Time line to completion
So many of us balk at two year contracts for our cell phones that there is talk of making such requirements illegal. But energy projects, by their size and complexity, look out over years, if not decades. Commercial and industrial customers look to spread their costs over ten to twenty years, and contracts cover contingencies like future business failure, the sale of properties, or the prospect of renovations that may affect the long term viability of the original project.
Kevin Walsh, managing director and head of Power and Renewable Energy at GE Energy Financial Services states, "GE Energy Financial Services supports the creation of CEDA or a similar institution because it would expand the availability of low-cost capital to the projects and companies in which we invest, and it would help expand the market for technology supplied by other GE businesses."
Michael Holman, analyst for Lux Research, noted that a $25 million investment in Google morphed into $1.7 billion 5 years later. In contrast, a leading energy storage company started with a $300 million investment, and 9 years later valuation remains uncertain. These are the kinds of barriers that can stall the drive we need for 21st century technologies.
Looking to help bridge the gap in new cleantech and biotech projects, is a proposed government-based solution called the Clean Energy Deployment Administration (CEDA). There is a house and senate version, as well as a house Green Bank bill to provide gap financing. Recently, over 42 companies, representing many industries and organizations, signed a letter to President Obama, supporting the Senate version, the "21st Century Energy Technology Deployment Act."
Both the house and senate bills propose to create, as an office within the US Department of Energy (DOE), an administration which would be tasked with lending to risky cleantech projects for the purpose of bringing new technologies to market. CEDA would be the bridge needed to ensure the successful establishment of the green economy, by partnering with private investment to bring the funding needed to get these technologies to scale. Both versions capitalize the agency with $10 Billion (Senate) and $7.5 Billion (House), with an expected 10% loss reserve long term.
By helping a new technology move more effectively through the pipeline from idea to deployment, CEDA can substantially increase private sector investment in energy technology development and deployment. It can create a more successful US clean energy industry, with all the attendant economic and job creation benefits.
CEDA funding could be seen as beneficial for even the most unlikely corporations. Ted Horan is the Marketing and Business Development Manager for Hycrete, a company that sells a waterproof concrete. Hardly a company that springs to mind when we think about clean technologies, he recently commented on why Hycrete CEO, Richard Guinn, is a signatory on the letter to Obama:
"The allocation of funding for emerging clean energy technologies through CEDA is an important step in solving our energy and climate challenges. Companies on the cusp of large-scale commercial deployment will benefit greatly and help accelerate the adoption of clean energy practices throughout our economy."
In his opinion, the manufacturing and construction that is needed to push us out of a stagnating economy will be supported by innovation coming from the cleantech and biotech sectors.
Google's Dan Reicher, Director of Climate Change and Energy Initiatives, has been a supporter from the inception of CEDA. He has testified before both houses of Congress, and was a signatory on the letter to President Obama. Google's interest in clean and renewable energies dates back several years. The company is actively involved in projects to cut costs of solar thermal and expand the use of plug-in vehicles, and has developed the Power Meter, a product which brings home energy management to anyone's desktop-for free.
Financial support includes corporations like GE Energy Financial Services, Silicon Valley Venture Capital such as Kleiner, Perkins Caulfiled and Byers, and Mohr Davidow Ventures, and Energy Capital including Hudson Clean Energy and Element Partners.Can something like the senate version of CEDA leap the Valley of Death?
As Will Coleman from Mohr Davidow Ventures, said, "The Devil's in the details." The Senate version has two significant changes from previous proposals: an emphasis on breakthrough as opposed to conventional technologies, and political independence.
Neil Auerbach, Managing Partner, Hudson Clean Energy
The clean energy sector can be a dynamic growth engine for the US economy, but not without thoughtful government support for private capital formation. **[Government policy] promises to serve as a valuable bridging tool to accelerate private capital formation around companies facing the challenge, and can help ensure that the US remains at the forefront of the race for dominance in new energy technologies.
Coleman said that "breakthrough" includes the first or second deployment of a new approach, not just the game changing science-fiction solution that finally brings us limitless energy at no cost. The Bloomberg New Energy white paper uses the term "First of Class." Bringing solar efficiency up from 10% to 20%, or bringing manufacturing costs down by 50%, would be a breakthrough that would help us begin to compete with threats from China and India. Conventional technologies, those that are competing with existing commercialized projects, would get less emphasis.
Political independence is top of mind for many who spoke or provided an analysis of the bill. Michael Holman, analyst at Lux Research, expressed the strongest concerns that CEDA doesn't focus enough on incentives to bring together innovative start-ups with larger established firms.
"The government itself taking on the responsibility of deciding what technologies to back isn't likely to work-it's an approach with a dreadful track record. That said, it is important for the federal government to lead - the current financing model for bringing new energy technologies to market is broken, and new approaches are badly needed."
For many, the senate bill has many advantages over the house bill, in providing for a decision making process that includes technologists and private sector experts.
"I think both sides [of the aisle] understand this is an important program, and must enable the government to be flexible and employ a number of different approaches. The Senate version empowers CEDA to take a portfolio approach and manage risk over time, which I think is good. In the House bill, CEDA has to undergo the annual appropriation process, which runs the risk of politicizing every investment decision in isolation and before we have a chance to see the portfolio mature." - Will Coleman, Mohr Davidow.
Michael DeRosa, Managing Director of Element Partners added,
"The framework must ensure the selection of practical technologies, optimization of risk/return for taxpayer dollars, and appropriate oversight for project selection and spending. **Above all, these policies must be designed with free markets principles in mind and not be subject to political process."
If history is any indication, rarely are those in the middle of game-changing events aware of their role in what will one day be well-known for their sweeping influence. But what we can see clearly now is the gap between idea and commercial maturity. CEDA certainly offers some hope that we may yet see the cleantech age grow up into adulthood. But will we act quickly enough before all of the momentum and hard work that has brought us this far falls flat as other countries take leadership roles, leaving us in the dust?
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