We Need Clean Energy R&D: Where are the Investors?

By Carrie R. Williams, FAS Intern

There is broad consensus that clean energy investments are critical to the long term stability, security and economic welfare of the United States.  Rep. Paul Tonka (D-NY) recently said, “We cannot cut our way to number one.  If we are to stay competitive as a nation in the long term, we must invest in new technologies, clean energy and job creation.”  But who will make the investment?

Globally, in 2010 governments invested more than $5 billion in renewable energy research and development (R&D).   By comparison, the United States invested $5 billion for all energy R&D during the same period.

In FY2012, the total proposed budget for the U.S. Department of Energy (DOE)—the lead financial supporter of energy R&D in the United States—is  $29.5 billion, with $3.2 billion going to the Office of Energy Efficiency and Renewable Energy (EERE) and $550 million for Advanced Research Projects Agency – Energy (ARPA-E).  This would represent an 11.8% increase over FY2010.  However, the House of Representatives is seeking to terminate ARPA-E and decrease EERE funding by $786.3 million for FY2012—drastically cutting the clean energy R&D budget of the federal government.

Within the DOE, EERE and ARPA-E hold the bulk of the clean energy R&D budget.  The EERE mission focuses on strengthening the United States’ energy security, environmental quality and economic vitality through public-private partnerships.  This office seeks to accomplish this mission by financially supporting organizations that work to enhance energy efficiency and productivity and/or bring clean, reliable and affordable renewable energy technologies into the marketplace.  Modeled on the DARPA funding framework, which has funded basic research to create the computer, among other technologies, ARPA-E funds high-risk, high-reward energy ventures.  Created in the America COMPETES Act, ARPA-E’s mission is to fund innovative energy technology projects with the potential to reduce foreign energy imports, cut energy-related greenhouse gas emissions, and improve efficiency across the sector.  For example, in the first round of proposals ARPA-E funded projects related to axial-flow wind turbines and crystalline silicon wafers.

Additional energy R&D and early commercialization funding is also provided through tax benefits, grants, loans and contracts created by the American Recovery and Reinvestment Act (ARRA) of 2009.  This stimulus bill created $260 billion in energy tax credits for companies and consumers, with the goal of improving the market penetration and share of efficient, clean energy technologies. However, these tax credits either have expired or will expire in 2011.

Along with tax credits, DOE also received $1.4 billion in supplemental loans, grants, and contracts for R&D which is distributed between the Office of Science, fossil energy research and development, general science and research activities and the Innovative Technology Guaranteed Loan Financing programs.

With the ARRA money ending and the DOE clean energy R&D budget likely to shrink, researchers and early commercial investors must look to alternative sources of funding and capital.

What are their options?

Chief amongst the likely energy R&D funders will be: private investors both domestic and foreign, universities, and big corporations.

In 2010, venture investment in clean energy companies rose to $5.1 billion in the United States, 23% of all venture capital investment for the year.  Meanwhile, the United Nations Environment Programme (UNEP) reports that in 2010, renewable energy investment worldwide rose to $211 billion.  While the majority of this funding goes to finance large scale deployoment projects rather than R&D or early commercialization activities, the level of financing indicates there is great interest in renewable and clean energy technologies as good monetary investments.

Large corporations that rely heavily on fossil fuels are beginning to turn to renewable and sustainable energy sources; while not a traditional source of clean energy investment, they are likely to prove to be a valuable source of R&D and commercialization funding.  Google – a company whose data centers uses 0.01% of the world’s total electricity consumption in 2010– is looking to invest $350 million in the renewable energy industry.  According to Google Green, Google has cofounded the Climate Savers Computing as well as joined The Green Grid.  These two groups are dedicated to improving efficiency and sustainability standards for computers and data centers around the world in order to reach a goal of a size zero carbon footprint. Big corporations are looking to reduce their reliance on foreign oil and reduce their impact on the environment; moreover, the cash funding available to many large firms – especially those in the technology sector – provide clean energy R&D entrepreneurs with the support needed to commercialize and develop bigger and better things in the future.

With federal funding likely on the decline, a larger percentage of energy R&D responsibilities may also fall to research universities in the U.S., including internationally recognized public universities such as Colorado State University (CSU), which has programs and researchers looking into alternative fuels, clean engines, solar energy production capabilities, “smart” grid technology, wind engineering, water resources and much more.  However, in the current weak economy, public universities – even those with the best programs and most brilliant researchers – face a high risk of budget cuts that impact hiring and merit scholarships to attract the best talent, as well as investments in laboratory facilities and new research projects.

Private universities such as Massachusetts Institute of Technology (MIT) make significant contributions to the clean energy R&D industry through research and patents as well as financial opportunities.  In 2008, Transformative Integrated Power Structure (TIPS) was developed by electrical engineers at MIT to increase the efficiency of power conversion in semiconductors, which will be cr.  TIPS has been patented and commercialized by a start-up, Arctic Sand after testing proved it reduced power losses by 50-75%.  Arctic Sand was able to capitalize on MIT intuitive research to reach out to the core market of data centers as a way to increase energy efficiency where it is needed the most.

With the United States facing the largest budget deficit it has ever seen, the federal government is committed to cut spending and reduce the deficit over the next 10 years by $1.5 trillion.  The clean energy sector can no longer depend upon federal government funding and must reach out to alternative and even unconventional sources for development support.  Reaching out to domestic and foreign investors, university led R&D and commercialization ventures, and corporate funding all have a role to play.

As Mike Bowlin, chairman and CEO of ARCO said in 1999, “We’ve embarked on the beginning of the last days of the age of oil.  Embrace the future and recognize the growing demand for a wide range of fuels or ignore reality and slowly – but surely – be left behind.”  The United States cannot afford to be left behind when the reality of federal funding slips away.  The country, its clean energy entrepreneurs, and its investors must continue to push forward the state of clean energy technology and market penetration before it’s too late.

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2 Responses to “We Need Clean Energy R&D: Where are the Investors?”

  1. Jennifer August 15, 2011 at 12:34 PM #

    The way the economic outlook is shaping up this will be left to the private sector to invest in which will stifle it’s growth. The private sector likes to invest in energy that is already profitable for the most part, and not many of these renewable energies are at this stage.

  2. Justin August 25, 2011 at 4:30 AM #

    I have worked in the energy conservation business for the last five to six years nearly exclusively save for some supplemental work at a warehouse. In having this experience with ESCO’s (Energy Service Companies) I did an audit of of one of the “sooty six” in Bridgeport, CT.

    Funny thing is that while I was doing the audit their boilers were shut down while the brand new and cleaner gas turbine power plant (and competitor) was running full tilt becuase at the time natural gas was cheaper to run than coal. This is mostly due to the fact that they are forced to import their coal from Indonesia as it is some of the lowest sulfur coal in the world.

    If you want clean “renewable” energy to be invested in one must compete at similar rates for generation as today’s conventional solid and liquid fuels. The trouble for renewable energy is that liquid hydrocarbons are so easy to transport and have a very good energy density over other alternatives.

    There are great ideas out there for more modern public works such as the rebuilding of the Hoover Dam so that it is taller, generates power more efficiently and protects and maintains the ecology in ways never considered when it was originally built.

    One thing that happened here in CT (I don’t know if you heard of it) was the Natural Gas power plant in Middletown exploding while they purged the pipes. That happened due to stupid mistakes and a fault that almost couldn’t have been prevented (the leak being behind the safety valve that functioned properly.

    anyhow…to get more capital to invest in renewable energy you have to have a solid business plan and remember that customers don’t want to pay out their rear ends for nebulous environmental goals. They want to see their costs lowered if anything.

    Find a way to produce more energy cheaper and you will definitely make a load of money.

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