Transforming the Energy Economy: Options for Accelerating the Commercialization of Advanced Energy Technologies

This workshop was supported by a grant from Booz Allen Hamilton

EXECUTIVE SUMMARY

On December 1–2, 2010, a group of senior representatives from government, industry, finance, and academia convened at Harvard Kennedy School for a workshop on "Energy Technology Demonstration." The purpose of the workshop was to discuss options for accelerating the commercialization of advanced energy technologies, which are needed to meet the mounting energy challenges facing the United States.

Given the diverse constituencies present at the workshop, the expectation was that a simple consensus would not emerge. Three shared policy goals, however, shaped the discussion: energy security, economic competitiveness, and environmental sustainability.

The focus of the workshop was on the demonstration stage of the technology innovation cycle. Current policies do not adequately address the private sector's inability to overcome the demonstration "valley of death" for new energy technologies. Investors and financiers fear that the technology and operational risks at this stage of the cycle remain too high to justify the level of investment to build a commercial-sized facility.

There is general acceptance that the government has a positive role to play in support of R&D. It is also accepted that the private sector is ultimately responsible for deployment and will only do so if it is incentivized by an adequate expected return or by regulation, both of which are influenced by government policy. There is less consensus on support for the more challenging demonstration stage, and limited support demonstration projects from current policies.

Many participants agreed that demonstrations are particularly important to the energy innovation system because: (a) they are currently a bottleneck and a rate-limiting step to the commercialization of energy technologies; (b) they test new business models that provide critical knowledge to different stakeholders; and (c) absent a clear price signal, the need to support innovative energy technologies becomes more urgent.

Several policy principles and recommendations are outlined in the report. The most important of these are:

• Long-term policy: The most consistent theme from the workshop was that if government wants to unlock private sector investment, it must create a predictable and sustainable policy environment.
• Materiality: Government support for accelerating the commercialization of energy technologies should focus on projects that have the potential to have a material impact on one or more of the three key policy objectives.
• Public-private partnerships: Because the ultimate objective is to enable the private sector to move any new capability forward into the market, government policy should emphasize working with industry, obtaining private sector input, and enabling private sector investment.
• Unproven technologies: Currently there are no permanent mechanisms for supporting the demonstration of unproven innovative technologies. While some of these may "fail," the potential benefit from those that do succeed could be huge and would dwarf a more risk-averse portfolio. Further, it is the unproven as opposed to the proven, where government support can create the greatest benefit.
• Information dissemination: There is a clear public interest in making the information acquired from demonstration projects more widely available, although this will need to be balanced with the protection of private intellectual property rights to ensure private sector participation in these projects.
• Exit strategy: Government support for technology demonstration and deployment projects should be conditional on performance and based on transparent performance benchmarks, and if these are not met, funding should be discontinued. In other words, the government should have a clear strategy for ending its support of under-performing projects.
• Targets and objectives: Targets for demonstration programs should be based on technical performance criteria as opposed to far-reaching, large-scale production targets, which can be expensive and inefficient, as their achievement often depends on technological advances and commodity prices.
• Portfolio approach: The government should adopt a portfolio approach that supports a range of competing technologies, and a variety of policy and financial mechanisms. However, given the large scale of investments, not all projects and technologies can be supported, and real-world constraints dictate a need to be selective. For instance, some participants prioritized support for CCS and nuclear energy, due to their potential to address the overarching policy objectives, and their high cost which makes it very difficult to attract private financing.

There was broad, although not universal, support for two policy initiatives currently being discussed by policy makers. One is the Quadrennial Energy Review (QER), which was recently proposed by the President's Council of Advisors on Science and Technology (PCAST) to bring some much-needed coherence, stability, and predictability to energy policy in the United States. The other is the Clean Energy Deployment Administration (CEDA), which was viewed by many as a useful policy tool for enabling energy technology demonstrations. The fact that CEDA has already received bipartisan support in the Senate was an important factor in the support.

There was substantial agreement that the U.S. government cannot wait to accelerate the commercialization of novel energy technologies: speed is of the essence. Even if the private sector were able to commercialize new technologies without government assistance in the long term, to the extent that government action could catalyze early adoption, the economic, security, and environmental benefits of such early adoption would justify expanded government intervention. In addition, some experts expressed the view that the United States risks ceding leadership in too many energy technologies to other countries. The United States continues to be a world leader in the invention and design of revolutionary energy technologies, but unless it recaptures its leadership in the commercialization of these technologies, other countries will capture greater market share, and the jobs and economic benefits will accrue to those countries instead.