Federal Investment Is Key to Growth of Clean Energy Industry

Article April 21, 2015 By: Phyllis Cuttino Read time:

Projects: Clean Energy Initiative

Energy is not only the lifeblood of the U.S. economy, but it is also the third-largest industry in the country. American innovation and entrepreneurship, in partnership with our strong supply chain and educated workforce, have given birth to new technologies and positioned the United States at the forefront of the $6 trillion global energy market. Federal investment in scientific discovery and applied science is transforming the marketplace for new critical emerging sectors, making it possible for products and processes previously only researched and tested to achieve full-scale deployment. The Energy Department is a key player in this arena: One of the agency’s most important missions is to support research, development, and demonstration (R&D) to advance new technologies.

Government investments have given us nuclear power, solar photovoltaics (PV), hydraulic fracturing, smart grids, and more. They also have helped reduce product costs and spurred the new domestic markets we see today. Yet remarkably, since the mid-1990s, energy-related investments accounted for only 1 percent of the federal government’s R&D budget. By contrast, over the same period, the defense and health sectors received almost 50 percent and 25 percent, respectively, of federal research monies.¹

Take for example the Department of Energy’s Loan Programs Office, which invests in early-stage experimentation and provides access to monetary instruments such as direct loans and loan guarantees to help bring new technologies to scale. By offering loan guarantees to qualifying applicants, private financiers are given certainty that if the borrower defaults, the Energy Department will repay the lender.²These direct loans and guarantees make it possible to bring new technologies fully to scale, simply by reducing the risks associated with backing new ideas.³ The availability of low-cost capital to encourage full-scale growth of energy products and processes has been crucial to advancing emerging industries.

In February, the Loan Programs Office released a new report about the role the Energy Department played in encouraging improvement in solar power generation and driving the domestic success of the sector. In 2009, no solar PV facilities larger than 20 megawatts were operating in the United States because developers could not secure the funding necessary to build them. To address this market barrier, the office provided $4.6 billion in loan guarantees to support the first five PV arrays larger than 100 MW. Since the end of the program in September 2011, 17 more large-scale installations have been financed without guarantees, and industry officials expect another 5 gigawatts of utility-scale PV to be built in 2015 alone.⁴ This kind of catalytic effect—early government funding that helps overcome financial barriers and encourages private investment—is critical to continued growth of the clean energy sector and the broader U.S. economy.

View U.S. Department of Energy graphic: Launching New Markets.

The Loan Programs Office’s funding of $46 million in 2014 was its highest appropriation in the past five years. But President Barack Obama’s 2016 budget request includes just $17 million for loan programs. This level of funding is insufficient to generate the economic, national security, and environmental benefits that America needs. Given the scale of the opportunity before us, to grow the economy and supply the world with new clean energy innovations, this amount is simply too little. By 2030, renewables will account for 60 percent of all new capacity and garner 65 percent of the $7.7 trillion that businesses and nations will invest in power generation, according to Bloomberg New Energy Finance.

As Congress considers funding across all government departments and agencies for fiscal year 2016, it is crucial that it adopt higher levels for technology development and project deployment and include additional financing to advance energy research in the United States. These investments can help improve the domestic industry, create jobs, enhance the manufacturing base, reduce carbon pollution, provide an important chance to export goods to developing markets, and increase our competitive position in one of the most significant growth sectors of this century. Congressional appropriation decisions will affect American prospects in the world’s expanding clean energy economy, and the current level of funding is simply not enough to capitalize on the remarkable opportunities that exist.

For more information on the Department of Energy’s role in furthering the competitiveness of the country’s clean energy sector, see Pew’s fact sheets on innovation.