With a new secretary at the helm and the stimulus winding down, the Department of Energy is undergoing a number of changes. But amidst those changes, leaders at the department continue to push for more investments in clean energy.

In this podcast, we talk with Dr. Dave Danielson, head of the office of energy efficiency and renewable energy at the Department of Energy, about the government's cleantech priorities in the coming year. A transcript of the conversation follows below.

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Dave Danielson: One area we've made a strong request for is for grid integration. As I'm sure you're all aware, we're getting to the point (especially with rooftop PV) where in the next five to ten years we're going to see broad cost-competitiveness with grid-based electricity, without subsidies in many parts of the country. At that point, we're going to have some significant challenges where we need to get utility business models and we need to get the physical grid set up in a way that we can continue to integrate very low-cost rooftop solar PV while maintaining the grid's reliability.

Because of this, we made a significant $80 million request for a new program that will work with utility and other technology partners in clean energy in order to develop the new technologies and utility market structures that will enable us to democratize the grid and enable high penetration of rooftop PV. That's one area where, if we do end up at a continuing resolution level or at that $1.8 billion, we won't be able to do nearly as much as we'd like to do in order to ensure that we can create an environment where rooftop PV will be able to continue to grow as it reaches cost-competitiveness, as opposed to potentially getting down if we don't solve these grid integration challenges.

Stephen Lacey: This is a really interesting point, because rooftop PV and other renewable energy technologies are to the point, now, where they are commercially viable. They are ready to hit the market, and many of the barriers in front of them are financial, market-based and policy-related. Given your experience at ARPA-E and as a venture capitalist, how do you balance the need for these market plays with the need for R&D, particularly as spending gets tighter?

DD: That's a great question and you're absolutely right. We have to allocate our limited dollars in a way that makes a difference. I'm always telling my team that we need to make "one in, one thousand out" kind of investments, because even with a budget level on the order of $2 billion per year, we're trying to move a multi-trillion-dollar-per-year energy economy.

To take a step back, when I sat down in this seat as assistant secretary a year ago, I really tried to understand where we were, what was unique about where we were compared to five to ten years ago, and where we would be five to ten years from now.

When you sit down and really look at the facts and figures and learning curves, the biggest thing that sticks out is that a wide array of these clean energy technologies (through the United States, EERE and by working with some of our best innovators) have really lowered the cost and increased the performance to the point where there's pretty clear visibility for a whole slew of clean energy technologies to direct cost-competitiveness without subsidies in the next five to ten years. That's true for solar PV, as you mentioned. For wind. For plug-in electric vehicles. For solid-state lighting. For solid-state transformers. There's a wide array of technologies.

In our budget request, the first priority is really driving hard on these technology areas where direct cost-competitiveness is going to be achieved in that next five to ten years, and making investments to ensure that the United States is the nation that's actually going to get a dominant share of the economic value-add associated with the technology's deployment when it hits the hockey stick curve. So, we're making those kinds of investments both in manufacturing R&D and in breaking down market barriers. At the same time, we have a balanced portfolio investing in the longer-term game changers.

Let's take the example of solar. We launched a new Grand Challenge a couple of years ago called the SunShot Grand Challenge. I was the co-chair organizing our workshops to develop our vision around what the Grand Challenge should be. What we noticed is that for the longest time, the module costs had been the longest pole in the tent. However, when we looked at where we were about two years ago, it was suddenly obvious that soft costs weren't coming down.

If you look at where we are today on the order of, I believe, about $2.50 per watt in the field, we've got to get down to about $1.00 per watt in the field -- which is the SunShot 2020 goal -- and the majority of the work we need to do is in the soft costs. In the 2014 budget, we're significantly increasing our efforts on soft costs, and those are really partnerships we want to develop with utilities and state and local authorities to cut through the red tape. We want to make sure that solar is getting treated fairly as a distributed resource and that we can break down these bureaucratic barriers, in addition to driving hard on manufacturing competitiveness.

SL: And that's an interesting story. That changed over time in consultation with the industry. It was really focused on R&D for technologies and on solar manufacturing. Then it evolved into understanding the market-based barriers and soft costs in solar. How did that change come about over time?

DD: For many years, the long pole in the tent was the module cost and performance. Going back to the 1980s with NREL and some of the early work that fed into the beginning of solar's success, ultimately a lot of the R&D made a big difference and really helped get us to where we were two years ago where we saw the crossing over of module costs and soft costs. Again, the soft cost learning curve just was not coming down -- it was very flat -- as opposed to the learning curve with modules coming down rather quickly.

It was a little bit of a culture shift, and I think it's the kind of culture shift that we're undergoing as these technologies are getting closer to cost competitiveness. A bigger part of our role, now, is to be an honest broker to break down some of these market barriers and to eliminate red tape so that these technologies can naturally fall into the market by economic gravity as they actually reach direct cost-competitiveness.

SL: I want to talk about this manufacturing piece that's so crucial to the DOE's broader strategy. This is particularly relevant after a number of high-profile bankruptcies in the space, and DOE has come under fire for the Loan Guarantee Program. These attacks have been really political. But amongst it all, there is an interesting conversation about where the DOE is going and what role the government should play in manufacturing and in clean energy promotion. As we come out of the experience of the stimulus and we look at the portfolio of loan guarantees that have been issued, has the DOE has changed its thinking on how to fund these types of programs, particularly in manufacturing?

DD: Under my purview at EERE [the Office of Energy Efficiency and Renewable Energy], we primarily focus on research, development and demonstration. We are also working with our key stakeholders to break down market barriers that exist, whether we have to work with other agencies or other stakeholders to be at the point to really try to break down some of these barriers that exist to the deployment of new technologies.

On the manufacturing side, about a month ago, EERE launched a cross-cutting umbrella effort that we're calling the Clean Energy Manufacturing Initiative. The first step that I'm taking is in collaboration with our National Renewable Energy Laboratory. We're diving very deep on our attempt to understand the competitive advantage that exists for various technology supply chains and in various clean energy technologies. We are looking at China, South Korea, Germany and the United States and trying to understand where U.S. competitive advantage lies and where we may not have as much of a competitive advantage.

As we move into this era where manufacturing is going to scale in a very significant way, we also want to make sure we're investing toward our strengths or investing to shore up our weaknesses. For example, we don't have an advantage in low-cost labor and we don't want an advantage in low-cost labor -- but if we can be the creators of automation and use automation, then we can bring those jobs back here.

When it comes to the work we're doing, a lot of our focus has been in trying to create what's called an "industrial commons." We're a big part of the president's national network for manufacturing innovation. We're one of the major partners there. This is a network of institutes that you could consider somewhat analogous to the Fraunhofer Institutes in Germany -- these are $70 million to $120 million, five-to-seven-year cost-sharing programs that are really designed to help U.S. companies access next-generation manufacturing capabilities.

The first one we funded was with the Department of Defense in additive manufacturing (3-D printing) in Youngstown, Ohio. Just last week we released competitions for three more topics, one of which the DOE is sponsoring in the area of next-generation wideband gap power electronics manufacturing, which is an area that touches all different clean energy technology areas.

Those are really filling in the industrial commons, and that's been a big part of our focus at EERE. I think that the Loan Guarantee Program is outside of my purview, but the whole point of the Loan Guarantee Program was to help support next-generation leading edge technology scale up in areas that the private sector wasn't going to be able to fund on their own. There was an expectation that some of these technologies wouldn't make it, but that, in the long run, the net benefit to U.S. leadership and the U.S. economy would be greatly positive.

I think that the portfolio in the Loan Guarantee Program is still in the black in that way, and I think we're seeing innovative technology companies like Tesla Motors. Twenty years ago, if you asked anyone if there would be a new automotive company in the United States, they'd say no. Now we've got an automotive company like Tesla that is innovating and selling commercial products and making money.

SL: I think that's a really interesting point to bring up that often gets missed in the conversation around the Loan Guarantee Program. This is a portfolio-wide approach, and the vast majority of the investments are doing well. Given some of the strategies that you talked about, has the DOE specifically taken any new approaches as a result of the experience in manufacturing through the Loan Guarantee Program?

DD: I think that given how fast this market is moving, we're always having a dialogue about what the high-impact proper role of government is. I know your readers are very familiar with the solar industry, and that's an industry where there was a whole lot of overseas government intervention that really has tilted things in odd ways.

One thing that is exciting is you still see a strong thin-film solar manufacturing base here, and a really important part of that has been government support through the Export-Import Bank. I think that industry and government should be pulling together even more and responding to overseas policies to make sure we're getting our vectors aligned -- to make sure that we're supporting our industry in a proper, free-market-oriented way -- but that we're all pulling together to make sure that our competitive manufacturing companies are actually given a chance to succeed while trying to balance out the playing field a little bit.

One thing that is under-appreciated (and we need to work to track the data a little better) is that ultimately we want to have as much manufacturing value-add in this country as possible. We want as much high-value, profitable manufacturing happening in this country as possible. When you talk to companies like 3M and DuPont and others, they're doing some very high-end innovation for some of the components in solar modules that are being assembled largely in China today. There's still a significant amount of economic value-add being accrued in the United States and exported, in this case, by virtue of us doing things that are very difficult -- manufacturing very high-tech materials or components.

I think that with this Clean Energy Manufacturing Initiative here at DOE, we want to get even more oriented around where we have that competitive advantage and to make sure that when we take taxpayer funds and put them into some of this innovation, that we can see a pretty reasonable pathway to competitive manufacturing happening here, even in the context of other nations perhaps giving some pretty strong subsidies to their industries.

SL: One of the most interesting spending increases in this proposed budget is in energy efficiency. Is that an area where EERE wants to scale up? More so than in other sectors?

DD: Well, if you dive into the budget, you will see some especially significant increases in the Vehicle Technologies Office and in the Advanced Manufacturing Office. In this context, the Advanced Manufacturing Office is under our energy efficiency pillar from a sectoral perspective.

In the Vehicle Technologies Office, we're putting a significant amount of funding into the EV Everywhere Grand Challenge, which is a Grand Challenge that followed on the SunShot Grand Challenge with the vision of making the United States the first country to invent and manufacture plug-in electric vehicles that are directly cost-competitive and as convenient as gasoline-powered vehicles by 2022. That is more than $300 million we want to put into that effort primarily on next-gen batteries, with a major focus on really trying to push lithium-ion as far as it can go, but also investing beyond lithium-ion in a significant way for the first time here at EERE.

The goals that we want to get to by 2022 are very aggressive. We're currently at about $500 per kilowatt-hour on batteries. That's come down by a factor of two over the last four years with a lot of hard work. We need to get down by another factor of about four by 2022 -- down to $125 per kilowatt-hour -- to make a broad array of plug-in electric vehicles directly cost-competitive with gas-powered vehicles.

We're also driving hard on next-generation power electronics and motors, especially in power electronics on next-generation wideband gap semiconductor-based technology. This is an area (gallium nitride/silicon carbide) where the Department of Defense has made some very significant investments in the past in these materials, and now we think they're almost ready for prime time. The United States has a lead in this area, but we want to really accelerate our lead into some real commercial success in the clean energy area and, in particular, in the electric vehicle area. We're going big on EV Everywhere in this budget.

One thing that we've launched as a complement to EV Everywhere is something called the Workplace Charging Challenge. The president has laid out a challenge to some of America's greatest business leaders to sign up to poll their employees on their ownership or expected ownership of an electric vehicle and commit to provide charging at the workplace for their employees. We've got more than thirty partners in that. The EV Everywhere initiative is going well and we're putting a significant request in for that in FY14.

In the Advanced Manufacturing Office, we're investing in clean energy, energy efficiency and manufacturing competitiveness. One big thrust is working with industry to make them much more efficient and lower their energy costs to make manufacturing more competitive in the United States. This is an especially great opportunity for us to help industry innovate around integrating low-cost shale gas into their processes.

Secondly, we're investing in cross-cutting innovation. These are cross-cutting materials or manufacturing processes that, if we can successfully develop them, will have an impact on a whole array of clean energy technologies. An example of that is in carbon fiber composites. That's an area where we're investing in, in the Advanced Manufacturing Office. If we can dramatically decrease the cost of carbon fiber and carbon fiber composites, that will be a game-changer for lightweight vehicles, for high-pressure cylinders, for CNG and hydrogen storage, for vehicles and also for next-generation wind turbine blades. One of the major initiatives being proposed is to build out three more manufacturing innovation institutes and the president's national network for manufacturing innovation.

SL: And on the R&D side, you've got these eight new research incubator programs. Tell me about those.

DD: Those are something that I think is very important. When I got here about a year ago (maybe three or four years ago), I was actually employee number one at ARPA-E, so I'm very familiar with ARPA-E. Now coming into EERE, I've worked really hard to bring some of the best practices of ARPA-E over here, but I'm also committed to making sure we set up EERE and ARPA-E in a way that they really complement one another.

For the most part, EERE's model is to work with stakeholders and lay out a very bold, aggressive target for the industry in terms of achieving a certain cost by a certain year. I think the SunShot Grand Challenge is a great example of that. When we first proposed a dollar per watt by 2020, a lot of the stakeholders didn't take it seriously. As we've moved forward, it has become the new de facto goal.

Our approach at EERE is to lay out these long-term aggressive goals and then build long-term capabilities around the country to solve the problem. In doing that, we have to create a long-term game plan where we determine what technologies and approaches have the highest probability of getting us to that goal. And so inevitably, we can't focus on every single technology. What's great about ARPA-E? ARPA-E looks at our road map and tries to blow it up. It tries to say, "EERE is completely missing this new opportunity. Let's see if we can't fund some new technologies that really show promise and are off their road map."

The challenge we've had is to make sure EERE can quickly and easily onboard the technologies that are coming out of ARPA-E's pipeline that could be game-changers and really need to be brought into our portfolio. The incubator programs that we're proposing to introduce into each and every one of our ten technology offices are meant to devote about 5 percent of the funds into completely "off-roadmap" activities. It's really like an on-ramp for next-generation technologies (like ARPA-E technologies) to get into our EERE roadmap as quickly as possible as these exciting new opportunities present themselves.

SL: Are there any particular areas that you think are underserved in R&D that need to be addressed either at AARP-E or DOE collectively?

DD: I do think that there continues to be great opportunity and emerging opportunity in the grid integration space. It's interesting. Both from a market perspective and from a DOE perspective, they don't live in one place, and so there are a lot of different offices working on these challenges. In the last year or so, we've created a cross-cutting DOE grid tech team that is working together to really define a road map and a game plan, but I think we still have opportunity to continue to make more investments in that area that would have a lot of impact.

SL: How do you view these investments in a historical context? I think what we've seen in shale gas is very interesting, in that the Department of Energy and other agencies played a very important and direct role in providing R&D support, tax credits, grants, mapping tools and so forth for folks developing hydraulic fracturing technologies that many people thought wouldn't work. Now we're entering that same phase with technologies like enhanced geothermal with next-generation solar technologies and with advanced biofuels. I wonder if you see the development of those technologies in the same context.

DD: I absolutely do. I think that the shale gas story has been a phenomenally positive story for the nation all across the board in terms of the opportunity it presents for lower-cost, lower-carbon domestic energy. And as you said, there's a long history going back to the '70s of the DOE supporting some of the pioneering work when no one thought it would ever come to anything. Now, forty years later, it's a revolution.

It really highlights the importance of long-term thinking and long-term support for innovation in the energy area. It's interesting that if you just look at the simple learning curves and where we are, it is starting to feel almost certain that solar, for example, will become directly cost-competitive in my lifetime on rooftops and in the field -- yet there are still folks who remember ten to twenty years ago when that wasn't the case.

I think it takes a while to move people's impression of how close we actually are. I don't see any reason why thirty years from now we shouldn't have a whole lot of plug-in electric vehicles that people are powering up at home with a dollar per gallon equivalent cost of electricity. I don't see why people shouldn't be able to generate all the power they need within their home using the grid as a backup. I can see a world that's going to look a lot different and a lot better from an energy perspective in that thirty-year timeframe as long as we continue to support long-term innovation and break down market barriers to the introduction of innovative, new energy technologies into our energy system.