How can the world finance a massive scale up of clean energy technologies?
That is the topic of the Clean Energy Group’s latest report, “Strategies to Finance Large-Scale Deployment of Renewable Energy Projects: An Economic Development and Infrastructure Approach.” The report, commissioned by the International Energy Agency (IEA), treats decarbonization as fundamentally an economic and infrastructural transformation, similar in scale and scope to the construction of the carbon energy economy and the buildup of industrial transportation and telecommunication infrastructure.
The benefits to such a transformation are clear, according to the report’s authors, but current incentives do not drive public, private, or hybrid institutions to invest in the type of innovation needed to scale and deploy clean energy technologies. To that end, the report seeks clarity on a policy framework by addressing these key questions:
- Which policies can influence clean energy infrastructure investments to perform like (or better than) traditional infrastructure, industrial, and municipal bonds?
- What kinds of policies will reduce risk and generate competitive returns for clean energy?
- Are existing investment institutions sufficient or should new institutions help restore investor confidence where it has been eroded by a history of changing or short-term policies?
Implicit in these questions is an acknowledgement of clean energy’s high risk profile and capital intensity. As the Breakthrough Institute documents in a new policy brief released last month, the combination of risk and capital requirements too often lands innovative energy technologies in one of two “Valleys of Death.” Unproven prototypes encounter obstacles in attracting risk capital for early-stage development and demonstration, while proven technologies find it difficult to meet capital requirements for full-scale deployment.
The Clean Energy Group report highlights the financing and institutional barriers to innovative energy technologies. These barriers include technological lock-in, insufficient risk-reward expectations to investors, and value chain gaps in manufacturing and workforce. Overcoming these obstacles will require smart, efficient public policy. As we write in our new brief, “Bridging the Clean Energy Valleys of Death” (PDF), new policies and institutions are required to effectively drive innovation and development from lab to market. Two of our major program recommendations are a Clean Energy Deployment Administration (CEDA) and National Clean Energy Testbeds Program (NCET), which would, respectively, bridge the financing gaps encountered by developing energy technologies and utilize public lands and waters for large-scale demonstration and deployment.
The Clean Energy Group report is right to highlight the vital role of public policy in aligning interests and incentives towards a pro-technology, pro-growth agenda that drives development and delivers low-cost, high-performance clean energy technologies to the market.
The report also eschews the tired and simplistic “innovation versus deployment” debate so often encountered among experts trying to shape a clean energy future. Joining other recent analyses – such as “Two Degrees of Innovation” from the World Resources Institute, “Transforming US Energy Innovation” from Harvard’s Belfer Center for Science and International Affairs, and Unlocking Energy Innovation from Richard Lester of MIT and David M. Hart of George Mason University – the Clean Energy Group report offers an innovation vision for the whole development pipeline, from early laboratory research to full commercial maturity. Innovations in this view, as the report documents, are scientific, technological, institutional, and financial. These are not mutually exclusive categories, and the step-wise innovations that occur through development can and do feed back into other phases of the innovation system.
The systems-scale approach to energy innovation is a compelling model for policymakers, engineers, and entrepreneurs alike. Recommendations like public-private R&D consortia, a public procurement agenda, and an emerging technology auction mechanism for utilities show the breadth and scope of the report’s deployment agenda. A challenge as massive and complex as global decarbonization will require nothing less than a systems-wide approach. As the report concludes:
Starting the clean energy economy has required considerable public effort, private risk taking, and creative finance. While in some ways it feels as if we have only just begun and there is so much more to achieve, we have learned a great deal from the technological, financial, and policy perspectives of the last two decades. However, now is the time to apply this critical knowledge in a manner that results in accelerated large scale deployment of renewable energy projects through an integrated, economic development approach to clean energy infrastructure and market expansion.