This document is a staff working paper of the BPC’s American Energy Innovation Council. It is currently under review and will be released formally this fall.
“One often cited concern with tripling our innovation budget is: Where will this money go? Our answer is demonstration and deployment projects.” – AEIC’s 2020 report Energy Innovation: Supporting the Full Innovation Lifecycle
The American Energy Innovation Council (AEIC) has been working since 2010 to advance policies aimed at strengthening America’s innovation capabilities in clean energy technology. As decarbonization efforts gain momentum worldwide, leadership in developing and commercializing zero-carbon and negative carbon technologies are critical strategic and competitive priorities for the United States. The AEIC’s Scaling Innovation Advisory Group, which includes entrepreneurs and experts from industry, finance, academia, and government, came together to focus on critical but often challenging steps in the innovation lifecycle: demonstration and early deployment.
This focus is prompted by a recognition that demonstration is often the weak link in transitioning a technology from the early stages of innovation (i.e., research and development) to a commercial product and mass deployment. Yet despite the importance of demonstrations—to develop critical technical and operational know-how and to reduce the project, operational, and financial risks associated with deploying a new technology—the federal government’s track record of supporting early scaleup, large scale demonstration, and deployment of commercial scale first-of-a-kind energy innovations is mixed at best.
How this track record might be improved through a strengthened and more focused federal role is the
subject of this paper. Our central recommendations are for Congress to:
- increase funding for the Advanced Research Projects Agency–Energy (ARPA–E) and bolster that agency’s new Seeding Critical Advances for Leading Energy Technologies with Untapped Potential (SCALEUP) program focused on early scale-up and piloting technology and
- create a new independent federal institution—called, for purposes of this discussion, the Energy Demonstration and Finance Corporation (EDFC)—that would have the financial tools and project management capabilities to better support large-scale energy technology demonstrations and deployment.
The AEIC has been a strong supporter of ARPA-E and views the expansion of the agency’s capabilities to pilot new technology as a statutory responsibility and key to filling the early-stage demonstration gap. The SCALEUP program can help bridge the valley of death between research, development and demonstration by supporting earlier scale-up and pre-pilot projects and helping to advance technologies along the innovation lifecycle. Few other entities have the flexibility and expertise to conduct this important activity, yet it is impossible to move into large-scale demonstration without performing these critical steps in the innovation process. Through ARPA-E’s SCALEUP program, a robust pipeline of technologies will be ready for large-scale commercial demonstration and deployment supported by the EDFC highlighted below.
The creation of an EDFC would be a monumental change in how the U.S. commercializes energy technologies. This wholly-owned government corporation would combine the project development and large-scale demonstration capabilities of the (proposed) DOE Office of Clean Energy Demonstrations and Loan Program Office, the financing tools of the (proposed) Clean Energy Deployment Administration (CEDA), and the governance structure of both the (proposed) Energy Technology Corporation (ETC) concept and the (actual) International Development Finance Corporation (DFC).
In particular, with respect to the creation of a new EDFC, the AEIC recommends:
- an initial congressional authorization and upfront appropriations of $60 billion for at least 10
years of operation,
- a focus on large-scale demonstration and early-stage deployment of advanced energy technologies,
- an independent board of directors nominated by the president and with the advice and consent of the Senate to govern the organization,
- special hiring authority to attract individuals with energy sector experience who have specialized financial and technical skills, including individuals outside the professional civil service system who could be hired on a temporary basis at commercially competitive salary levels,
- granting the organization a broad set of financial tools, including contract, grant, and cooperative agreement authorities as well as an ability to provide direct loans, loan guarantees, letters of credit to provide security for a project’s offtake agreement in the event of default, equity investments, insurance products, securitization for resale, and other means of secondary market credit enhancement
Establishing the EDFC would be a natural step in DOE’s evolving approach to supporting the energy commercialization and the innovation process. In the short-term, strengthening DOE’s loan programs and launching a new Office of Clean Energy Demonstrations within DOE will help build financial and project management capabilities and fill important gaps in the existing innovation system. In the longterm, the EDFC, as an independent agency, would better coordinate and execute these capabilities in one entity that has a degree of additional freedom from political interference.
The ARPA-E early pre-pilot demonstration and the EDFC large-scale demonstration and deployment proposals complement previous AEIC recommendations, which call for tripling the federal government’s overall investment in energy innovation, growing ARPA–E’s budget to $1 billion per year, and creating a New Energy Challenge Program to demonstrate energy breakthroughs at commercial scale.
To provide context for these recommendations, we begin by reviewing AEIC’s work in 2020 on largescale project demonstrations, then we outline the case for a meaningful federal role in closing the demonstration and deployment gaps. This paper concludes with an overview of the Energy Demonstration and Finance Corporation concept in more detail and connects this proposal to experience with existing institutions and to similar concepts that have been proposed elsewhere.