While you cannot predict what kinds of technology innovation will occur, policies must be in place to make it worth innovators while to invest in risky propositions. This has to happen on two levels.

First, there must be a fair platform for competition. Developing a technology which is preferable to its competitors (in terms of efficiency, cost-effectiveness, or environmental impact) is useless if it cannot gain a foothold in the market. Regulators have to try to think about the energy market as much like an open source template as possible- to encourage entrepreneurs to invest time and money in developing new technologies. A good example of this is in electricity markets, where regulations often oriented to be utility-centric and do not encourage new entrants into the market- such as companies who may want to bundle packages of efficiency, smart building management, and distributed generation to provide alternative energy services to individual users. Net-metering, rate- reform, more friendly contracting and finance terms, and interconnection standards are all instances where policy could be oriented to be more open platform and encourage competition.

This has obvious consequences for entrenched industry- as new energy service companies would divert revenue streams from existing utilities. However, PUC’s have the authority to restructure incentives to meet changing energy conditions. With electricity demand flat or declining over the next few years, these changes may have to take place anyways.

Second, the market needs some predictability. Right now, partisan bickering has left clean energy project costs dependent on a fluctuating series of incentives and credits- while incumbent fossil fuels enjoy a relatively stable series of tax breaks and reimbursements, access to low-cost capital through structures like MLP’s, no costs imposed on carbon, and well-established commercially viable technologies.

Oddly enough, if either party’s pure ideology came into play- innovation would have a chance. If the free market folks won out, and you cut tax breaks and other indirect subsidies to fossil fuels (maybe pricing carbon), clean energy would have a shot. Innovators would see the window, and charge. On the other hand, if clean energy got the same subsidy breaks which fossil fuels have enjoyed- both at the beginning of their entry to energy markets, and currently- it would be competitive and innovators would have incentive to make moves.

However, the cherry-picking policies in place leave clean energy holding the bag. Intermittent and uncertain tax and subsidy support paired with not opening up low-cost capital (MLP’s, REITS’s) for clean energy, while refusing to consider closing tax loopholes or a carbon price for fossil fuels is chilling for any kind of new energy innovation which doesn’t rhyme with “shmyfaulic pracking.”

Again, there will be losers in this fight- no doubt about it. But, successful energy innovation either helps an existing technology meet objectives better- or comes up with something new to meet those objectives. This, by its nature, displaces existing technology. But successful innovations open up new supply chains, or as was the case with IT, new employment sectors which more than compensate.

American ingenuity and hard-work, if put to the task of innovating new clean energy technologies, will place the U.S. on the cutting edge of competitiveness on the world stage. However, these innovators need policy signals which show that, if they invest their time and effort in this space, there is the potential for a big payoff. The end result will be a transformed domestic and global energy system which will have economic dividends across a cross-cutting range of stakeholders.

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