Bill Gates, clean energy investment and the role of government

Help is still needed: where does the federal government fit in?

Kate Rowland | May 24, 2012

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It's not often in recent months that I have had cause to discuss hearings of the U.S. Senate Committee on Energy and Natural Resources here in this column.

But in light of news announced in yesterday's Boston Business Journal that Bill Gates, chairman and former CEO of Microsoft, is among the investors in Liquid Metal Battery Corp.'s $15 million Series B round, it seemed appropriate to discuss the May 22 Senate committee hearing on the American Energy Innovation Council's (AEIC's) report, "Catalyzing American Ingenuity: The Role of Government in Energy Innovation."

You see, Gates is also one of the seven members of the AEIC, an independent and informal group "who came together because of our common concern over what we consider to be America's insufficient response to one of the greater challenges facing our nation today; namely, the provision of energy," according to Senate committee written testimony of another member of the group, Norman Augustine, retired chairman and CEO of Lockheed Martin Corp.

Clearly, Gates is putting his money where his mouth is on this topic.

Cambridge, Mass.-based Liquid Metal Battery Corp. is in the midst of commercializing a new battery technology, invented in the laboratory of MIT professor Donald Sadoway, with aims to transform grid-scale electricity storage. According to the Boston Business Journal article, the Series B investment round will allow the company to "bring its technology to market for applications that include facilitating full integration of variable renewable generation like wind and solar; relieving grid congestion, reducing the need for power plants; and transmission and distribution infrastructure."

Augustine, who spoke to the U.S. Senate Committee on Energy and Natural Resources this past Tuesday about the AEIC's report, made it clear that, while his written testimony drew from the work of the AEIC and its two reports to date, he had no special authority to speak for the group as a whole. "I do, however, believe that my testimony represents the general view of my colleagues," he wrote.

I'd like to share here a bit of Augustine's presentation of the dilemma facing clean technology innovators, in the eyes of the AEIC, because I think it points directly to the struggles being faced by the innovators of our industry today.

"America's investment in energy innovation from the public and private sectors together is less than one-half of one percent of the nation's energy bill," Augustine told the committee. "[Our] second report addressed the limited but important role the federal government will need to play in catalyzing American ingenuity as it seeks to meet the energy demands of the future," he wrote.

"In pursuing this process [of innovation] it is not uncommon to encounter what many innovators refer to as 'The Valley of Death' - that period where an idea appears promising but has not yet been demonstrably shown to be workable in practice - and therefore is deemed to risky by most investors. To surmount the latter generally requires financial resources - thus the dilemma.

"In many of the potential avenues for providing large quantities of energy there is also a second 'Valley of Death.' This latter valley is the gap that spans from proof-of-principle using, say, a prototype, to verification of market utility, including economic viability, with a near commercial-scale demonstrator. The latter valley, which also deters investors from participating, is a consequence of the characteristic that the steps in the process of developing new forms of energy often come in large quanta, making it very expensive to remove uncertainties as to ultimate scalability of an otherwise promising project.

"Further complicating energy innovation is the capital intensiveness of most forms of energy production, delivery and storage, a characteristic that makes the economic threshold for replacing old plants with new ones very high.

"In short, due to the risk entailed, private sector investment will often be unavailable to assist in crossing either of these important developmental gaps. In the case of basic research, market payoffs are usually well over a decade in the future, and may not exist at all. In the case of scalability, the size of the investment required is often large and the results uncertain. But in spite of these consideration, the development of new energy sources remains of critical importance to the nation ... hence means of overcoming them must be found."

One comment in his written testimony particularly stood out: "The energy dilemma seems to be exactly the sort of issue which governments are designed to help solve, at least in democracies with free enterprise markets," Augustine wrote. "That is, this is a case wherein there is an important benefit to be had by the citizenry as a whole but private resources cannot, or will not, provide that benefit because of financial risk, extensive delays in receiving returns, small or even negative returns and the possibility that the returns will not even accrue to the investor or performer."

The Senate committee heard testimony from two other representatives at that hearing, as well: Ethan Zindler, who is head of policy analysis for Bloomberg New Energy Finance, and Jessie Jenkins, director of energy and climate policy for Breakthrough Institute. Check my blog, here, for insights from their testimony, as well.

Kate Rowland
Editor-in-chief, Intelligent Utility magazine
Energy Central
krowland@energycentral.com

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Comments

Government investment: yes or no?

 

Jack, I think you would have appreciated some of the suggestions Jessie Jenkins, director of energy and climate policy for Breakthrough Institute, made in his written testimony (which I was unable to add, given the length of this article). I'll try to summarize them here.

He suggested that a new suite of advanced energy deployment policies should:

  • Establish a competitive market.
  • Drive cost reductions and performance improvements.
  • Provide targeted and temporary support for maturing technologies.
  • Reduce subsidy levels in response to changing technology costs.
  • Avoid technology lock-out and promote a diverse energy portfolio.
  • Provide sufficient business certainty, and
  • Maximize the impact of taxpayer resources and provide ready access to affordable private capital.

He went on to note that, "Along with the key reforms to deployment policies listed above, the nation should pursue policy reform along three additional fronts." These were also detailed, but I'll just provide the bare bones here. They were:

  • Steadily increase investment in R&D while reforming and strengthening the U.S. energy innovation system.
  • Implement effective policies to accelerate commercialization of advanced energy technologies.
  • Harness advanced manufacturing, regional industry clusters, and a world-class energy workforce to enhance America's innovative edge.

 

It will be interesting to see how (and IF) this plays out in any meaningful fashion.

Kate

The Role of Government

I agree with Mr. Augustine's characterization of the two potential "Valley's of Death".  Bridging both gaps is an appropriate role for government, provided it's done in an intelligent way that recognizes and clearly acknowledges the high likelihood of failures and limits the cost of those failures by tying incremental funding to clear performance, reliability and cost targets.

However I do not think it's a prudent use of taxpayer money for government to spur commercialization by subsidizing large-scale deployments or by imposing mandates.  Prepature deployments have proved costly, and we simply can no longer afford to throw enormous sums of money at energy technologies in the hope one or two will eventually succeed.

Jack Ellis, Tahoe City, CA

Weathering the "Valleys of Death" with Existing Infrastructure

Innovative technologies will provide a path towards future energy management and independence.  However, to ride through the development, test, and commercialization process will require that existing infrastructure and technologies maintain economic growth and prosperity.  The management and economical operation of the existing infrastructure is central to enabling the development of new technologies.

Knowledge of existing infrastructure conditions will allow an appropriate assessment of maintenance strategies and useful life of facilities to be relied upon until the commercialization of new technologies comes to fruition.  Benchmarking the transmission grid condition and monitoring the changes in condition year-to-year will provide feedback as to the effectiveness of maintenance strategies, environmental impact, and aging trends.

It is appropriate and important to evaluate the transmission grid at a national level and establish these benchmarks and measures as a strategic assessment strategy.

 

John L. Lauletta, CEO, Exacter, Inc.