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Posted: February 01, 2012

State of the state: Energy

Energy Secretary Makes Case for Federal Support for Innovation

Allen Best

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After responding to critics in Congress about the $534 million loan to bankrupt Solyndra, Energy Secretary Stephen Chu flew to Colorado in November to make the case for an active federal hand in energy innovation. His prime witness: PrimeStar Solar, a homegrown manufacturer of solar-film technology developed in a federal laboratory and then nudged into the marketplace with a small federal loan.

"The public and private sectors can, and should, work together to make sure clean energy technologies are invented in America, made in America and sold around the world," said Chu, still wearing safety goggles after touring PrimeStar's existing factory in Arvada.

As for the Solyndra bankruptcy, he called it "truly unfortunate," but would not admit more. Development of technology, he said, has "inherent risk," a phrase he and other Department of Energy officials have used often in describing the federal loan programs begun in the Bush administration and continued by the Obama administration.

But critics drew a different conclusion, challenging the federal government's competence in picking energy technology winners. "In Obamaland, department secretaries run the economy, baby! They swim in a pile of balance sheets - creating, funding and managing America's future, one company at a time," Wall Street Journal columnist Kimberley A. Strassel wrote.

The sharp comments were part of a broader, long-running debate about energy subsidies. Solar, wind and other so-called clean energy sectors clearly are benefiting from subsidies such as production-tax credits, federal loans and renewable portfolio standards. But oil, gas and coal producers have also benefited from paternalistic tax policies. Who has benefited the most? It partly depends upon assumptions. For example, should the cost of deploying the U.S. Navy's Fifth Fleet to the Persian Gulf be counted as a subsidy for oil?

Taking a long view, Nancy Pfund and Ben Healey of DBL Investors concluded that all emerging technologies have benefited from subsidies. "Energy innovation has driven America's growth since before the 13 colonies came together to form the United States, and government support has driven their innovation for nearly as long," they write in a paper titled "What Would Jefferson Do?" They conclude that comparing support given to technologies during their early, emerging phases is most instructive. In that case, the federal commitment to oil and gas was five times greater than the federal commitment to renewables during the first 15 years of each subsidy's life, and it was more than 10 times greater for nuclear.

The U.S. Energy Information Administration, in a study of direct federal financial interventions and subsidies of electrical production for fiscal year 2010, found that wind enjoyed 42 percent of total subsidies and support, nuclear 21 percent, and coal 10 percent, followed by solar and distribution each 8.2 percent.

Jeffrey Leonard, writing in the January/February 2011 issue of Washington Monthly, advocates eliminating all energy subsidies. "Yes, eliminate them all - for oil, coal, gas, nuclear, ethanol, even for wind and solar," he writes. "It will be better for national security, the balance of payments, the budget deficit, and even, believe it or not, the environment. Indeed, because wind and solar and other green energy sources get only the tiniest sliver of the overall subsidy pie, they'll have a competitive advantage in the long term if all subsidies, including the huge ones for fossil fuels, are eliminated."

If Solyndra is the black mark on the federal loan program, PrimeStar Solar and the National Renewable Energy Laboratory are the shining stars.
The thin-film solar technology manufactured by PrimeStar was developed a few miles away at the NREL, then licensed in 2006 to a trio of Coloradans - one of them a former employee at NREL, another from the Colorado School of Mines. They got started with a $3 million federal loan. By 2008, they had sold the company to General Electric. In 2011, GE announced plans for a $300 million factory in Aurora. The new installation will employ 350 people, paying them at least $50,000 a year, according to the Wall Street Journal.

For NREL, this clearly qualifies as a home run. It's not the only one, says William Farris, vice president, commercialization and technology transfer, at NREL. The lab, which employs 2,000 people, has the prime mission of researching and developing renewable energy and energy efficiency technologies. "Like planting seeds, you're never quite sure which ones will grow into a vibrant plant. PrimeStar is a very vibrant one," he says.

More may come. Farris cites US e-Chromic, which has a thin-film technology that controls the sunlight and hence heat that is transmitted through a window. He thinks Ampulse, another company deploying NREL solar-film technology, has "high odds" of achieving PrimeStar-type success.

NREL, he says, is constantly looking for entrepreneurs to take technology, develop it, and get it into the marketplace. He describes the business end as the hard work of technological innovation. NREL, in turn, asks for no royalties, but does get a small slice if the company makes a profit.

"We will never be successful in having an impactful technology by ourselves," Farris says. "We rely upon these commercialization partners. We have more technologies than we have skilled entrepreneurs to take these technologies to market."
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