A group of utility CEOs and other business leaders last week said the U.S. should triple federal funding for clean energy innovation to $25 billion annually over the next five years, calling it essential for addressing climate change and ensuring a leadership role for the U.S. in new technologies.

The American Energy Innovation Council, an 11-member group whose principals include the chairs of Southern Co., Dominion Energy, Xcel Energy and Royal Dutch Shell, said the increase should include a boost for the Advanced Research Projects Agency – Energy to $1 billion a year from the current $425 million.

Founded in 2010, the council is a project of the Bipartisan Policy Council, which presented a panel discussion Thursday on the group’s recommendations.

“There was a great deal of skepticism when we started as to whether [climate change] was really a problem. Today I think there are very few people who question whether or not we have a serious problem,” said Norm Augustine, retired chairman and CEO of Lockheed Martin. But he added: “We have a long way to go. Even today, about 88% of the world’s energy consumption use still comes from fossil fuels. That’s a number that’s declined by about 1% in the last quarter of a century.”

A ‘Sputnik Moment’

The group cited research that 50 to 85% of annual GDP growth in the U.S. “can be traced to innovation.” In its first 11 years, ARPA-E provided $2.4 billion in funding for more than 950 projects, 166 of which have attracted more than $3.3 billion in private-sector follow-on funding, the group said. “Technology innovation improves productivity across industries and creates entirely new ones. Economists agree that innovation is the key engine of long-term economic growth and stability,” it said.

The council said the U.S. should expand “centers of excellence,” such as the Department of Energy’s Energy Hubs, Energy Frontier Research Centers and Lab Embedded Entrepreneurship Programs.

“Technology innovation requires expensive equipment, well trained scientists, multiyear time horizons and flexibility in allocating funds. This can be done most efficiently and effectively if the institutions engaged in innovation are located in close proximity to each other, share operational objectives and are accountable to each other for results,” it said. “Resources should not be spread thinly across many institutions working on the same problem.”

The group said it is alarmed that competing nations’ investments in science and technology are outpacing the U.S.

In fiscal year 2020, Congress appropriated about $9 billion for energy research, development and demonstration. But the U.S.’ “research intensity” — the ratio of R&D investments to GDP — has stagnated, while China’s tripled between 1995 and 2019, the group said.

“China’s recent announcement that it intends to completely decarbonize its economy by 2060 should be viewed as a new ‘Sputnik moment,’” they wrote, referring to the Russian satellite that prompted the U.S.-Soviet Union space race.

Valleys of Death

Although federal funding for early-stage R&D has increased in recent years, they said, “the later stages of demonstration and deployment continue to lag in resources and prioritization. Closing this gap is essential to successfully commercialize breakthrough technologies.”

Augustine said ARPA-E “does a fabulous job in dealing with that first ‘valley of death’” — the feasibility challenge between research and prototypes. But he said neither government nor industry has addressed the second gap between prototype and demonstration projects.

The council recommended creation of a national, politically neutral “Energy Strategy Board” that would include experts in energy technology and markets, develop a long-term national energy plan and oversee a “New Energy Challenge Program” to build large-scale pilot projects.

“If you go from … research to prototype to demonstration it takes tremendous resolve, tremendous leadership and tremendous resources,” former PG&E Corp. CEO Geisha Williams said. “And I will tell you that no one company has the wherewithal to make it happen. It requires a very strong private and public partnership. And frankly, it’s going to require the type of funding that only the federal government can provide.”

“The U.S. government hasn’t had an energy plan for a long time,” Augustine added. “We don’t even have a capital budget for anything. … I know of no successful company that doesn’t have a capital budget.”

Augustine said such long-term planning is essential for a successful R&D program. “There will be failures; we’re talking about research and development,” he said. “My background is principally aerospace, and not every rocket works, I’ll guarantee you that. I’m afraid that’s true in the energy arena as well.”

Most Promising Technologies

The group identified as the most promising technologies large-scale energy storage, advanced nuclear reactors, renewable and low-carbon hydrogen, and carbon capture and removal.

“If we try to focus on everything, it will be too much,” said Chad Holliday, chairman of Royal Dutch Shell. “But I think hydrogen is certainly one of the candidates for [research spending], and I believe carbon capture and storage is a second candidate for that.”

“There’s a lot of projections that suggest within 30 years, hydrogen in itself could be about 20% of the entire energy supply requirements [of] the entire world,” said Michael J. Graff, CEO of industrial gas manufacturer American Air Liquide Holdings.

Legislation

Speakers on Thursday expressed optimism that some of the priorities identified by the council will receive attention in an energy package as part of the year-end budget omnibus bill.

A discussion draft of the energy package includes a 75% increase in ARPA-E’s budget and funding for large-scale demonstrations of carbon capture utilization and storage technology, said Rep. Lizzie Fletcher (D-Texas), who also participated in the BPC forum.

ARPA-E’s budget would increase gradually, from $435 million for fiscal year 2021 to $761 million for fiscal 2025.

The Better Energy Storage Technology Act, which would reauthorize DOE’s grid-scale storage research, also is part of the package, said Fletcher, chair of the House Science, Space and Technology Subcommittee on Energy and a member of the House Transportation and Infrastructure Committee. At least one demonstration project would be due by September 2023.

Fletcher said House Democrats’ $1.5 trillion Moving Forward Act, which passed 233-188 in July, is not expected to clear this session, but it could be a “framework” for an infrastructure package in the next Congress. The bill, which received only three Republican votes, would allocate more than $70 billion to upgrade the electric grid to accommodate more renewables and electric vehicle charging and provide tax credits for EVs.

“A lot of people are talking about the challenges. We need a lot of people talking about the answers,” Fletcher said. “I think that it’s essential that this work centers on crafting ambitious but workable plans and depoliticizing this conversation. … That’s why … AEIC’s leadership and vision at this moment is so important.”