The New Infrastructure Bill Looks to Solve a Clean Energy ‘Valley of Death’ — New Energy Risk

By Brentan Alexander, PhD, President

Last week, the US House of Representatives finally advanced the Infrastructure Investment and Jobs Act, capping a years-long effort to pass a variety of important domestic programs. The many provisions in the 2,740 page bill include billions of dollars in funding to support clean energy technologies and fight climate change through investments ranging from electric vehicle infrastructure to public transit. Much more is needed to avert climate catastrophe. However, there is one section of the infrastructure bill that will at least unleash numerous climate-friendly technologies: the Office of Clean Energy Demonstrations.

The road from technology research and development to massive deployment at scale is long and arduous. Along the way, innovators face a number of challenges and roadblocks, so-called “ valleys of death, “ that must be overcome in order to achieve success. Early on, funding must be sought to advance lab-grown ideas for continued research and development. For technologies designed to fight climate change such as direct-air carbon capture and industrial green hydrogen, reaching the broader market means raising hundreds of millions of dollars from low-cost institutional capital sources for each single deployment of their technology.

Traditionally, government support programs in the US for climate-friendly infrastructure have been aimed at the valleys of death on either end of this development and commercialization pathway. Grant programs, including from the highly successful Advanced Research Projects Agency — Energy (ARPA-E), have focused on early-stage research and development. Deployment programs, such as the loan guarantees awarded 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 that have developed a working technology through research activities find themselves unable to attract the financing needed for their commercial deployments without first de-risking their technology at large scales. Therefore, climate technologies face a catch-22 at this stage in their growth: Large-scale demonstration is needed to prove technology and unlock capital, but capital is needed to fund large-scale demonstration. It’s a unique problem not faced elsewhere, including in software, where code developed in a garage can be scaled to billions of users worldwide with the press of a button. Traditional risk-capital sources, from venture capital to private equity, are poorly placed to fill the gap and fund demonstration projects due to a mismatch between their investment models, the capital intensity of clean infrastructure, and the comparatively long time horizons for returns. Whereas government programs could fill in for the private markets, those aimed at this space have been limited: ARPA-E’s SCALEUP program has deployed $75 million in total since its inception, and other programs like the $200 million investment in the Petra Nova carbon capture project were essentially one-offs.

Into this void steps the soon-to-be-formed Office of Clean Energy Demonstrations. Established under the DOE, this new office includes just under $21.5 billion in funding to be deployed over the next few years. Its formation is a significant achievement and comes with great promise. Its mandate is designed to enable the demonstration of next-generation climate technologies and position these solutions for later large-scale commercial deployment, ideally financed by private markets.

Achieving success, however, is not guaranteed. Like any government program born of compromise, the budget for this new initiative 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 electric grid. This structure will limit the program’s ability to allocate resources to the most impactful solutions dictated by developments in technology and the marketplace. Further, the office will require DOE oversight of the execution of programs funded by the office. Oversight ensures careful stewardship of public dollars, however if taken too far it can limit the flexibility of technology developers, stifling innovations and slowing deployments.

Finally, locating this program within the DOE risks igniting bureaucratic turf wars that could undermine program objectives and exposes the office to shifts in the political climate. Run poorly, this new office could suffer the fate of LPO, which wandered in the wilderness for years after the public failure of Solyndra (though that was followed by a recent reinvigoration). Run well, the office could equal or surpass the impact of bipartisan-backed ARPA-E by funneling billions of dollars in needed resources to climate innovators ready to prove their technologies and deploy at scale.

Many of the most impactful programs for climate are awaiting the passage of the companion reconciliation bill still working its way through Congress. From tax credits for carbon capture to investments in clean energy deployment, the reconciliation bill will put billions of dollars more to work to fight climate change. Those billions, in addition to the billions of dollars in the private sector earmarked for ESG-positive investments, will flow toward good technologies with a demonstrated track-record. The Office of Clean Energy Demonstrations has the potential to accelerate the new energy technologies we need to ensure all those billions of dollars are put to the most effective use.

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Originally published at https://newenergyrisk.com on November 15, 2021.

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New Energy Risk helps insure technical risk for breakthrough tech to optimize cost of capital, accelerate time to market, and provide certainty of execution.

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