Financing Renewable Energy Innovation & Development – Lessons from Abroad

Cathryn Courtin
Authored by: Cathryn Courtin, Student Scholar, The Horinko Group

While in attendance at the United Nations climate negotiations in Doha, Qatar, delegates dispute many aspects of international action on climate change, one question that underlies every conversation is: How will the proposed changes be funded? A piece of this funding question has to do with investment in renewable energy and how to scale-up the clean technologies that are needed to bolster emissions mitigations.

Panel discussions that went on in events parallel to the negotiations in Doha addressed this question and helped to break down the funding challenge while providing potential solutions.

Marcel Alers, Principal Technical Advisor at the United Nations Development Program (UNDP), outlined a UNDP program that uses public resources to leverage private investment in order to transform the market so that renewable energy becomes a lasting part of the power supply. The projects are focused in developing countries where many barriers to renewable energy investment and development differ from countries like the United States. The fundamental issue, however, is the same. The risk-reward profile of renewable energy does not attract enough private investment to be economically feasible. To remedy this, UNDP projects attempt to shift this profile and create an enabling environment for private sector investment to scale-up renewables in two ways: first, through policy derisking measures to remove underlying barriers that cause risk and second, through financial derisking measures to transfer risk away from private investors. Fifteen of these projects were analyzed and documented in UNDP’s Transforming On-Grid Renewable Energy Markets. Findings included the notion that every country needs a tailored approach to removing barriers and reducing investment risk.

Returning from Doha, it was refreshing to see that the Department of Energy (DOE) had just announced a national investment in Research and Development (R&D) for energy storage technologies that could contribute to changing the risk-reward profile for renewables in the United States. The investment consists of $120 million over five years to Argonne National Laboratory for its new role as the leader of the Joint Center for Energy Storage Research (JCESR). A true collaborative effort, JCESR incorporates the efforts and expertise of five DOE labs, five universities, and four private companies. The State of Illinois will also contribute $35 million to the project. The research laboratories and university researchers in the project plan to produce breakthrough basic research while simultaneously working closely with industry partners to convert this research into market-ready clean energy storage technologies. This aspect of the partnership is essential.

The goal of JCESR is ambitious. It aims to develop revolutionary technologies within five years, with five times the energy density of existing technologies, at one-fifth the cost. Advanced battery technology promises to be essential to the future of renewable energy. Intermittent energy sources like wind and solar would stand to gain a reliable means to store power cheaply when the sun is not shining and the wind is not blowing. The energy storage and battery technologies developed would also improve the reliability and efficiency of the electrical grid as well as the performance of electric and hybrid vehicles, leading to reduced reliance on foreign oil. According to JCESR’s Director George Crabtree, achieving this goal would “overcome manufacturing barriers and reduce the investment risk for American industry.”

The Argonne innovation hub serves as an example of smart public investment in renewable energy. U.S. Rep. Dan Lipinksi (D-IL), called it “the greatest opportunity that we have seen in a long time to bring federal funding that’s intended to promote the creation of new companies and jobs.” If successful, it would serve as an excellent model of using public resources to shift the risk-reward profile of clean energy to catalyze private sector investment.

The question of success leads back to another event in Doha, this one hosted by the Intergovernmental Panel on Climate Change (IPCC), the scientific body that informs the negotiations. It included presentations by two researchers who contributed to the most recent IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation. The study includes a comprehensive analysis of policies for research, development, and deployment of renewable energy. One of its “most robust” findings is that R&D investments, like the DOE energy storage research investment, are most effective at inducing innovation when coupled with other policy instruments that target deployment of renewables. Deployment policies include grants, rebates, tax credits (for production or investment), tax reductions, guarantees, loans, public procurements, etc.

This is a particularly relevant finding to the U.S. case because at the moment, a policy to enhance deployment of wind energy, the wind production tax credit (PTC), is currently being debated in Congress. Up for debate is whether or not the credit will expire this year or continue into next year. The PTC was part of the “tax extenders” package that already passed the Senate, but it is now held up in Congress as part of negotiations about the fiscal cliff and debt reduction. The wind PTC is thought to have adequate bipartisan support, but there is a stalemate at the moment over the broader fiscal cliff package.

The PTC could be regarded as an example of a deployment policy to accompany the R&D investment announced by DOE. Therefore, the IPCC findings provide further evidence of the merits of extending the credits. Unfortunately, the issue is now does not hinge on the merits of the policy but instead on more contentious political debates and decisions about debt reduction. The policy could help to bolster the success of R&D investments at Argonne, but proponents of wind development and renewable innovation can only wait and hope for the best.

More avenues to shift the risk-reward profiles of renewables and catalyze private investment must be explored. The U.S. has taken good steps toward doing so with the Argonne innovation hub. Policy that would enhance wind development is currently being debated, and the tax credit will hopefully be extended. Deployment policies for other renewables and clean electric vehicles might provide added support to the R&D funding and encourage the transformation of the energy market so that renewables become a lasting component.

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