Late Friday night, the United States House of Representatives finally brought forward the Law on investment in infrastructure and employment, the culmination of a multi-year effort to advance a variety of important national agendas. The many provisions of the 2,740-page bill include billions of dollars to support clean energy technologies and fight climate change through investments ranging from electric vehicle infrastructure to public transit. While more is needed to control climate change, there is one section of the infrastructure bill that has the potential to trigger the deployment of climate-friendly technologies: the Office of Clean Energy Demonstrations.
The road from research and technological development to massive large-scale deployment is long and difficult. Along the way, innovators face a number of challenges and obstacles, called “valleys of death”, Which must be overcome in order to succeed. Early on, funding must be found to take ideas forward out of the lab and continue research and development. Later, companies must move beyond early adopters to the larger, more risk-averse market. For technologies designed to tackle climate change such as direct carbon capture in the air and industrial green hydrogen, reaching the larger market means raising hundreds of millions of dollars from low-cost sources of institutional capital. for each unique deployment of their technology.
Traditionally, government support programs in the United States for climate-friendly infrastructure have targeted the valleys of death at either end of this development and commercialization path. Grant programs, including some very successful Advanced Research Projects Agency – Energy (ARPA-E), focused on research and development at an early stage. Deployment programs, such as loan guarantees granted by the Loan Programs Office (LPO) under the Department of Energy (DOE), have supported projects and technologies proven enough to be ready for commercial scale deployments.
Between these stages, there is a yawning gap. Innovators who have developed functional technology through research activities find themselves unable to attract the necessary funding for their commercial deployments without first reducing the risks of their large-scale technology. Climate technologies face failure at this stage of their growth: a large-scale demonstration is needed to prove the technology and unlock capital, but capital is needed to fund a large-scale demonstration. This is a problem not encountered elsewhere, including in software, where code developed in a garage can be adapted to billions of users around the world with just the push of a button. Traditional sources of venture capital, from venture capital to private equity, are ill-placed to bridge the gap and finance demonstration projects due to a mismatch between their investment models, the capital intensity of infrastructure clean and relatively long return horizons. Government programs for this space have been limited: ARPA-E TO AUGMENT has deployed a total of $ 75 million since its inception, and other programs like the $ 200 million investment in the Petra Nova carbon capture project were mostly one-off.
This is where the soon-to-be-formed Clean Energy Demonstration Office comes in. Established as part of the DOE, this new office has funding of just under $ 21.5 billion to deploy over the next several years. His training is an important achievement and is very promising. The office’s mandate is designed to enable the demonstration of next-generation climate technologies and position these solutions for further large-scale commercial deployment, ideally funded by private markets.
Success is not guaranteed, however. Like any government program born of compromise, the budget for this new office has already been allocated to specific industries and solutions: approximately $ 500 million for energy storage demonstrations, $ 2.5 billion for advanced nuclear. , $ 3.5 billion for carbon capture, $ 8 billion for hydrogen, and $ 5 billion for the electricity grid. This structure will limit the ability of the program to allocate resources to the most impactful solutions dictated by technological and market developments. In addition, the office will require the DOE to oversee the execution of programs funded by the office. Oversight ensures prudent management of public funds, but if taken too far, it can limit the flexibility of technology developers, stifle innovations and slow deployments. Finally, housing this program within the DOE risks triggering bureaucratic turf wars that could undermine the objectives of the program and expose the office to changes in the political climate. Poorly managed, this new office could suffer the fate of the LPO, which roamed the wilderness for years after the public failure of Solyndra before a recent revitalization. Managed well, the office could match or exceed the impact of the two-party-backed ARPA-E by channeling billions of needed resources to climate innovators ready to prove their technologies and deploy them at scale.
Many of the most impactful climate agendas are still awaiting passage of the reconciliation bill, which is still making its way through Congress. From tax credits for carbon capture to investments in deploying clean energy, the reconciliation bill will put billions of additional dollars to work in the fight against climate change. These billions, in addition to billions from the private sector looking to move towards positive ESG investments, will need good, proven technologies. The Office of Clean Energy Demonstrations has the potential to accelerate the new energy technologies we need to ensure that all of those billions are used in the most efficient way.