Cheap, clean energy. That’s what Americans want. So does the rest of the world. There’s a race on to find it because the new industries that supply, manage, and efficiently use cheap, clean energy will be among the biggest of the 21st century. Public funding for research, development, and demonstration (RD&D), along with private investment, is required to compete in this race. But right now the United States is falling behind. In fact, as Representative Ryan Costello, Republican of Pennsylvania, put it recently, “China is cleaning our clock” in energy innovation. With the Trump administration and the House of Representatives proposing to eliminate key federal energy RD&D programs, it’s up to the Senate to keep America in the race.
The main argument for these harmful cuts is that the private sector will step in to support energy innovators. Unfortunately, there is little evidence for this proposition. Many energy innovations that the world needs are capital-intensive and take a long time to mature. They have to meet rigorous standards of reliability before they hit the market. Most private investors simply don’t have the deep pockets and patience to wait for such technologies to mature.
“Cleantech” venture capitalists learned this lesson the hard way; they lost billions over the past decade and largely pulled out of the sector. Big energy companies are equally risk-averse, and in any case, they don’t want to cannibalize their existing profitable businesses. U.S. energy innovators are too often left without the resources they need to develop new technologies and build their business case.
Smart public policy can solve this problem. Federal RD&D programs can target energy innovation projects that have both technical merit and commercial potential and provide not only funding, but also connections and visibility that help these projects become better candidates for private investment.
A proof case: the Advanced Research Projects Agency – Energy (ARPA-E). This young agency is modeled on the Defense Advanced Research Projects Agency (DARPA), which repeatedly revolutionized war-fighting by nurturing breakthroughs such as stealth and GPS. ARPA-E has created a culture of innovation by hiring brilliant program directors from outside the government and allowing them to pursue the most promising opportunities they can find to revolutionize the energy sector. ARPA-E’s support helps turn novel ideas into prototypes with major market opportunities that private investors want to get in on.
A study we conducted recently for the Information Technology and Innovation Foundation discovered that start-up firms emerging from ARPA-E-funded projects raise more private capital than other clean energy start-ups. In all, ARPA-E project teams have formed 56 new companies and raised more than $1.8 billion in private follow-on funding since the program’s founding in 2009. Most importantly, in an environment where only a small percentage of startups succeed, we find that ARPA-E start-ups have particularly high odds of being in the top 10 percent of the fundraising distribution, meaning they are among the very best investment prospects in this industry. Without ARPA-E support, these companies would likely have moved more slowly, and some might have failed.
Our findings mirror conclusions reached by the National Academies of Science, Engineering, and Medicine and Government Accountability Office and testified to by energy innovators and entrepreneurs: ARPA-E funding complements, rather than crowds out, private funding. ARPA-E helps to unlock the nation’s enormous innovation resources to tackle the urgent problem of making energy cheaper and cleaner.
Energy storage is one industry that ARPA-E has helped to jumpstart. The inability to store electricity at a reasonable cost is a huge bottleneck that limits the wider diffusion of cheap wind and solar power and slows the development of affordable electric cars. Affordable energy storage will lower electricity costs and make the grid more secure and reliable as well.
ARPA-E projects in this dynamic field have led to six new companies being formed, 20 companies accessing follow-on funding, and four companies manufacturing products. An exciting example is Primus Power, which is now commercializing a zinc-based flow battery with the potential to provide power to the grid on a large scale that is competitive with the natural-gas-powered “peaker plants” now used to meet surges in demand. Primus deployed its first system to Marine Corps Air Station Miramar in 2015 to create a secure, resilient renewable-powered microgrid and has raised over $100 million in venture capital.
Yet, just as these positive results from ARPA-E are beginning to come in, the Trump administration has proposed to eliminate it. This ill-informed proposal is just one element in a much broader assault on federal energy RD&D. Nuclear, fossil, renewables, electricity, basic energy sciences—the administration would cut them all.
Meanwhile, America’s competitors are not standing still. As Rep. Costello points out, China is moving particularly aggressively into clean energy. Energy storage is one of the industries that it is targeting by rapidly expanding capacity and promoting emerging technologies. While China’s terrible air quality provides it with plenty of internal motivation to develop this sector, it has left no doubt that it seeks to dominate world markets, too.
The Chinese cannot match American entrepreneurship and ingenuity. But unless the government supports programs like ARPA-E, the United States will lose the innovation race.
By David M. Hart and Michael Kearney
David M. Hart (@ProfDavidHart) is a senior fellow at the Information Technology and Innovation Foundation, the leading U.S. science- and tech-policy think tank, and professor at George Mason University’s Schar School of Policy and Government. Michael Kearney (@mjkearney2) is a PhD candidate in Technological Innovation, Entrepreneurship and Strategic Management at MIT’s Sloan School of Management, where he studies issues at the intersection of science, technology, and business.
Photo Credit: Clint Mason via Flickr