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Can the government get a return on risky energy technologies?

One current climate and energy bill in the Committee on Energy and Natural Resources of the United States Senate is S. 1462, the American Clean Energy and Leadership Act of 2009. The stated purpose of this bill is to:

” … promote the domestic development and deployment of clean energy technologies required for the 21st century through the improvement of existing programs and the establishment of a self-sustaining Clean Energy Deployment Administration that will provide for an attractive investment environment through partnership with and support of the private capital market in order to promote access to affordable financing for accelerated and widespread deployment of–
(1) clean energy technologies;
(2) advanced or enabling energy infrastructure technologies;
(3) energy efficiency technologies in residential, commercial, and industrial applications, including end-use efficiency in buildings; and
(4) manufacturing technologies for any of the technologies or applications described in this section.”

To achieve the goal of the deployment of clean technologies, not research, a Clean Energy Deployment Administration (CEDA) is proposed to be established in the Department of Energy. The agency will be an independent administration within the DOE with a Technology Advisory Council to advise on the technical aspects of new technologies. CEDA is to provide different types of credit such as loans, loan guarantees, other credit enhancements as well as secondary market support such as clean energy-backed bonds that are aimed at allowing less expensive lending in the private sector.

The mission of CEDA is to help deploy (not research) technologies that are perceived as too risky by commercial lenders. Thus, the agency aims to promote riskier technologies but with high potential to solve climate and energy security needs. At the same time, a portfolio approach is supposed to mitigate risk and enable CEDA to become economically self-sustaining over time after getting initial seed capital allocated by Congress (possibly up to $16 billion from existing funds reallocated to CEDA).

If other private investors are also pursuing balanced portfolios of risky and safe energy investments, what exactly might be the difference between the government CEDA and a private equity energy investor? Would it be that CEDA has a mandate to only invest in energy and climate technologies whereas a private fund can invest mostly in energy technologies or even change it energy-related portion of its portfolio over time? No doubt many would be skeptical that the government, even with private advice via the Technology Advisory Council, could make a profitable investment fund for clean energy, much less specifically having to invest in technologies that are too risky for the private market. It is also not clear how far $16 billion can go in this endeavor. For instance, for a wind turbines (not a risky clean energy technology) at a cost of $2000/kW, $16 billion could purchase 8 GW of installed capacity. Riskier and unproven technologies would be much more expensive such that the CEDA fund could invest no more than the order of 10s to maybe 100s of MW of installed effective capacity (via energy conservation or generation technologies) or less. If a new technology were deployed and operated successfully for a year or two at a scale of 0.1 – 1 MW, then it would begin to get established as less risky from an investment standpoint, and more business model and upscaling issues could take over in importance with CEDA divesting and hopefully handing the reigns to private capital. Thus, possibly up to a few dozens of technologies could get funding from CEDA to expedite their deployment.

It is not clear what the returns to CEDA will be in what will surely be rare cases of success. CEDA is meant to be more creative and flexible than existing government programs that have loan guarantees as the only funding and assistance mechanism. On the grand scale of problems and budgets, $10-$20 billion on CEDA may be a worthwhile bet. After all, that’s only about a dozen stealth bombers!

About Carey King

Dr. Carey W King performs interdisciplinary research related to how energy systems interact within the economy and environment as well as how our policy and social systems can make decisions and tradeoffs among these often competing factors. The past performance of our energy systems is no guarantee of future returns, yet we must understand the development of past energy systems. Carey’s research goals center on rigorous interpretations of the past to determine the most probable future energy pathways. Carey is a Research Scientist and Assistant Director at the Energy Institute at The University of Texas at Austin, and appointed also at the the Center for International Energy and Environmental Policy within the Jackson School of Geosciences and Business, Government, and Society Department of the McCombs School of Business. Visit his website at: and follow on Twitter @CareyWKing
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