Energy Innovation

This is the third of a four part series chronicling highlights from my seven-city tour, Energy Innovation Across America. The first stop was a tour of Salt Lake City’s energy innovation ecosystem, which can be found here. And highlights from my tours of five Department of Energy National Labs can be found here. My goal was to meet energy innovators from across the country and bring their stories and perspectives back to Washington. For a brief introduction to the series, visit here, and for information on the Millennial Trains Project, see here.

Pulling into Chicago’s Union Station in a 1940’s era California Zephyr is a historical juxtaposition. When the Zephyrs were in service in the mid-20th century, Chicago was a city in transition. Its biggest industries, such as meat-packing, were in significant decline, representing America’s decades-long shift from a manufacturing economy to one based on services. When the Zephyr returned to Chicago in August 2013 as part of the Millennial Trains Project, we found Chicago at the center of another economic shift, from fossil fuels to clean energy.

As the United States clean energy economy continues to slowly grow, Chicago, and the Midwest more broadly, is taking a prominent role in accelerating its development. I sat down with two leading groups in this effort, the Clean Energy Trust and the Energy Foundry. Both organizations have unique beginnings, but sit together at the center of the Midwest’s burgeoning energy innovation ecosystem, aiming to solve the most significant barriers to moving breakthrough clean energy technologies to market.

Building a Regional Clean Energy Innovation Cluster

In many ways, the Midwest already has many of the pieces needed to support a thriving clean energy industry. The state is home to a number of innovative institutions – including Argonne National Laboratory, University of Chicago, Illinois Institute of Technology – and big-money investors, which are already representing the foundation for a strong clean energy innovation ecosystem, but the area has been less typically recognized as a hotspot for the kinds of entrepreneurial activity fostered in places like California and New York. To confront this challenge, former Hyatt CEO Nicholas Pritzker and Invenergy founder Michael Polsky thought that something was needed to bring it all together and formed Clean Energy Trust (CET) in 2010. As Pritzker said in a 2011 interview, “We can make up a lot of ground quickly, with focus, because of the natural advantages Chicago has.”

CET’s goal is to bridge the gap between research and market commercialization — otherwise known as the valley-of-death — by bringing together entrepreneurs, researchers, and potential funding sources. It is partnered with the Department of Energy to develop the annual Clean Energy Challenge, which brings in students, entrepreneurs, and start-ups aimed at winning investor exposure, seed money, and business plan mentorship. It has additionally created a clean energy exchange that brings together information across the region’s stakeholders so that it is easier to make connections among investors and start-ups. And it actively works in the policy space to address barriers to energy innovation.

While CET brings the research and investor community together, Chicago’s Energy Foundry (EF) does the investing themselves. EF was created through the 2011 Illinois Energy Infrastructure Modernization Act, the states landmark, 10-year $2.6 billion electric grid investment bill, as a tool for spurring game-changing smart grid innovations. The law directed Illinois’s two major electric utilities — ComEd and Ameren — to invest $22.5 million in the creation of what became EF.

EF utilizes an evergreen model (investment profits are reinvested in future investments) that provides early-stage capital along with mentoring assistance for start-ups and test bed support from ComEd and Ameren. Both utilities provide unique grid demonstration facilities to test next-gen grid technologies in real-time on the grid, microgrid, or as an experiment in a household setting. As Jeremy Adelman, Vice President of the Energy Foundry put it to me these test beds, “are like private R&D facilities open to the public like a National Lab.” In practice, EF is capable of not only financially supporting an emerging grid technology, but connecting those technologies directly to its consumers to pilot, demonstrate, and scale-up.

Regional Energy Innovation is all about Bridging the Valley-of-Death

What CET and EF have in common is that much of their focus is on bridging the valley-of-death — the gap in funding and technology development support between success in the research lab and market commercialization.

It was the one common thread during all of my discussions in Chicago, which included conversations with representatives from Mid-West energy start-ups like SiNode Systems, Bearing Analytics, and others. Both SiNode Systems and Bearing Analytics have benefited from CET’s efforts, notably winning seed money from its Clean Energy Challenge and advancing to the Department of Energy’s National Clean Energy Business Plan Competition. In June, SiNode Systems took the top spot in the competition and Bearing Analytics was a finalist. And in April, EF made its first venture investment in Root3 Technologies, an energy data analytics start-up based in Chicago.

In reality, the valley-of-death largely exists and is perpetuated by a lack of policy support. The federal government traditionally (though this is changing) invests in early-stage research through the National Labs and universities. Industry typically invests in incremental product development and will not pick up a new idea until there is good certainty of commercial success. Angel investors and venture funds expect a large enough rate of return on their investments that they are unwilling to take on significant technical risk. As a result, new technologies often get stuck because they’re unable to be validated, piloted, or demonstrated for potential investors or industry stakeholders.

Nishit Mehta, Vice President for Business Development at Illinois-based SiNode Systems, has found that there is, “no formal source of funding for building a business model around a technology, which is required for eager entrepreneurs to commercialize it.” Nishit and SiNode Systems should know because they’re currently trying to validate, customize, and demonstrate its breakthrough nano-based anode substitute for traditional graphite used in lithium-ion batteries for potential industry customers. Its technology promises greater battery capacity and faster charging, which are critical areas of performance improvements needed in electric vehicles and consumer electronics.

Anurag Garg, Co-Founder of Bearing Analytics, couldn’t agree more, arguing that it is a traditional “chicken and egg problem” where the government invests in research, “but start-ups need support to validate an early-stage technology to the point where venture or angel funds will make a big investment.” Bearing Analytics is trying to advance its next-gen monitoring system for bearings — such as those used in wind turbines — to predict performance degradation and equipment failure. While bearing failure does not make front-page news, according to Anurag it represents almost $50 billion in industrial costs across the economy each year.

Policymakers Need to get Serious about Supporting Emerging Clean Energy Technologies

While regional and state entities like CET and EF are playing a critical role in bridging research, start-ups, and industry, accelerating national clean energy innovation is going to take much more support. But robust federal investment for traversing the valley-of-death is difficult to come by. The Department of Energy (DOE) supports translational research through entities such as ARPA-E and the Office of Energy Efficiency and Renewable Energy, yet both are constantly targeted for budget cuts. The Small Business Innovation Research program (SBIR) crosscuts 2.5 percent of federal agency research budgets (those greater than $100 million) to support small businesses to perform R&D to commercialize innovative technologies, but the program doesn’t bridge the entire valley-of-death. And the DOE National Labs are faced with numerous barriers to support maturing Lab research to the point where the private sector will develop it to market.

Increased public investment, policy reforms, or even new tools are needed to bridge the valley and accelerate innovation. EF’s Jeremy Adelman argues that one way of doing so is for programs like SBIR and even agencies like the Small Business Administration to engage with regional clusters to, “play a more active role in helping SBIR program officers define grant topics, since clusters are closer to the market and the corporate community.” Adelman adds that another way is to implement new policies that “enable corporations to create more collaborative relationships with innovators through the use of private corporate facilities for product development and testing.” Nishit Mehta would tell policymakers to develop a way to “incentivize venture funds and angel investors to invest in riskier, early-stage technologies.”

From Nishit’s perspective though, “the only entity capable of taking the risk and funding entrepreneurs [through the valley-of-death] is the government.” Regional institutions like those in Chicago are beginning to fill a small portion of a very large gap in the energy innovation ecosystem. Completely filling the gap requires more federal investment in innovation and more regional clusters, ideally linked through smart policy reforms. Fundamentally, this is how America will greatly accelerate clean tech development and deployment.