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Energy Technology: Cultivating Clean Tech

New Models for Energy RD&D: A new ‘Clean Energy Institute’ could lead the industry’s war on climate change.

Fortnightly Magazine - May 2008

faces its own gauntlet of political issues, most of which emerge from two fundamental questions: Who wins and who loses? And how influential will they be in shaping the policy?

Utilities have generated power from coal, oil, natural gas and hydro for a century. Those technologies have evolved slowly and incrementally. They are well known, predictable in both performance and cost, and the engineering skills to manage them readily are available. Innovation and R&D have not been needed until now, and, not surprisingly, are not the industry’s forte. After all, the regulatory compact calls for utilities to provide reliable service at a reasonable price—not to blaze new technology paths.

But now, the industry is being asked to invest hundreds of billons of dollars over the coming decade in new technologies that have not been proven commercially, and may have to be abandoned if they don’t work as planned—or if more cost-effective solutions emerge. These requirements are basically antithetical to traditional cost-of-service regulation.

Arguably the clean-energy mandate is a societal goal, and the government should fund the program, not ratepayers. As such, some utilities oppose the idea of a nationwide surcharge to fund RD&D. But increasingly, utility industry leaders are beginning to support the broad concept—as evidenced in the numerous interviews conducted for this report (see author acknowledgements at end) .

At the same time, competitive pressures might lead some generators to oppose additional costs levied for RD&D, even though the uniform surcharge on kilowatt hours would apply to all load-serving entities. Plus, utilities that are dependent on nuclear or natural gas—and all generators using carbon-neutral technologies—may see the surcharge as an unwarranted burden to subsidize competing resource strategies.

In short, protecting shareholder value may explain why the industry has not been able to speak with a single voice on the issue.

Finally, Congress may view auctions of emission allocations as a cash windfall to be distributed to local constituents, from farmers to low-income households, based on political objectives rather than low-carbon emission objectives. All of the preceding groups also might oppose a funding mechanism controlled by industry, to the degree their parochial interests aren’t served.

Seeking Leadership

In addition to the political questions—and to a large degree because of them—the idea of a clean-energy institute faces the serious practical question of whether any new management entity can successfully lead such a vast and broadly arrayed RD&D effort. The keyword is leadership—both in terms of stakeholders and executive management of the organization.

While many industry leaders are aware and supportive of the concept of a new entity for RD&D, and are struggling to develop an appropriate model, others strongly oppose anything that looks like a tax. Hence it is unlikely that the industry will be able to speak with one voice. The effort likely will require visionary and powerful executive management, with a demonstrated knack for finding effective compromises.

Where will this leadership come from? Perhaps the best hope rests with the next president—specifically, in the hope that he or she will recognize the United States must lead the global campaign against climate