A Clean Energy Deployment Administration

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December 6, 2011 | Jesse Jenkins, Sara Mansur,

In a series of policy briefs released last month by the Breakthrough Institute, we document the challenges faced by clean energy innovators and entrepreneurs working to bring advanced energy technologies from the lab to market and offer policy proposals for carrying nascent technologies across the clean energy "Valleys of Death." In particular, we offer detailed recommendations for the establishment of a Clean Energy Deployment Administration, or CEDA, a flexible, independent government financing entity which would use a diverse set of financing tools to bridge the Commercialization Valley of Death.

In "Bridging the Clean Energy Valleys of Death," we provide an overview of the clean energy commercialization challenges and propose smart and efficient policy mechanisms to carry clean technologies over the Technology and Commercialization Valleys of Death. These Valleys of Death are two of the primary challenges faced by clean energy technologies, where risk and uncertainty combine with heavy capital requirements to make proving and scaling innovative technologies difficult for clean energy innovators and entrepreneurs.

Click here to read "Bridging the Clean Energy Valleys of Death: Helping American Entrepreneurs Meet the Nation's Energy Innovation Imperative."

In a companion brief, "A Clean Energy Deployment Administration: Unlocking Advanced Energy Innovation and Commercialization," we specify how CEDA could accelerate advanced energy innovation and help bring vital clean energy technologies to full commercial scale. CEDA would act as a central public-private financier for energy technologies, effectively a bank, using a diverse suite of financing tools - from loans and loan guarantees to credit enhancements and revolving investment funds - to carry emerging technologies across the Commercialization Valley of Death.

See also - "A National Clean Energy Testbeds Program: Using Public Lands to Accelerate Advanced Energy Innovation and Commercialization"

Introduction

For economic, security, and environmental reasons, the global energy system is modernizing and diversifying. Today's economies are still predominately fueled by conventional fossil energy sources first pioneered in the 19th century. The energy demands of the 21st century, in contrast, will be met by a portfolio of advanced energy technologies offering improved public health, strengthened energy security, and the affordable and reliable fuel needed for sustainable global development. The advanced energy technologies of this 21st century energy system are being invented and commercialized today, and some will ultimately become the dominant players in a $5 trillion global energy market expected to double in size by mid-century.

American innovators and entrepreneurs have historically powered extraordinary transformations of global economic markets and technology systems, from dramatically improved agricultural and manufacturing productivity to successive revolutions in transportation and communications. Fueled by American ingenuity, entrepreneurship, and the direct support of public policy, these transformations have driven the growth and competitiveness of the US economy for the past century.1 American entrepreneurs are once again poised to invent and commercialize 21st century advanced energy technologies, creating new technologies to supply global markets and meet domestic energy needs with abundant, clean, affordable, and reliable fuels.

Unfortunately, until present, the ingenuity of American entrepreneurs and the potential of the US innovation system to transform energy markets have yet to be unlocked. The commercialization and deployment of innovative energy technologies has lagged far behind the scale necessary to meet the country's energy needs, while the cost of conventional clean energy technologies is still significantly higher than the cost of generating power from fossil fuels.

One major institutional obstacle impeding this progress is the considerable difficulty entrepreneurs face in securing adequate financing to demonstrate and commercialize their promising energy technologies. Despite an upsurge in private sector investment in clean energy innovation in the past few years, private investment remains inadequate to finance the commercialization of these innovative technologies, largely because of the high capital costs and perceived risks of investing in new and unfamiliar technologies. This has left many promising energy innovations in a "Commercialization Valley of Death," where
a dearth of financing for first-of-a-kind commercial-scale demonstration projects means that many potentially game-changing technologies fail to ever make it into the marketplace. This persistent market barrier effectively insulates conventional fossil fuel-based energy technologies from new competitors, preventing a vibrant, fully competitive US energy market and impeding the development of clean, affordable, and reliable domestic energy sources.

Congress took important steps to address this Commercialization Valley of Death with the creation of the Department of Energy (DOE) Loan Programs Office, which now houses the Section 1703 and 1705 loan guarantee programs and the Advanced Technology Vehicle Manufacturing (ATVM) loan program. The recent high-profile bankruptcy of California solar manufacturer and Section 1705 loan guarantee recipient Solyndra has brought intense scrutiny to these programs, with many policymakers concerned about the independence and fiscal sustainability of the Loan Programs Office. The Commercialization Valley of Death continues to plague American entrepreneurs, however, and policymakers should take this as an opportunity for a smart reassessment of government's role in addressing the persistent lack of financing for innovative clean energy ventures.

In particular, the Breakthrough Institute recommends seizing this moment to establish a new Clean Energy Deployment Administration (CEDA), a government-owned non-profit financial entity-- effectively a bank--that offers a flexible suite of investment vehicles for promising and innovative advanced energy ventures currently trapped in the Commercialization Valley of Death.3 CEDA would replace and improve on the troubled DOE Loan Programs Office and incorporate key reforms to address lessons learned from the experience of the loan programs:

First, modeled after the US Export-Import Bank (Ex-Im) and Overseas Private Investment Corporation (OPIC), CEDA would act as a flexible and independent government financial agency, insulated from the potential for politicization and interference by White House or Office of Management and Budget officials or DOE political appointees.

Second, like Ex-Im and OPIC, CEDA's skilled team of financial experts would manage a portfolio of investments that would generate returns and become self-financing over time. Unlike one-time government payments such as grants or tax credits, CEDA would have the flexibility to re-use returns on investments to back new private investments, highly leveraging limited taxpayer resources for maximum impact.

Third, instead of relying on a single financial mechanism (e.g., loan guarantees), CEDA would be armed with a flexible tool-kit of investment vehicles and credit enhancement mechanisms to unlock and leverage private sector investment in promising advanced energy technologies.

Finally, CEDA would be exempt from the typical hiring rules of government agencies, giving it the flexibility to recruit and retain an experienced and talented staff steeped in innovative technology fields, risk mitigation and financial products, and project financing.
Structured in this manner, CEDA will play a vital role in supporting American entrepreneurs and start-up technology ventures and unlocking advanced energy innovation and commercialization throughout the nation.

A CLEAN ENERGY DEPLOYMENT ADMINISTRATION