities influence the outlook for energy technologies varies by country. Some parts of the world have ready access to domestic fossil fuels at low cost, and a focus on energy security or meeting new data centre energy demand may create incentives for innovation in fuel extraction and use. However, most countries do not have such resources, and are looking instead to renewable or nuclear energy to minimise fossil fuel imports. In June 2025, the European Union adopted a proposal to phase out Russian natural gas imports, and instead focus on enhancing energy efficiency and
accelerating the deployment of renewable energy sources. In the People’s Republic of China (hereafter “China”), which imports around three-quarters of the oil it uses, almost half of the cars being sold are now electric. Ethiopia has banned imports of internal combustion engine cars and moved to duty-free imports of electric and hybrid vehicles with the aim of reducing its oil import bill and air pollution. In Pakistan, a country that has seen sharp rises in gas import costs in recent years, exemptions to import duties and sales taxes have led to a sharp increase in rooftop PV adoption, with the country’s total PV capacity estimated to have passed the total capacity of its conventional generators in 2025. German
legislation requires that data centres in the country will need to be supplied by 100% renewable energy from 2027, which also helps the market for co-located battery storage. In the United States, strong government support for data centre expansion underpins several deals between developers and nuclear small modular reactor developers. It also creates potentially large new markets for cutting-edge cooling and waste heat recovery technologies. With defence policy a growing preoccupation for many governments, and the reliance of modern warfare on energy storage, including for drones, national defence procurement legislation is being used more frequently for energy technologies and for supplying their critical minerals. However, it is also the case that innovators depend on policy stability to raise funds and get to market quickly, and experience periods of policy change and uncertainty as a setback
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