All Paths Lead to … Energy Innovation!

bulb By Salome Saliashvili and Apoorv Bhargava

When entering a new place, should you push or pull the door? There’s usually a moment of hesitation.  As clean energy enters a period of tremendous innovation, there is also a question of push vs. pull. The Department of Energy (DoE) is actively testing out both approaches. DoE has the unique ability to use programs such as the Loan Guarantee to push technologies to market, but also to pull solutions from the market through awards and incentives. Through these and other efforts, DoE plays a critical role in catalyzing and enabling the market to develop clean energy solutions that are essential to decreasing carbon emissions, strengthening the grid and transforming the current energy paradigm.

Pulling innovation involves setting a gleaming finish line and encouraging the market to race towards it, in a variety of creative ways, including competitions and awards programs. The method works by stimulating the entrepreneurial genius – in line with the American spirit of creativity. The alternative approach - i.e. pushing innovation - necessitates getting more involved with individual technology solutions. Pushing innovation usually involves providing funding to accelerate speed to market.  These methods therefore tend to focus on reducing risks associated with technologies that have great promise, but are currently struggling with market readiness.

At a November Clean Energy Leadership Institute (CELI) lecture, Jennifer Garson from DoE’s Energy Efficiency and Renewable Energy (EERE) office discussed how DoE’s applies these two approaches to innovation with a group of CELI fellows. Ms. Garson manages a program that pulls innovative solutions at the university level and brings them to market. Through regional competitions, student-led companies can earn a spot in the National Clean Energy Business Plan Competition, which included  over 70 startups in. In its third year, the EERE program has already helped to develop an entire ecosystem around technology commercialization on the local level across the nation. (I think a sentence here of one example company could really strengthen this!) As Ms. Garson points out, there is an enormous business opportunity in clean energy.

On the other side of the equation, DoE’s Loan Programs are an example of employing the push method to help reduce the cost of capital for fledgling technologies with immense potential. When a technology has promise but poses high risk, the risk/reward ratio may be too high to attract sufficient private capital. In these situations, the government is arguably in the best position to internalize the risk, especially when the technology serves a public good or public policy purpose.

In evaluating the relative merit of these methods, there are two main questions: (1) Does pushing innovation yield superior results to pulling technology? And (2) As the only market player large enough to absorb more risk, are the government’s resources best spent giving out funding (taxpayer’s dollars) without collecting a return, or by lending them to more risky projects? So what’s the right answer?  The answer is...there isn’t one.

Both approaches have been successful at stimulating the market and spurring innovation in clean energy. However, their relative effectiveness depends on the stage of development of the product.  Early-stage technologies that have not been proven are still considered very risky are better supported by the more targeted assistance of a push strategy, whereas more mature products are better served by pull approaches that solicit and stimulate their development.

California is a great example of this decision-making process at the state level. California passed a storage mandate for the state’s mammoth investor-owned utilities – a goal which can only be met with significant innovation.  The state created a carrot, and now it is up to the private sector to meet the need. California’s mandate mirrors the model used by Defense Advanced Research Projects Agency at the Department of Defense (DoD). In effect, DoD sets both the supply and the demand for the domestic defense sector.  DoD releases a description of desired technology and promises to buy the product once it’s developed. The market delivers. The process is mesmerizing. If a goal is set, by regulators or by service providers, with a promise to buy, one would not be wildly off base to presume that ingenuity will deliver.

The end goal of either approach should be a sustainable environment where both society and the economy can flourish side by side. There is no silver bullet to innovation. National entrepreneurship rates are decreasing. Research and development funding is down across all sectors. At the same time, energy innovation becomes more urgent every day.  Consequently, all options should be on the table. So, if you figure out an alternative way to pushing or pulling (maybe even lifting?) technology innovation – let everyone know; we need to be doing that too.