Shrinking budgets force staff cuts, but some projects

find friends in high places.

"They're putting the best face on the inevitable."

Funding for renewable energy for government/ industry research partnerships took another beating early this summer (em and that's on top of a $113-million cut suffered this fiscal year. Next year promises to be no different, as scientists, bureaucrats, and their industry partners await the next round of deliberations in Congress by subcommittees on the Interior, and Energy and Water.

"What they're really aiming for," predicts a national lab official, "is a phasing out of all energy efficiency and renewable energy work."

Meanwhile, the U.S. Department of Energy (DOE) faces its own future in the DOE Abolishment Act (H.R. 1993). Various proposals circulate. The worst would gut

the department. Then there's H.R. 3415, which would temporarily repeal the 4.3-cent-per-gallon gasoline tax and make up some

of the lost revenues with a $14-million slash in DOE administrative expenses.

Any of these cuts could filter down to renewable and energy-efficiency programs, forcing the question: Are the salad days over for the National Renewable Energy Laboratory (NREL), Oak Ridge National Laboratory (ORNL), and Sandia National Laboratory (em the agencies that perform the lion's share of this research work. Will these agencies see the end of their industry partnerships? Will the United States lose its lead in renewable technologies?

Ironically, as legislators wrangled over the budget in Washington, DC, one of the largest-ever industry/government renewable energy projects was dedicated in the Mojave Desert. Solar Two, a 10-acre "magnifying glass," concentrates sunlight into a 300-foot tower that heats molten salt to 1,050°F to produce 10 megawatts (Mw) of electricity for up to three hours after sunset.

"We're storing sunlight, for the first time in history," says Edan Prabhu of Southern California Edison (SCE), a leader in the Solar Two consortium of 10 companies.

The $48.8-million project received half its funding through NREL, which directs most renewable energy projects for DOE. "We've been fortunate because the funding has held together," says Prabhu.

But for how long?

Discussions with lab officials, industry executives, and a pro-renewables congressman suggest that the government will maintain funding only for long-term, high-risk research (em such as projects involving hydrogen or superconductivity (em or research that can be commercialized fairly quickly. If so, Solar Two could represent a high-water mark for government renewables funding.

At the end of its two-year test run, Solar Two is unlikely to advance any farther than its predecessor, Solar One, although its promoters say affordable,

commercial plants could someday generate 200 Mw of power.

Even Rep. Dan Schaefer (R-CO), the "white knight" of renewable energy and head of the 82-member House Renewable Energy Caucus, maintains that projects must, at some point, prove commercially profitable.

"I don't think probably right now that solar is. Well, I know it isn't. It's just being developed quite rapidly, but it's still not there for commercial use," he says.

National energy labs used to provide 80 percent of funding (em compared with 20 percent for private industry (em but that share has now dipped to 50 percent. These days, according to industry partners, government is looking for even more financial backing from private industry.

And as the belt-tightening continues and renewable projects get squeezed, utilities or other businesses are unlikely to fill the research gap.

"With the price of fossil fuel so low, it's really hard to stimulate private investment, [which] looks at the much shorter term," says Prabhu, SCE's technology transfer manager. "So (em personally now, not speaking for my company (em I see this gap as delaying the agenda for implementation of renewables."

Pabhu's view is shared, somewhat, by those at DOE. Charles B. Curtis, deputy secretary, and Joseph J. Romm, acting principal deputy assistant secretary for energy efficiency and renewable energy, co-wrote an article for the April Atlantic Monthly that addressed renewables. Quoting Royal Dutch/Shell Group, the authors noted that advances have "persuaded Shell planners that renewables may make up a third of the supply of new electricity within three decades, even if electricity from fossil fuels continues to decline in cost."

Technological developments from biomass and photovoltaic (PV) fuel cells have substantially reduced the costs of renewable power, the authors write, but government budget cuts are taking their toll on research. The corporate sector has not picked up the slack, due to its own downsizing as well as shifts toward process and product improvement instead of applied research. Meanwhile, other countries with higher electricity costs show a greater incentive to develop renewables. Countries like Japan and Germany own several major American PV companies, accounting for 63 percent of the PVs made in the United States.

Nevertheless, while Curtis and Romm champion renewables, the pool of dollars is drying up.

Both Charles F. Gay, NREL lab director, and Anthony C. Schaffhauser, ORNL director of energy efficiency and renewable energy programs, say they're still adjusting to budgetary changes, and that in many ways the staffing cuts have forced them to do their jobs better. They also point out, as do some of their corporate partners, that it's too soon to measure the real effects of the cuts, since current funding covers part of the fiscal future.

Gay's budget fell from $237 million in 1995 to $167 million this year, a figure equal to 1993's budget dole. Staffing has dropped from 1,000 to about 670 (projected), a level not seen since 1992. Gay says program cuts in wind power, PVs, biomass, and alternative fuels have simply stretched out the timetables for lab goals. The bulk of the remaining dollars are being directed into wind, solar, and biomass technologies.

However, an inability to predict funding makes for delicate relationships with NREL's 175 partners. "It makes it difficult for us to be a predictable and consistent performer when we lose the continuity of our program efforts," Gay says. "So in the case of industry with photovoltaics, we end up appearing flaky, because we initiate an effort with an industrial partner only to pull the rug out within a six- to 10-month kind of timeframe. It severely damages the credibility we've worked hard to establish over time."

Much of NREL's success in dealing with its shriveling budget and staff can be attributed to Gay, who arrived there in January 1995. He came from UNISUN, a California consulting firm that specialized

in financing renewable energy. Gay has also been president of Siemens Solar Industries.

Gay has squeezed $26 million out of his budget by "enhancing" productivity, eliminating expenses, and creating a leaner, more responsive, and diversified organization. Signing a contract with the lab used to take up to 10 months; it now takes about 30 days. Supervisors have been pared from 10 to 2.5 percent of the staff.

Yet Gay still pictures his ideal funding and staffing levels at $200 million and 800 employees.

Gay doesn't think the budget cuts will hurt NREL's industry relationships. He recently met with PV industry executives in Washington, DC. "They like what they see," he says of the changes at NREL. "They like the motivation they see in the employees. They like the way we've created some new ways of outreach, and they've been especially pleased by our ability to help bring new sources of capital to their organizations."

From what industry says, the changes seem to be working. Wayne Gould, SCE's manager of dispersed energy systems, sits on NREL's Enterprise Growth Forum, which directs companies to new capital and advises on marketing. "It's a wonderful forum," he says. Soon, he says, NREL will sponsor a similar forum in China.

But Prabhu says he'd like to see how the cuts play out before passing judgment. "They're putting the best face on the inevitable," he notes. "Charlie Gay is a nice guy and he's got to tighten his belt and do it with a smile. But as everyone tightens their belts, the price is going to come in the weakening of the emphasis on renewables."

At ORNL, Schaffhauser has seen his renewables budget drop from $18.7 million in fiscal 1995 to $14.6 million in fiscal 1996. Fifteen jobs were cut. The $5.2-million transmission and distribution program was "zeroed out." However, over the same period, research in high-temperature superconductivity and in hydrogen increased. Funding for superconductivity, for example (em clearly a pet project for some legislators (em grew $400,000, to $4.9 million.

"They talk about corporate welfare, but government money often acts as a corporate catalyst," says James VanCoevering, who heads ORNL's Efficiency and Renewables Research Section. "In several projects I'm thinking of, the government funding wasn't all that large, but without the fact of its existence, the players would have never gotten together."

Like Gay, Schaffhauser is working with a consultant, Ernst & Young. A restructuring plan is expected October 1. Other recommendations include taking out financial systems, eliminating a level of management, and centralizing procurement services. Travel is now booked through commercial agencies. Schaffhauser says the lab already sees cost savings.

"A lot of people are skeptical [of the Ernst & Young study]," Schaffhauser says. "But from what I've seen, and I've been involved in some of the teams, I think there are going to be some significant efficiency and productivity improvements."

Meanwhile, as the labs regroup, their futures hang upon further developments in Washington.

"Dan Schaefer has done a marvelous job of organizing the Renewable Energy Caucus," Schaffhauser says. "One of the difficulties for our programs is that he's primarily focused on photovoltaics and wind, and not on the rest of the utility system."

Important research is needed on how such renewable systems would be integrated into the grid, he notes. And on reducing production costs. What Congress forgets, according to Eric Hirst, an NREL corporate fellow, is the need for research into critical national problems, such as increasing dependence on imported petroleum and changes in the electric industry.

"I defy you to find some core within the Department of Energy where they're actually seriously studying these issues," Hirst says. He claims that no one is researching mergers and acquisitions, or how the transmission system will work under competition, or how reliability will be balanced against efficiency. As head of Electric Industry Policy Studies, Hirst faces his own troubles. Last year's

budget: $1.4 million; this year's: $200,000.

"One of the difficulties in shrinking budgets is that they're trying to increase the funding for nuclear weapons work, increase funding for environmental cleanup, and the pie is getting smaller," Schaffhauser says. "And the particular piece for renewable energy is sort of sucking wind."

But Rep. Schaefer reminds observers that House members, on an amendment he co-sponsored, earmarked $45 million for renewables in fiscal 1996 (em despite Republican objections. Nevertheless, the overall appropriation still fell from the previous year.

"I guess we'll have to wait, see, and find out," says Schaefer of this year's appropriations. "But if we get a communication out to all of our caucus members to start lobbying their friends, then we can build up enough support to forestall any big whacks."

Whatever happens, industry is already making adjustments. SCE, for instance, won't seek continued government funding for its "Our Solar Neighborhood" program, which uses PVs to supply overloaded systems at the tail ends of the electric grid. That $5-million venture was half-funded by NREL and was set to expand. "We're not planning to go forward as a result of the cuts," says Prabhu.

He estimates his company has received about $30 million from DOE over the past five years, which SCE has matched.

"Government should be taking the long-range risks for research," he says. t

Joseph F. Schuler, Jr. is associate editor of Public Utilities Fortnightly. E-mail: schuler@pur.com.

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