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The Information Technology and Innovation Foundation has issued a rejoinder to the Coalition for Green Capital’s (CGC) response to his original critique of the CGC’s “Project 2011” recommendations. In it, they recognize the overlapping goals of the CGC’s proposal and the ITIF’s agenda. But they claim that “the mature technologies that the CGC wants to deploy aren’t affordable without government support.” That claim is not exactly right, but more importantly it conflates two distinct challenges along the path to a healthy and self-sustaining industry that must be bridged.
In fact, there are two distinct “valleys of death” and policymakers need to worry about both. First, the term refers to the difficulty that technological innovators face in raising capital to move a particular technology from the pilot stage (the realm of venture equity capital) to commercial viability (the realm of more conventional debt and equity capital). Innovative technologies developed in a lab or a garage need high-risk capital (be it equity or equity-like debt) to be turned into actual projects built and commercially operated in the field. There is no question this is a valley of death for many innovative technologies that can be addressed by Senator Bingaman’s Clean Energy Deployment Administration (“CEDA”).
But there is a second valley of death– the challenge that commercially-proven but not yet widely deployed technologies have in being deployed at scale because they cannot obtain debt financing on reasonable terms (and thus cannot attract more conventional equity capital). Once a technology has been developed and commercially proven in the field, its further deployment runs the acute risk of stalling and crashing without appropriate temporary financing support because it takes time to develop economies of scale for any new technology (which in turn become the means by which new technologies become cost-competitive with and can dislodge incumbent technologies). The collapse of new wind capacity additions between 2009 and 2010 demonstrates the challenge. In 2009, a record of nearly 10,000 MW of wind capacity was installed in the US, but that number plummeted to just over 1,200 MW installed through the first two quarters of 2010 according to the American Wind Energy Association.
But if such commercially-proven technologies are given the support necessary to be more widely deployed and achieve the economies of scale to reach cost-competitiveness with existing generation, a robust domestic clean energy industry will be created.
A number of commercially-proven clean energy technologies are on the cusp of achieving the economies of scale to become cost-competitive with incumbent, more carbon-intensive technologies. A look at recent cost trends in the wind (delivered cost, chart on the right) and solar (installed cost, chart on the left) industries shows that there is a long downwards trend that is moving closer to grid parity.
Without the critical financing support that would be provided by the Energy Independence Trust, it is likely that all the effort that has gone towards making clean energy technologies like wind and solar price competitive will be for naught. The US will be forced to import the components of its clean energy economy from China and other countries, and we will have missed out on an opportunity to create a job-rich domestic industry that will contribute towards robust American economic growth.
Chart Citations:
"DOE Wind Technologies Market Report, 2009"; NREL Cost Curve in Black and Veatch report
"Tracking the Sun: The Installed Cost of Photovoltaics in the US from 1998-2007" LBNL
