Innovation and Entrepreneurship in the Energy Sector

Abstract

Historically, innovation in the energy sector proceeded slowly and entrepreneurial start-up firms played a relatively minor role. We argue that this may be changing. Energy markets are going through a period of profound structural change. The rise of hydrofracturing lowered fossil fuel prices so much that natural gas is now the primary fuel for electricity generation in the US. Renewable energy technologies also experienced significant cost and performance improvements. However, integrating intermittent resources creates additional grid management challenges, requiring further innovation. This chapter documents the evolving roles of innovation and entrepreneurship in the energy sector. First, we provide an overview of the energy industry, highlighting that many new energy technologies are smaller, modular, and increasingly rely on innovation in other fast-moving high-tech sectors. We then conduct two descriptive data analyses that document a sharp decline in both clean energy patenting and start-up activity from about 2010 onwards. We discuss potential explanations and provide some evidence that while innovation in existing technologies may simply have been successful, continued innovation will be needed in enabling technologies that are more likely to depend on progress in other sectors.