Bill Gates sees the transformative potential of low-cost energy. “Cheaper energy would be on the list of the three or four things you would want for the poorest people in the world,” he said Tuesday at the 2012 Energy Innovation Summit, sponsored by ARPA-E, the Department of Energy’s three-year-old advanced energy research agency.

Cheaper energy with no new greenhouse gases would allow for improvements in other parts of these people’s lives, freeing up money for fertilizer, lighting, and other significant investments. “Without advances in energy,” Gates said, “they stay stuck where they are.”

But energy innovation is hard and requires more investment. Gates called energy research “greatly underfunded,” saying we should be spending twice as much. “It’s crazy how little we are funding this energy stuff,” he added.

Gates admitted that the rapid pace of innovation in the computer industry may have warped people’s views about the difficulty of the energy challenges and may partly explain the low levels of investment. In contrast with personal electronics, he pointed out that gigantic capital investments will be needed to change the way we generate energy.

The mandate for ARPA-E is to identify and fund potential breakthrough technologies that are at a very early stage of development, just beyond the level of laboratory work. Gates noted that failure is part of the process of innovation.  “It’s a very complex set of technologies,” he said, “We need literally thousands of companies doing these things to get the ten or so who are going to get it right.”

In Gates’s view, the prospect of failure does not preclude tackling ambitious projects. For example, Terrapower, a startup company Gates has supported, is exploring advanced nuclear designs, making use of the modeling power of supercomputers.

He has even provided some funding for research into geoengineering, something he characterized as a drastic step that might one day have to be considered if our energy practices don’t change fast enough. Drawing an analogy, he asked, “Is heart surgery preferable to a good diet? Of course not. Let’s go for the good diet.”

To the hundreds of scientists in the room, each working to develop the next breakthrough energy idea, that sounded pretty appetizing.