To Cross the Clean Energy “Valley of Death,” Technology Innovation is Only Half the Battle

To read more about innovation and the role of green banks, see our other post on CEDA.

Those who want to address climate change often debate whether the technologies necessary to solve this crisis already exist today. This, in turn, informs the question of what role the government should play to support technology innovation.

No matter where you fall in this debate, it is critical to recognize that making a new or existing clean energy technology “commercially viable” is not at all the same as making it scalable.

It turns out that, for many clean energy technologies, innovative applications of commercially proven technologies can mount as much of a barrier to investment as the initial technology risk itself.

Take, for example, solar photovoltaic technology. Much of the initial R&D to advance solar panels was funded by the government. And then the initial commercial applications of that technology – to prove it worked, could generate revenue and warrant private investment – were supported by the government through loan guarantees.

For those who think the government should help carry new technologies from the lab to commercial viability, this is the time to declare victory and leave markets to do the rest.

The problem is that, in reality, proving that a technology works and can support private investment in some cases does not remotely mean the technology will soon be deployed at significant scale. Solar power today makes up less than 2% of total generation in the U.S., despite the fact that technically it is the cheapest source of new power in much of the country.

What is going on here? Our country’s highly fragmented energy landscape has a lot to do with it. Just because a large, utility-scale solar project could be financed and operate successfully in California does not at all mean a commercial rooftop solar project in Ohio, for example, can also be financed and deployed successfully using solely private capital. Electricity prices vary across states. Regulations and policies vary across states. And, most importantly from a federal policy perspective, applications of a proven technology vary wildly.

Solar PV, for example, can be applied in utility-scale, large behind-the-meter ground mount, commercial rooftop, residential rooftop, and community solar forms. And each application carries its own complexities and wrinkles that can cause investors and lenders to balk.

And on top of that, the nature of the off-taker can vary, too. What if the utility won’t extend a PPA but instead requires the solar plant owner to take on market risk when selling electricity? What if the customer has low-income and a low or no FICO score? What if the commercial business isn’t rated by S&P and will take weeks of evaluation to come up with alternative underwriting criteria? Innovative financial support from the public sector, to unlock private investment, is essential for these projects.

The list goes on:

  • Who will finance a community solar project where all of the subscribers purchasing the power are low-to-moderate income households who reliably pay their electricity bills but don’t own their own home, so they cannot install solar on their roof?
  • Who will finance building efficiency upgrades for small business owners when the projects are only $250,000 or less and the lending is unsecured by any physical asset?
  • Who will finance the deployment of a large, grid-integrated(?), lithium-ion battery in a market where there is merchant risk because value streams like frequency regulation and peak demand shaving for the grid are not directly paid for by the utility?
  • Who will finance utility-scale solar projects in Wyoming, which has the seventh best solar irradiance of any state in the country but today has only one utility-scale project?
  • Who will finance onshore utility-scale wind projects in Kentucky, where today not a single project has been built despite having enough potential capacity to power the whole state?
  • Who will finance the strategic deployment of fleets of passenger electric vehicles that can maximize electric vehicle miles-travelled, rather than vehicles purchases?
  • Who will finance commercial fleet conversions to electric vehicles when the total cost of ownership savings are significant over time, but which lack high quality data on historical and future energy costs that underpin such financing?
  • Who will finance the first large scale offshore wind turbines in the United States when the requisite power purchase contracts will likely require 25-year loan terms?
  • Who will finance the planting of millions of trees to take carbon out of the atmosphere when the repayment stream from selling carbon offsets is distant and uncertain?
  • Who will provide warehouse financing to a geothermal heating start-up business that can lower household energy bills across the northeast but which doesn’t have a track record?

In each case, the technologies themselves are proven to work, in most cases over several decades. And in some applications, they have attracted tens of billions of dollars of investment. But the specific application of these technologies is what holds up the investment.

So any conversation about clean energy innovation that stops at the commercial proof point and doesn’t consider innovative applications in the deployment of those technologies is incomplete.

How do we solve this problem? With a more holistic approach to government support for innovation that recognizes that demonstration does not equal deployment. It is not a choice between public funding for commercialization or deployment. Government must support commercialization AND deployment.

The National Climate Bank is an essential part of the solution. Using green bank principles first described in the Clean Energy Deployment Administration and implemented by state and local green banks around the U.S., the Climate Bank will address financing barriers for technologies that are moving from commercialization to broad deployment. Much of what green banks around the U.S. have done is focus precisely on the innovative applications of new technologies.

For example, community solar is a complex application of a known technology. Yet without the role played by NY Green Bank, financing expensive early project interconnection fees, it is likely that the whole market would have stalled. In Florida, solar panels, energy efficiency equipment and roof upgrades are proven technologies. But packaging them all together through an integrated financing solution for low-income households to increase resilience and lower energy costs is surely a novel application. That is why the Florida Solar and Energy Loan Fund is filling the gap.

A sensible energy innovation policy in the U.S. includes both commercialization and deployment. And the National Climate Bank is the right tool to ensure innovation doesn’t stop at demonstration.

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