Financing as innovative as clean energy technology

Financing of clean energy got you down?

The Green Bank clears a key Senate hurdle, and Bank of America chairman Chad Holliday helps explain why that’s important

Last month, amidst the brouhaha of the US debt ceiling crisis, the Senate Energy and Natural Resources Committee, under the leadership of Jeff Bingaman of New Mexico, passed the the Clean Energy Financing Act of 2011, and found bi-partisan support including the ranking Republican on the committee, Lisa Murkowski of Alaska. The vote was unanimous, a rarity in DC these days.

The bill’s key provision: the establishment of a Clean Energy Deployment Administration, or CEDA, an independent institution dedicated to providing affordable financing for clean energy technologies, particularly those that have been unable to attract financing from other channels.

The so-called Green Bank is a financial entity, similar to those established in China, Germany and Canada, to help technologies through the Valley of Death.

As originally proposed by groups like the Center for American Progress, the CEDA, as an independent authority, would have the power to establish financial vehicles such as “direct loans, letters of credit, and loan guarantees, as well as indirect support such as the authority to issue bonds, convertible bonds and warrants, and purchase debt securities and other financial products,” according to a CAP outline from last year.

As passed by the Committee, the technology set has widened considerably to include support for coal and nuclear technologies – leading some on the environmental left to predict that the fund will be co-opted by the same fossil-based energy mix as the US has today.

Keeping up with China

The competitive position is clear. As CAP Senior Policy Analyst Richard Caperton wrote, “The China Development Bank Corporation has plans to finance more than $30 billion in clean energy each year going forward, while the U.S. government risks providing zero financial support if CEDA is not signed into law.”

The provision has support from some of the best known names among US business leaders.

“Innovative public financing models like CEDA are essential to leverage private sector support for advanced energy technologies,” wrote Chad Holliday and General Jim Jones of the American Energy Innovation Council in a letter to the ENR Committee in support of CEDA. “…we strongly believe that a commitment to energy innovation is a commitment to long-term prosperity. Accelerating the commercialization of advanced energy technologies will improve our national security and our economic competitiveness.”

More about the American Energy Innovation Council

GE CEO Jeff Immelt

The American Energy Innovation Council is a group of America’s top business executives who have developed a plan to make America a global leader in energy technology innovation. The Council’s members include Bill Gates, chairman and former chief executive of Microsoft; Norm Augustine, former chairman of Lockheed Martin; Ursula Burns, chairman and chief executive of Xerox; John Doerr, partner at Kleiner Perkins; Chad Holliday, chairman of Bank of America and former CEO of DuPont; Jeff Immelt, chief executive of GE; and Tim Solso, chairman and chief executive of Cummins.

The American Energy Innovation Council is a group worth noting and paying attention to. Though not a lobbying group, they are an influencer group – respected widely on Main Street, Wall Street and in DC. They were one of the instrumental voices in ensuring that ARPA-E – the advanced research projects agency for energy – continued to receive support and funding in these spending-challenged times.

The Council was officially launched last year, and since the first of the year, former National Security Advisor General Jim Jones has joined the group.

One of the real innovators in the move towards the bio-based economy is chairman of the group – Chad Holliday, former CEO of Dupont and now chairman of the Bank of America.

Holliday’s How to talk about high-tech in DC, in tough times, and to busy people

The Digest this week asked Holliday for the secret sauce in talking to people about the complex world of biotechnology and clean energy, and how to develop policy stability during a time of budget panic.

“You can’t talk down to people,” Holliday said. “Find an analogy, something they already understand – that makes it easier for them. But people understand more than you realize. Maybe not the technical details, but they understand the situation we are facing, and the more thoughtful of them want to do something constructive about it.”

And, how do you talk about the pace of change, at a time when biobased technologies and solar have made great strides, but perhaps well short of the pace expected of them?

“We all have learned, over time, that change doesn’t come in the straight line that we all prefer. It takes longer to get to an inflection point, then it accelerates significantly. We haven’t made as much progress as we thought we would when we started down this road around 15 years ago at Dupont, but the pace of innovation and change is picking up significantly, and I believe it will continue to accelerate.”

Why? It’s the data that is driving the conversation, ultimately, Holiday contends. “As [DuPont CEO] Ellen [Kullman] and her team have come in and looked at the same data that we were looking at, by and large they have continued down a similar path in terms of investing in biotechnology. As an example, the Danisco acquisition.”

Responding to the data in front of them, the American Energy Innovation Council established five key recommendations for US energy policy.

The AEIC recommendations

Recommendation 1: Create an independent national Energy Strategy Board
“The United States does not have a national energy strategy,” the Council contends. “We recommend the creation of a congressionally mandated Energy Strategy Board charged with (1) developing and monitoring a National Energy Plan for Congress and the executive branch, and (2) oversight of a New Energy Challenge Program (see Recommendation 5). The board should be external to the U.S. government, should include experts in energy technologies and associated markets, and should be politically neutral.”

Recommendation 2: Invest $16 billion per year in clean energy innovation
“In order to maintain America’s competitive edge and keep our economy strong, the United States needs sizable, sustained investments in clean energy innovation. We believe that $16 billion per year – an increase of $11 billion over current annual investments of about $5 billion – is the minimum level required. This funding should be set with multi-year commitments, managed according to well-defined performance goals, focused on technologies that can achieve significant scale, and be freed from political interference and earmarking.”

Ominously, the Council writes: “If Recommendation 2 is not adopted, our other recommendations will not matter much. Reliance on incrementalism will not do the job.”

Recommendation 3: Create Centers of Excellence with strong domain expertise
“Technology innovation requires expensive equipment, well-trained scientists, multi-year time horizons and flexibility in allocating funds. This can be done most efficiently and effectively if the institutions engaged in innovation are located in close proximity to each other, share operational objectives and are accountable to each other for results.”

Recommendation 4: Fund ARPA-E at $1 billion per year
“The creation of the Advanced Research Projects Agency-Energy (ARPA-E) has provided a significant boost to energy innovation. ARPA-E focuses exclusively on high-risk, high pay-off technologies that can change the way energy is generated, stored, and used, and has challenged innovators to come up with truly novel ideas and “game changers.”

Recommendation 5:
 Establish and fund a New Energy Challenge Program to build large-scale pilot projects
“We recommend the creation of a New Energy Challenge Program to fund, build and accelerate the commercialization of advanced energy technologies—such as fourth generation nuclear power and carbon capture and storage coal plants. This program should be structured as a partnership between the federal government and the energy industry, and should operate as an independent corporation outside of the federal government. The public sector should initially commit $20 billion over 10 years through a single federal appropriation, which would unleash significant private sector resources as projects are developed.”

The pay-off

Can innovations in the structure of new energy pay off in the nearer-term, or are these a series of investments that will only pay off in the far-off future of the 2030s and 2040s.

Holliday thinks that some of them will pay off in the near term. “I expect that we will see a great deal of transition even in this decade,” he told the Digest, “even though some of the more fundamental changes that we have talked about in our group may take a few decades.”

One thing is sure about clean energy – the support has broadened into the top echelons of American business leadership – who look at China’s investments and get fidgety. Will the federal government step up to its role? We’ll watch the progress of the Clean Energy Financing Act to see if DC is listening.