Have been on a run of policy-related columns lately, and am eager to get back to talking about cleantech entrepreneurs and investors.
But I have had a few people request some thoughts on the role of the DOE in Obama's second term, so figured I would tackle that first.
In short, my overall perspective is that the DOE under Secretary Chu has launched some important things, but now needs to transition from a focus on technological innovation (without losing the progress made there) to a focus on commercialization and consensus-building.
First, let's recap what the DOE actually does, because many people don't really know. The DOE is a massive organization, with something like 16,000 employees. It's not just an energy technology organization, not at all. The $27B annual budget is divided up into:
- $10.5B allocated for nuclear security (i.e., managing the handling and disposal of nuclear material)
- $10.6B for "Energy and Environment" (much of this is actually allocated to improvements of incumbent technologies)
- $4.9B for "Science" (early-stage research)
- And a billion dollars' worth of management and "Other"
As you can tell, the DOE is not what many cleantech entrepreneurs and analysts might expect. It's not just ARPA-E and a national lab system. It's not some kind of "Cleantech Administration." It oversees FERC, several major public electricity organizations (such as the Bonneville Power Administration), traditional energy technologies, etc.
Under Secretary Chu, however, innovation and commercialization of new (and generally, cleaner) energy technologies have been the focus of a lot of attention and effort, as guided mostly by the Energy Policy Act of 2005 and the ARRA of 2009. In my opinion, the wave of management talent that Secretary Chu was able to attract to the DOE starting in 2009 has resulted in several huge wins for the cleantech sector, including some really important work done at the ARPA-E program and the EERE. The National Lab system's operations have been improved, including broadening their scope to better incorporate "innovation hubs" outside of the national labs themselves.
These are significant improvements, and they must not be lost. There's some discussion these days that Secretary Chu may be looking to transition out of the role, and the danger of course is that when a leader comes through and makes changes like this, once that leader leaves the organization reverts back to how things used to be. That's particularly likely in this case, because the DOE is remarkably divided between career DOE workers and the politically-appointed top management that comes and goes with administrations, etc. Front-line DOE workers are quite used to Secretaries of Energy coming and going, and just doing their own thing. Just read Mike Grunwald's book The New New Deal for some great anecdotes about this.
Nevertheless, while I hope the DOE in Obama's second term (and potentially under a new Secretary) doesn't abandon the progress made on the technological innovation side, I think commercialization efforts need a major upgrade. There's been progress made on this score, but it hasn't yet gotten to where it needs to be.
As I've written about before, "demand creation" for energy efficiency and renewable energy technologies has fallen into two major unofficial buckets (very often conflated) at the DOE over the past couple of years.
Demand creation for well-established technologies and services, such as residential energy efficiency improvements and large wind farms, etc., has been done pretty well. The wave of home efficiency improvements has made a big impact, as driven by community block grants, and the much-maligned Loan Guarantee Program has actually done a good job of bringing project finance to large-scale powergen projects that otherwise may not have happened.
But commercialization (I use the term loosely, to also include demand creation and also manufacturing capacity) of emerging technologies hasn't worked out so well, despite a lot of well-meaning efforts to date. The LGP's failures in this part of its program are well recognized, to say the least. But looking across the lab system and other aspects of the "innovation system" Secretary Chu helped put in place, there are other major commercialization gaps that haven't been addressed.
The challenge, of course, is how now to tackle this without much of a budget. I've laid out several ideas before; you can read them here. It includes things like wiki-based buyers' guides, incorporating incentives for new tech adoption into community block grant programs, and setting really aggressive performance bars on green buildings standards, etc. From what I've been told by those in the know, the special challenges of encouraging widespread adoption of emerging technologies in the energy market appears to have flat-footed Secretary Chu and his top team, and that really needs to be given special focus in Obama's second term. What's the use of having a re-energized innovation pipeline if the innovations aren't actually adopted. So figuring out how to do this, in an era when the DOE can't expect big budget increases or new subsidies to be passed by Congress anytime soon, is now a key challenge for the DOE.
I would love to see a special assistant brought in to really spearhead this as a special project, drawing lessons learned from other industries and other sources of innovation (corporate R&D, academic research, etc). It's fine for investors like me to personally spitball some ideas for the DOE commercialization managers who've reached out to us, but this really needs to be done thoroughly and thoughtfully, and with an urgency as highlighted by bringing in a pretty senior person to help drive a process, akin to how Matt Rogers was brought in to coordinate the ARRA effort at the DOE.
The other major priority of the DOE in Obama's second term needs to be consensus-building. The DOE has a key role to play in helping to get rational energy policy passed in the U.S., but frankly has fallen way short of what has been needed. I'm not proposing the DOE develop and lobby for specific energy policies or whatnot. But as I've talked about a few times recently, there's a void right now of rational, inclusive discourse on energy policy. The DOE has a powerful potential role as a convener of the private sector and of other major constituencies, for a couple of purposes that would greatly help the situation.
The first task is simply to help kill the continuing canard that energy improvements are a burden to shareholders and homeowners, rather than the energy cost savings they should represent. This is particularly true for energy-efficiency technologies, of course. There's a massive body of evidence to show that with energy efficiency, there are indeed twenty-dollar bills lying on the sidewalk to be picked up. The DOE could convene a meeting of major-company CFOs, to have them hear from their more successful peers out there that they are failing their shareholders by not making efficiency-driven cost savings a priority. The DOE already puts out case studies and white papers, but someone needs to grab these CFOs by their lapels and force them to recognize that they are pissing away shareholder money on stupid wasted energy that could be addressed with some high-IRR capital allocations, if they just prioritized it. And just as importantly, someone needs to arm those CFOs with concrete examples as to how to go about doing that as effectively and efficiently as possible, and to then send them away with lots of resources (again: a buyer's guide!) to pass along to whatever lieutenant they will then task with executing on the opportunity. It needs to be a peer-driven exercise ultimately, but the DOE needs to convene it.
The next task is to drive resources to help the incumbents better prepare for the looming energy transition. Some of this is in place. But the DOE must become a powerful advocate for the energy incumbents and utilities, to help make sure they are given good support now and in the energy future. Nothing I'm writing here should be construed as me arguing that the DOE should focus solely on emerging technologies. It's obviously my own focus, but on topics such as coal-fired generation switchover to natgas, responsible fracking practices, grid stabilization, etc., the DOE should emphasize being an advocate for facts and science, and an advocate of congressional support for those industries on their paths forward. I do believe the DOE should continue to help push a transition to a low-carbon, domestically-produced energy industry, but everyone has an important role to play in that future industry, and the cleaner shouldn't be made out to be the enemy of the cleanest, and vice versa.
After helping to address the concerns that energy innovation means higher energy costs through this and other high-level conversations, the DOE can also then help bring together major stakeholders from across the energy industry. Remember, as noted, the DOE is there to help all players in the energy value chain. It should be possible, then, to help set up the kinds of conversations involving incumbent energy producers, utilities, entrepreneurs, innovators, consumers, military leadership, etc., to start to hash out common ground and common goals.
But so what? This is where the DOE must become a loud advocate for those common goals and simply getting stuff done. The Secretary of Energy should be placing a lot of political pressure on Congress to pass comprehensive energy reform. Armed with even a very broad set of shared energy policy goals, the Secretary of Energy should be advocating progress on behalf of the private sector, the military, the consumer. This requires a very strong public advocate, an effective organizer of fragmented constituencies, and a very strong behind-the-scenes political player. We need the Secretary of Energy to step up to being the nation's most visible and effective champion for energy policy reform. That, it must be admitted, hasn't been the case in Obama's first term.
Besides all of the above, I also believe the DOE really needs to address some of its deeply rooted bureaucratic challenges. Over the decades, it has become a very entrenched and stagnant organization that is by far most powerful in its ability to resist change. That can't continue. I would love to see someone take on a major organizational efficiency project and really fight to drive a new "corporate culture" within the Department. There are probably a lot of resources that could be redeployed toward the above objectives with no additional cost to taxpayers, in fact likely with additional resultant savings. So the Secretary of Energy also must become a powerful organizational change agent, drawing lessons from knowledge of bureaucratic infighting to know how to crush it and really fix things. This will be very difficult, but it's long overdue.
So in Obama's second term, we need to see a DOE that doesn't lose ground on technological innovation, but that does focus a lot more effort on commercializing those innovations. And the DOE will need to be a stronger convener of the entire energy industry around a few commonly held goals, and then champion the resultant priorities with Congress and with the public as a whole. And the DOE will need to fix its organizational culture and tackle a much-needed bureaucratic refurbishment.
Not much, just a few small things.