A Shining Star of Bipartisan Cleantech Support

Amid all the negative publicity that Solyndra’s failure has brought to the Administration’s cleantech efforts, one cleantech program has received broad bipartisan support: DOE’s Advanced Research Projects Agency – Energy (ARPA-e). In 2012, ARPA-e will receive $275 million, a 53% increase from the prior year with both the House and the Senate supporting significant funding for the agency’s third year of operations.

ARPA-e is modeled after the Defense Advanced Research Projects Agency (DARPA), which for over 50 years has funded early-stage research projects that show the potential to develop technologies that could yield disruptive advances for the military. DARPA’s projects have resulted in major leaps including, but definitely not limited to, the Internet, stealth technology and the Global Positioning System. Both agencies operate by soliciting proposals from companies, universities, and labs within broad thematic areas and select the most promising proposals for grant awards.

Readers of my blog know that I am not a big fan of some of the Administration’s cleantech efforts. ARPA-e is at least one exception. Authorized in the last year of the Bush Administration and initially funded through the Obama Administration’s American Recovery and Reinvestment Act (ARRA), the ARPA-e program may be one government program that can help seed the disruptive advances needed in our energy economy.

Why, given the negative publicity around government funding for cleantech projects, has ARPA-e been able to win bipartisan support?

Focus on early stage R&D

Government-funded R&D has long been an area of bipartisan support. Most members of Congress believe (as do I) that the government has a role in funding early-stage research and innovation in areas of public interest where the private sector is unable to economically justify conducting such R&D given the high degree of risk. Unlike the DOE loan program that funded Solyndra’s factories, the purpose of the ARPA-e grants are to fund high-risk, high-reward R&D projects that industry alone cannot support, but whose success could dramatically benefit the nation.

Grants (of reasonable size) not investments (of enormous size)

The bulk of the Administration’s cleantech investments were funded through the ARRA including the initial funding for ARPA-e. Since ARRA’s purpose was to stimulate the economy, government agencies, including DOE needed to get funds out the door as quickly as possible (unfortunately this failed). That led to many extremely large awards of both grants and loan guarantees. Just a few high profile examples — $527 million to Solyndra (bankrupt), $465 million to Tesla, $249 million to A123, $76 million to Range Fuels (bankrupt), $43 million to Beacon Power (bankrupt) and $25 million to Amyris. Some of these awards were grants; others were loans where the government hoped to get a return on its investment.

Unlike many other programs handing money out for cleantech related efforts, ARPA-e’s awards have all been grants made with the clear understanding that they are for high-risk R&D that often will not work out. In no case is there an expectation of a financial return to the government. Anytime a government program expects to make a return on investment it is, in my opinion, likely to fail both because the government is inherently flawed at making good business decisions and because politics usually won’t allow for even a single failed investment.

ARPA-e grants to date have averaged $2.9 million and have gone to 180 different projects. As a result, ARPA-e largely avoids the minefield of government trying to play businessman as well as the negative PR fall-out from large project failures. In addition, while politics can play a role in any grant process, the smaller the awards the less potential for political influence to outweigh project merit.

Energy Independence & Global Warming

ARPA-e’s guiding legislative mandate is to enhance the economic and energy security of the United States through the development of technologies that reduce energy imports, reduce energy-related emissions including greenhouse gases, and improve energy efficiency in all economic sectors. By combining the goal of energy independence with reduced greenhouse gas emissions the program is able to appeal to a much broader array of elected officials. If the program only focused on reducing greenhouse gases, I strongly suspect there would be much less support from Republicans. By avoiding the polarizing nature of focusing only on global warming or only on energy independence, ARPA-e is able to appeal to a broad audience.

One of the best ways to help solve our energy challenges is through disruptive energy technologies. If ARPA-e can deliver for energy technology even close to how well DARPA has delivered for defense technologies it will ultimately have a large impact on the economy, energy security and the environment. To achieve this, ARPA-e must remain nimble and avoid being sucked into the massive DOE bureaucracy. If it is able to do so, I suspect it will continue to have bipartisan support and will be a long-term shining star in the Administration’s cleantech efforts.

(Note: ARPA-e will hold their annual Innovation Summit February 27-29)

David Gold heads up cleantech investments for Access Venture Partners. He is also the author of the GreenGoldBlog.

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