A new Brookings Report was released this month that could change the nature of clean energy technology incentives.  The report, primarily authored by Brookings Fellow, Mark Muro and Clean Energy Group Director Lew Milford, looks at clean energy investments by states around the country and concludes that an expansion of investments beyond project finance and production incentives is needed to stimulate technological investments in the clean tech sector. 

In the relatively short history of renewable energy incentives, financial assistance has been targeted primarily toward the end user or producer of energy generation.  This necessary investment has largely driven the market growth that has led to the establishment of a vibrant renewable energy industry sector in the United States.  

In most states, these Clean Energy Funds to provide incentives are financed through a utility surcharge, sometimes called a system benefits charge, managed by a third party administrator, the state or the utility itself.  However, most US states are lacking any kind of Clean Energy Fund.  The American Recovery and Reinvestment Act, the stimulus legislation passed in 2009, injected billions of dollars into these funds and resulted in the creation of others.  However, with the term of these investments concluding and future federal investment in question, states are left trying to figure out how to continue, expand and improve on investments made in the clean tech sector.

The Brookings Report recommends states that don’t have a Clean Energy Fund create one, and those that do expand the programmatic offerings to leverage technological innovation and private sector investment in clean tech R&D, commercialization and early stage technology transformation to drive economic development activity within the sector.  The report recommends funds dedicate at least 10% of their resources toward these efforts.

Public investment in technological advances is an approach that has worked for traditional fuels.  In the 1990’s, the Federal Government invested in R&D around drilling techniques and equipment that would enable a borehole to be directed both vertically and horizontally.  This technology, called “directional drilling” is now commonplace and has resulted in reduced well pad environmental footprints, increased productivity and lower costs.  Today we see historically low natural gas costs, partially due to these advanced drilling techniques.  Similar benefits could be derived from increased R&D investments in the still nascent renewable energy and clean tech sectors.

The Brookings report highlights the experience of states like Massachusetts with their Clean Energy Center, having invested over $20M in economic development efforts while leveraging over $75M in private capital.  Similarly, in New York, $4M in state investment has yielded over $40M in private capital and another $11M in federal investment generating 33 new products coming out of their six business incubator programs. 

The report also identifies four core challenges facing states hoping to achieve similar results with their Clean Energy Funds:

  • Identification of a funding source
  • Access to reliable information that can effectively direct investments
  • Coordination of stakeholders across clean energy sector and economic development infrastructure
  • Sharing of best practices across states and programs

Fortunately, resources exist in the US to help states address these challenges.  The Clean Energy States Alliance (CESA) is a consortium of states with Clean Energy Funds to help drive the sharing of best practices.  As focus expands from production incentives to financial models of economic development, CESA can be an effective partner. 

The Advanced Energy Economy (AEE) was created by two noted clean tech investors – Tom Steyer and Hemant Taneja – to empower state based clean tech companies to engage effectively in the public policy environment.  Their national headquarters in California is actively developing informational and policy resources for state chapters to drive successful decision-making around public investment and drive additional private capital toward the advanced energy sector.  

The National Association of State Energy Officials (NASEO) is an effective entity for sharing experiences, funding options and policy approaches among state administration officials responsible for implementing energy goals.  Indeed, much of the stimulus funding was directed through these officials’ offices – their involvement and the benefit of their experience with stimulus funds is both crucial and necessary. 

Finally, policy think tanks like the Center for the New Energy Economy at Colorado State University exists to assist legislators and administrations as they evaluate policy options to drive policies that will help address 21st century energy challenges with 21st century energy solutions.

Certainly, direct project investment is still needed to drive market participation and achieve production objectives in states around the country.  But, as the Brookings Report identifies, the energy sector is ripe for innovation and growth from new technologies, companies and products and states are well positioned to reap the economic rewards of investing in technology expansion.

In the US, states will lead the way toward the development of these new products that will fundamentally change the way we produce and consume energy toward methods which are more efficient, sustainable and will drive local economic growth.