ARPA-E Needs Customers for its Clean Energy Breakthroughs

Author: Lewis Milford, Clean Energy Group | Projects: Clean Energy Innovation, Clean Energy Finance

blogphoto-ARPA-EThe Administration rightly has asked for increased funding for the DOE venture like funding of ARPA-E though the House budget decreases ARPA-E funding. Our friends at the Brookings Institution have supported the call.

That funding would be a good thing, but ARPA-E is missing something to make it truly a success – customers for its product.

Many new clean energy technologies that DOE now supports through loan guarantees or ARPA-E — such as storage or next generation solar — have no commercial markets today. The products are unproven, technically risky, and more expensive than fossil-fuel power sources.

That is as expected; they are designed to produce big payoffs further down the road.

But a program that focuses only on early research, while ignoring the longer-term, market realities, is problematic. Indeed, ARPA-E officials once said at a public meeting that they have a major problem with their program — they have no guaranteed customers for the projects they fund with hundreds of millions of federal research and development dollars.15 This is a major gap that can and must be overcome to make good on the excellent research funding that has been put in place.

The need for a customer was not a problem for the agency on which ARPA-E was modeled, the Defense Advanced Research Projects Agency (DARPA) of the Department of Defense (DOD). DARPA’s advanced military technologies had a ready customer — DOD itself. DOD served as marketer, guarantor, and ultimate customer to get these emerging technologies, regardless of cost, off the ground and into commercial readiness. DOD served all these key functions because national security was at stake.16

Unfortunately, in the case of energy security, no such customer exists for early-stage, clean energy technologies funded by ARPA-E and DOE. Unless the federal government steps in to fill this procurement role, these emerging technology investments may well languish in a research limbo, and the country will be the loser for it.

To overcome this gap, federal agencies, with states, could aggregate a small amount of their huge, annual electricity demand to pull early technologies into the market and at the same time prove their success to the private sector. Some of this gap could be filled by more creative requirements for utility procurement of emerging technologies, such as reverse auction mechanisms.

The federal government and the states together built the infrastructure we see every day – roads, bridges, highways, and rail. We need the same infrastructure partnership on clean energy, to create the power systems of this new century.