How to close the energy innovation gap

Aerial view of Potomac River Green plan
The Potomac River Green plan would create a new energy innovation complex at a former coal plant site in Alexandria, Virginia. The coal plant, which is owned by NRG Energy, was shut down in 2012.

This is part 1 of 2. Read part 2 here.

The Supreme Court’s dramatic February decision to stay President Barack Obama’s Clean Power Plan — potentially upending America’s efforts to curb global warming emissions and its international credibility under the Paris climate accord — has given the debate on energy innovation a new importance. 

After all, if U.S. law and regulation does not provide a reliable means for tackling global warming, then doubling down on innovation to displace fossil fuels is a smarter bet. The payoff could moot future legal wrangling over climate action.

But what is the best way to accelerate energy innovation? Thus far, the debate mainly has centered on the need to spend more on clean energy R&D as compared to clean energy deployment or deployment-driven innovation. 

Much less attention has been given to whether sufficient funding is available for other crucial parts of the innovation agenda — that is, not just for breakthrough science, but for early-stage commercialization of inventions (to technology transfer) and, as important, for crafting new market and policy models so the most promising clean energy technologies can scale. 

Current investments in the last category — market and policy innovation — have fallen well short of the need and deserve a much higher priority from new innovation initiatives, such as Bill Gates’ Breakthrough Energy Coalition and the 20-nation Mission Innovation program. Major philanthropists and NGOs will need to step up as well.

Getting the funding right for new market and policy models is essential because, when it comes to energy, unlike other sectors, successful innovation rarely turns simply on having a better invention or novel technology. To achieve a meaningful impact, especially in terms of greenhouse gas emissions, legacy systems and infrastructure — such as electricity grids and fueling infrastructure — must be addressed. To succeed, a breakthrough technology must either win over the prevailing energy system or co-opt it. 

This typically presents enormous challenges. When it comes to electricity generation and transportation — the  two energy systems responsible for the bulk of global GHG emissions — system change and disruptive innovations are far from welcome. The bitter legal fight over the CPP is only one case in point.

Besides, even if the Supreme Court ultimately finds the CPP lawful, the impact on energy innovation may be limited. The CPP’s modest goals (a 32-percent reduction in power plant CO2 emissions by 2030), and the wide latitude states have in crafting compliance plans all mean that more is likely to be spent on "modernizing" coal-fired power plants and new natural gas facilities than novel zero-carbon generation. 

The hard truth is that when it comes to making deep emissions reductions, the CPP’s innovation deficit is part of a broader policy gap. Most of America’s current policy tools — pollution controls, federal tax credits, efficiency standards, state renewable power mandates, net metering — are designed to bolster the current suite of climate-smart technologies including wind and solar, not tomorrow’s. 

Beyond that, in the electricity sector, policies and business strategies that may be effective at delivering 10, 20 or even 30-percent reductions in GHG emissions can become counter-productive in moving from 30 to 50 percent or greater reductions. Far too little time and money is being devoted to crafting next-generation market and policy models to achieve deep de-carbonization of the electric grid and our transportation networks. Carbon taxes may help, but much more granular grid and market specific tools will be needed.

There are several ways to reduce this innovation deficit. They include:

1. Allocating a significant portion of any new energy innovation fund to market and policy R&D.

2. Involving policy and regulatory experts at every stage of R&D funding decisions.

3. Making the de-carbonization of the transportation sector a priority (it is now the weakest link in most national climate action plans).

4. Creating a new U.S. center to house breakthrough energy science, policy and market initiatives, and to provide a permanent, high-profile national forum for energy innovation. See, for example, the Potomac River Green plan above. "

Before filling out these proposals, let’s take a closer look at the current debate on how best to close the innovation gap. 

Bill Gates and his critics 

The renewed debate owes much to the extraordinary efforts of former Microsoft Chairman Bill Gates to close a widely acknowledged shortfall, vis-à-vis other high tech industries, in the level of R&D funding. Closing this gap has become something of a mission for Gates, convinced that many current clean energy technologies are not reliable or cheap enough to accomplish the deep GHG reductions climate action requires, especially in the face of the rising demand for electricity by the developing world. 

Gates said we "need innovation that gives us energy that’s cheaper than today’s hydrocarbon energy, that has zero CO2 emissions, and that is as reliable as today’s overall energy system." In short, said Gates, putting "all those requirements together, we need an energy miracle."   

For that to happen, Gates argued, the pace of energy innovation must be greatly accelerated: "[G]overnments and the private sector should invest far more in clean-energy research, development and deployment."

Gates used last year’s historic climate talks in Paris to announce that he was upping his prior commitments to energy innovation through a new private investment fund, the Breakthrough Energy Coalition, to be backed by 28 other billionaires, with rolling five-year investment cycles. It is committed to investing "early, broadly, boldly and wisely." It will "support a wide range of approaches … electricity generation and storage, transportation, industrial use ... and energy systems efficiency." And it will "look for novel technologies" as well as "ways to make existing technologies dramatically cheaper and more efficient or more scalable."

In Paris, Gates also helped to catalyze Mission Innovation, a new 20-nation public partnership led by the U.S., France, China, Brazil and India. These countries, which account for roughly 80 percent of the public R&D budget, pledged to double funding for clean energy R&D over five years. Obama’s latest budget request makes good on the U.S. pledge by proposing to boost federal investment in clean energy R&D to $12.8 billion in 2021.

Much of the new funding will go to the Department of Energy, headed by Secretary Ernie Moniz, who shares many of Gates' views. Today, the DOE provides the bulk of pre-commercial R&D funding for clean energy through a dozen research labs and the Advanced Research Projects Agency — Energy. 

At the Paris climate talks, Moniz told the Scientific American:

We've had a lot of cost reduction and innovation and deployment increases [for clean energy]. That virtuous cycle has put us in a pretty good spot to meet a 10-year horizon, maybe a 15-year horizon [for emission reductions]. For sure, as we go to the longer time periods and extraordinarily low levels of greenhouse gas emissions being discussed, we're going to have to keep that going.

Despite the support of Moniz and deep-pocket energy investors, some climate activists believe that Gates’ emphasis on long-term R&D may tend to divert money and attention from where it is most needed — namely, to clean energy deployment. "[D]on’t believe for one second that we don’t already have the technology" to stem climate change, said Jigar Shah, a solar power entrepreneur, in a LinkedIn post responding to Gates.

"We can always use more and achieve better. ... What we need now is deployment," said Shah. "From India to Kenya to Brazil, we need to put people to work … to sell build and service a [cleaner] infrastructure." 

This table lists several technologies that may yield breakthrough products based on Bill Gates’ prior investments and the Breakthrough Energy Coalition background paper. Their impact on our current energy systems generally is at least a decade away and, at least in the industrialized world, all face large market and regulatory challenges to deployment.

Joe Romm, who runs the widely read blog ThinkProgress, has been blunter: "For six years, Gates has claimed that we are wildly underinvesting in basic energy R&D. Yet somehow the very thing Gates says he wanted — huge price drops in key low carbon technologies … and key enabling technologies (like batteries for storage) — kept happening." 

In Romm’s view, as with the nascent PC industry which bolstered Microsoft, expanded deployment has driven energy innovation by creating scale economies and bringing technologies down the learning curve. 

"While a boost in cleantech R&D is always welcome, what is most needed now is money for accelerated deployment and project financing for technologies that are now market–ready," Romm wrote.

The seeming divide among climate activists on energy R&D versus deployment masks a good deal of common ground. Most important, both sides agree that whether talking about today’s clean-energy options or tomorrow’s breakthroughs, from an emissions standpoint what matters most is how fast and how widely the market adopts a zero or low carbon technology. 

Hence, both sides of the debate have a strong common interest in removing barriers that can make or break any clean energy product. (These barriers may be different, of course, between industrialized and developing ones, where the grid and legacy suppliers are less powerful.) 

Ben Gaddy, director of technology at Chicago’s Clean Energy Trust, recently put it this way: "The debate is not about whether technology R&D is important (no serious voices are claiming that it isn’t)." Accordingly, he said, let’s focus more on common paths to adopting the most promising energy technologies, on breaking down "the regulatory barriers to deploying existing, cost-competitive technology."

Likewise, said Gaddy, let’s spend more time on business model innovation, which often has proven the key to scaling new technologies (such as third-party financing of rooftop solar PV). "With all of the clean energy solutions available today, what can we do to get them to market more quickly, and how do we ensure that there are businesses focused on this?”

In other words, we already know that promising products birthed by clean energy startups face daunting regulatory and market hurdles that no single company or venture investor may surmount. To make it easier for the next generation of breakthroughs to scale commercially, we’ll need to be much more innovative as well on the market and policy front. That goes for clean energy investors, too.