Not so long ago, clean technologies in the U.S. were enjoying an unprecedented wave of government support. Thanks in large part to the Energy Improvement and Extension Act, passed in late 2008, and the American Recovery and Reinvestment Act of 2009, government subsidies for energy rocketed to $37.2 billion in fiscal year 2010 from $17.9 billion in fiscal year 2007, according to the U.S. Energy Information Administration.
Renewable energies like wind, biofuels and solar saw the largest proportion of the funding, drawing $14.7 billion in subsidies in fiscal 2010, up from $5.1 billion in 2007.
Now, the government stimulus funding that comprised that windfall is now down to its final dregs. However, various public programs are still focused on subsidizing the cleantech space. The patchwork system of direct expenditures, tax breaks, loans, and other types of support for clean energy reaches across various government departments and can be a dizzying one to navigate, and, in the eyes of some industry experts, bears the mark of one still in the confused early stages of development.
“It’s this collection of dogs and cats without any economic coherence,” says Adele Morris, a fellow and the policy director for the Climate and Energy Economics Project at the Brookings Institution in Washington, D.C. She adds that the various types of subsides available can be difficult to differentiate, and that they’re not as effective at making alternative energy economically viable as a broader-based solution, like a price on carbon, might be.
Still, venture capitalist Paul Straub, director of Claremont Creek Ventures in Oakland, California, says cleantech startups and their early investors could stand to benefit by developing a familiarity with a few of the government programs currently seeking to dedicate funding to the cleantech space.
“I think [this government funding] is important in the early stages of companies, because there isn’t a strong enough ecosystem at the seed stage for supporting energy technologies,” Straub says. “We look at these government programs as important accelerators to help companies get through their first milestones and get some of their first technical validation.”
Below are a few programs cleantech startups and investors might consider looking into.
Small Business Innovation Research Program
The Department of Energy oversees its own branch of a government-wide program called Small Business Innovation Research. Enacted in 1982, SBIR presents three phases to the businesses that receive its awards: In phase one, recipients collect relatively small levels of funding—up to $100,000—to explore the merit of their technology. If the startup does well in phase one, it’s eligible for a larger grant—up to $750,000—in phase two.
“We’ve had good success with the SBIR programs at companies’ very early stages,” Straub says. “Being able to access non-diluted SBIR funding and pair that with equity is huge. Some of these projects would simply be too risky to attract the amount of equity they need purely on their own.”
This proved to the case with Alphabet Energy, a Hayward, California-based company that converts waste heat into electricity. Straub says Claremont was interested in the science behind Alphabet, but was reluctant to make an investment until the company had moved past the “science project” stage and built something functional. But to do that, the startup needed money. Three SBIR grants, totaling $2 million, to which Claremont added another $1 million, cleared up the stalemate and allowed Alphabet to build its first devices. That spurred private equity giant TPG to lead a $12 million series-A funding round.
“It was an exceptional program,” Straub says, “and is fairly low-risk for the government, because it’s a small dollar amount that’s staged over time.”
In fiscal year 2013, the DOE is required to set aside 2.7 percent of its research and development budget for the SBIR program. That proportion is set to rise slightly over the next few years, and will be up to 3.2 percent by 2017.
The DOE’s SBIR Funding Opportunity Announcements are also updated regularly.
The Advanced Research Projects Agency-Energy
When companies reach the next phase of development, they should look into the Department of Energy’s ARPA-E programs. Created in 2007 when President Bush signed into law The America COMPETES Act, ARPA-E has since funded more than 275 new energy technology projects. (The agency requested $350 million from Congress for fiscal year 2013 and is waiting final appropriation for that amount.)
ARPA-E seeks short-term research partnerships with projects that can make the case that they have significant transformational potential. On its Funding Opportunity Exchange page, the agency lists the types of projects where it’s looking to devote funds. (The newest funding opportunity, posted in February, is for “transformational electrochemical energy storage technologies that will accelerate widespread electric vehicle adoption by dramatically improving their driving range, cost, and reliability.”)
A few of the cleantech companies that have secured ARPA-E funding are Medford, Massachusetts-based Agrivida, which makes renewable biofuels from plant biomass; Palo Alto-based AutoGrid, Inc., which builds software to organize the energy data moving through the smart grid; and Envia Systems, a Newark, California-based maker of batteries for electric and hybrid cars.
Though ARPA-E doesn’t partner directly with private investors to leverage their cleantech-dedicated funds, the agency does work with startups to attract private funding. One of the ways it does this is by hosting the annual Energy Innovation Summit—the fourth yearly summit ended in late February—to convene venture capitalists, cleantech startups, and others with an eye toward moving promising technologies to the marketplace.
At the end of this year’s conference, ARPA-E Deputy Director Cheryl Martin announced that, together, 17 of the projects the agency has supported have attracted $450 million in private sector funding after ARPA-E’s initial investment of over $70 million.
“ARPA-E is for the next phase,” Straub says. “It’s for companies where there’s still an element of risk, but the risk is in commercialization or identifying the right market opportunities, or validating the technology in the market.”
Straub says that, anecdotally, he’s noticed that a disproportionate number of the recipients of ARPA-E funding have ties to a national lab or university. He suggests that entrepreneurs try seeking a collaboration with such an outfit to increase the chances of securing ARPA-E grant money.
Energy Efficiency and Renewable Energy Program
The EERE, like ARPA-E, is a program of the U.S. Department of Energy. The EERE offers grants, “cooperative agreements” (a more-involved partnership with the government that includes some type of project collaboration), and other types of support to renewable energy technologies.
Companies that have received EERE grants include A123 and Dow Kokam, both of which received battery manufacturing grants.
Its 2013 fiscal year budget is nearly $2 billion, with the most funding dollars available in the areas of vehicles technologies, solar energy technologies, building technologies, and weatherization and intergovernmental activities.
EERE, too, has its own Funding Opportunity Exchange where it lists solicitations.
Connecticut was the first U.S. state to launch a green bank, forming the Clean Energy Finance and Investment Authority (CEFIA) in July 2011. In January of this year, New York Governor Andrew Cuomo announced in his State of the State address that New York would follow suit, dedicating $1 billion in public funds to the cause.
Reed Hundt, a former chairman of the Federal Communications Commission, helped advise on the development of both of these entities. He describes their function this way: “The purpose of a green bank is to provide long-term, cheap debt [to clean energy projects] that acts as a catalyst and gets private investors over the worry hurdle. Then the green bank gets paid back and recycles the money, and the private investor makes a profit.”
New York hasn’t yet laid out the specifics of its plan, but Connecticut’s CEFIA has made it clear that it prefers to fund mature technologies that can offer an immediate benefit to consumers, rather than newer, riskier cleantech ventures. Connecticut’s green bank strives to realize lower rates on clean energy and energy efficiency upgrades for consumers right away, and partners with banks and other investors to leverage the capital to do so. For example, the state’s C-PACE program (Property Assessed Clean Energy) is a financing mechanism that allows interested property managers to pay for efficiency and clean energy upgrades over time through an additional charge on their property tax. The capital providers that have partnered with the state on the program include Citigroup, People’s United Bank, Structured Finance Associates and Wells Fargo.
A federal U.S. green bank bill passed in the House of Representatives in 2009, but failed in the Senate.
Created in 2010, the Office of Operational Energy is a part of the Department of Defense focused on improving the military’s energy use.
Last year, the DOD used 4.3 billion gallons of petroleum, making it the biggest energy consumer in the country, if not the world. Roughly 75 percent of the DOD’s budget goes to operational energy, says John Pazik, Director for Innovation in the Office of Operational Energy, and his office’s initiatives are focused on improving the capability of the warfighter. More and more, that improvement is coming in the form of renewable energies.
“Though the ‘green’ perspective is not our focus, it makes sense in many cases,” Pazik says. “We’ll use these in situations where it’s difficult to get fuel in, and we have sunlight available and will be able to operate generators less.”
The Department of Defense also frequently issues requests for proposals, many of which are energy- and cleantech-focused.