R&D drivers and obstacles to innovation in the energy industry

- Firm size matters for R&D engagement but not for intensity in the energy industry.
- R&D effort is related to objectives oriented to process innovation and efficiency.
- Main barrier hampering innovation is market dominance of incumbents.
- Financial constraints are not an obstacle to innovation in the energy industry.
- Uncertainty of demand does not hamper innovation in new energy services.

The energy industry is facing substantial challenges that require the fostering of innovation. In this paper we analyse the main drivers of R&D investment and obstacles to innovation in this industry. We examine, firstly, whether the stated R&D objectives pursued by firms play a role in their R&D effort. Secondly, we analyse the effects of financial, knowledge and market barriers on the innovation outcomes of the firms. The data is taken from the Technological Innovation Panel (PITEC) for Spanish firms for the period 2004-2010. We use a structural model with three equations corresponding to the decision to carry out R&D or not, the R&D effort, and the production of innovations. The results of the econometric estimations show, first, that R&D intensity is positively related to process innovation. Second, the main barriers that hamper innovation in the energy industry are related to market factors while financial and knowledge obstacles are not significant.