obama's budgetPresident Barack Obama’s newly unveiled fiscal 2014 budget request supports a number of strong energy innovation policies, including an Energy Security Trust Fund to support next-generation transportation energy R&D and increased funding for the Advanced Research Projects Agency-Energy (ARPA-E). Another promising proposal is a Race to the Top for grid modernization. This relatively modest $200 million program would be the first of its kind for energy and could be an interesting pilot project for using similar policy models to bridge the gap between energy research and the market.

The original Race to the Top was a $4 billion Education Department contest to spur educational reform at the state level. That program awarded points to states for implementing certain reforms or achieving benchmarks, such as turning around low-achieving schools, with the leading states receiving grants depending on their share of the federal population of children.

Earlier this year, a commission chaired by Senator Mark Warner (D-VA) and National Grid US President Tom King recommended applying a comparable model to state energy efficiency policies. The commission report states, “Best practices need wider dissemination…An energy productivity competition that similarly provides federal resources and rewards states for progress toward becoming more energy productive could spur significant advances in efficiency throughout the nation.” The president embraced the idea and proposed it in his 2013 State of the Union address: “Those states with the best ideas to create jobs and lower energy bills by constructing more efficient buildings will receive federal support to help make it happen.”

The proposal in the president’s 2014 budget request expands on this idea to not only target energy efficiency, but grid modernization more broadly. Specifically, the budget request allocates $200 million to a Race to the Top program that would reward state governments for policies that involve “modernizing utility regulations to encourage cost-effective investments in efficiency, including combined heat and power and demand response resources, and in clean distributed generation; enhancing customer access to data; investments that improve the reliability, security and resilience of the grid; and enhancing the sharing of information regarding grid conditions.” The goal is that the policy acts as an incentive for states, utilities, and local governments to implement aggressive policy reforms that cut energy waste pursuant of the president’s stated goal of doubling energy productivity by 2030.

Race to the Top for grid modernization is attractive from an innovation perspective because it ties performance to public investment. Linking research to performance and market goals has proven effective at ARPA-E, which is empowered to halt funding for award grantees if they fail to meet certain technology improvement benchmarks. Similarly, ITIF – along with organizations like the Breakthrough Institute, Brookings Institution, and World Resources Institute – has called for tying the wind production tax credit to technology cost and performance improvements as a means of pushing the wind industry towards subsidy-independence.

Ultimately, energy innovation policies involve not only boosting support for R&D, manufacturing, and technology demonstration and transfer, but also improving how those policies are implemented. The Race to the Top is one potential way of more effectively leveraging federal research dollars. Of course, the grid modernization Race to the Top program exists only as a proposal on paper. But its existence, even just in paper form, is a promising sign that policymakers are thinking creatively about how to foster energy innovation.