- Despite concern over President-Elect Donald Trump's selection of former Texas Gov. Rick Perry as Secretary of Energy and a recent questionnaire circulated at the Department of Energy (DOE) by the Trump transition team, top DOE programs related to clean energy innovation have all been enacted by Congress, mostly during the George W. Bush Administration.
- These programs – including the Office of Energy Efficiency and Renewable Energy (EERE), Advanced Research Project Agency-Energy (ARPA-E) and the Loan Programs Office (LPO) – have continued to receive appropriations funding in a Republican-controlled Congress, albeit at decreased levels.
- This alert takes a closer look at these top programs in clean energy innovation and what historical trends may indicate about their near- and long-term futures.
President-Elect Donald Trump announced former Texas Gov. Rick Perry on Dec. 13, 2016, as his selection for Secretary of Energy. To many champions of renewable energy, Perry is considered an adversary for his hardline denial of climate change, his 2011 election campaign promise to abolish the Department of Energy (DOE) and his 2015 stance against extending the federal tax credit for wind. Nevertheless, his actions as governor speak to a more pragmatic leader who presided over an "all of the above" energy strategy that made Texas not only an economic powerhouse and a world leader in oil and gas production but also a global leader in wind and renewable energy investment. Indeed, Perry fostered a pro-business economic climate in the state and even supported the construction of transmission lines that have enabled wind power to grow from 116 megawatts when Perry took office to 18,000 megawatts today, making Texas the nation's No. 1 wind producer.
In addition to Trump's energy secretary pick, uncertainty over the fate of DOE is further heightened with the recent questionnaire circulated at DOE by the Trump transition team that posed 65 probing questions regarding issues such as the loan guarantee program, the validity of the work at the U.S. Energy Information Agency (EIA) and which programs are most critical to President Obama's climate change agenda. Most contentious of all have been the questions specifically requesting names of DOE employees and contractors who have participated in official activities related to climate change. In all, two themes emerge from these questions:
- a suspicion of all climate change-related initiatives
- a noteworthy interest in the potential of nuclear energy
Importantly, despite the anxiety that Trump's transition questions and energy secretary pick have produced, DOE's top programs related to clean energy innovation – the Office of Energy Efficiency and Renewable Energy (EERE), Advanced Research Project Agency-Energy (ARPA-E) and the Loan Programs Office (LPO) – have all been enacted by Congress, mostly during the George W. Bush Administration, and have continued to receive appropriations funding in a Republican-controlled Congress, albeit at decreased levels. Despite popular perception, DOE's primary functions actually involve nuclear weapons development, nuclear arsenal safety and reliability, and environmental clean-up of weapons development sites.
Consequently, we anticipate that most of these programs will remain in place in the near term. For the long term, we envision the programs being legislatively tweaked to incentivize energy innovation more broadly, perhaps with a renewed interest in advanced nuclear and small modular nuclear reactors given the number of related questions in the transition questionnaire. Lastly, it's important to bear in mind that the ideological positions being born out during this transition perioddo not necessarily reflect the personal convictions of either Trump or Perry, who have both exhibited pragmatic tendencies in their leadership style despite their hardline rhetoric employed in election campaigns. What follows is a closer look at these top programs in clean energy innovation and what historical trends may indicate about their near- and long-term futures.
Office of Energy Efficiency and Renewable Energy (EERE)
For each of the past five years, DOE has requested increased funding to support EERE programs and objectives, and the response of Congress has been to provide funding at levels lower than what was requested. Instead of the Trump Administration wholly abolishing these programs as some conservative organizations promote, we anticipate that the new administration will recommend decreases in funding and encourage that these programs return to their pre-Obama positions, objectives and funding levels.
Pre-Obama Administration EERE
Prior to the Obama Administration, EERE programs were funded at levels 20 percent to 40 percent lower than they are now and in a way that strategically emphasized technologies with the potential for reducing our growing reliance on oil and to promote domestic clean energy production, jobs and innovation; Congress also re-evaluated the priorities for each subprogram on an annual basis instead of simply funding them at the same levels of prior years. Further, these programs didn't concentrate on climate but instead focused on targeted research, demonstration and deployment to overcome market obstacles and critical "valleys of death" for new energy technology, which typically occur post-laboratory research, post-technology pilot and post-technology demonstration.
Enacted Appropriations Amount (in millions)
While the market for clean energy investment – as promoted by numerous conservative policy agendas – already exists where technology is economically viable, EERE programs represent a small amount of funding overall to ensure the deployment of alternative sources of energy that can enhance national security and economic growth. For instance, DOE's enacted budget for Fiscal Year (FY) 2016 was $29.6 billion, of which EERE constituted less than 7 percent.
Statutory Foundation of EERE
The importance of strategically investing in technologies through EERE – that harness abundant, naturally occurring, domestic sources of energy, diversify the nation's energy portfolio and minimize the environmental impact of conventional sources – has been recognized by each Congress and President, long before EERE was organized into what it is today in 2001 by President Bush.1
Most notably, EERE and its predecessors have a strong track record over the past 30 years of yielding significant economic and security benefits. In 2006, a study sample of EERE energy efficiency portfolio projects over more than 20 years by the National Academy of Science's National Research Council found that the total net realized economic benefits associated with the DOE energy efficiency programs that it reviewed had already returned approximately $30 billion from the roughly $7 billion (1999 dollars) total federal energy efficiency investment.2 To date, third-party evaluations have assessed one-third of EERE's research and development portfolio and found that an EERE taxpayer investment of $12 billion has already yielded an estimated net economic benefit to the United States of more than $230 billion, with an overall annual return on investment of more than 20 percent.3 Finally, many of the programs within EERE – such as the SunShot Initiative, Bioenergy Technology Office (BETO) and Vehicle Technology Office (VTO) – focus on clear objectives that drive American competitiveness in advanced manufacturing and energy technology innovation.
Accordingly, we anticipate that there will be an impact on funding levels and more scrutiny with regard to the objectives of these programs. However, we believe that these programs will remain in place at reasonable levels of funding due to the long-standing bipartisan support of EERE combined with a strong track record of success and documentable economic benefits to the U.S. economy for a very minimal investment. Similar to the Department of Defense (DoD) energy programs covered in previous Holland & Knight Government Energy Finance Blog posts (see Department of Defense Positioned to Untangle the Tether of Fuel," Dec. 13, 2016, and "Department of Defense Programs Provide Strong Foundation for Energy Independence," Dec. 2, 2016), we anticipate that the focus of the EERE's initiatives will shift from climate change and "more funding is necessary" to strategic support that focuses on national security, technology innovation, energy independence and domestic job growth for renewable energy applications – all of which can continue to benefit significantly from the investment that the EERE program provides.
Advanced Research Projects Agency-Energy (ARPA-E)
Unlike the EERE programs noted above, ARPA-E has been able to increase its budgets by more than 50 percent over the past five years due to its underlying statutory foundation, a focus on keeping our country globally competitive in the race for energy security, and its development of market-driven solutions in lieu of government mandates and interventions. Although some conservative organizations advocate to cut the program and reports that the recent transition questionnaire specifically zeroed in on ARPA-E's role in President Obama's climate change agenda, we expect the program to remain in place at least in the short term due to bipartisan congressional support and growing market demand for innovative energy technology. However, ARPA-E's long-term stability remains in question in the absence of programmatic refinement due to controversial Obama-era execution and a minimal track record of energy breakthroughs reaching commercialization.
Statutory Foundation of ARPA-E
ARPA-E was officially created in 2007 when President George W. Bush signed into law the America COMPETES Act. The creation of the agency was the result of a series of reports commissioned by the National Academies of Science (NAS) at the request of congressional leadership. In 2005, leaders from both parties in Congress asked NAS to "identify the most urgent challenges the U.S. faces in maintaining leadership in key areas of science and technology," as well as specific recommendations to policy makers to shore up American competitiveness and security in the global economy. In its report for Congress, Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future, NAS called for decisive action, warning policymakers that U.S. advantages in science and technology – which made the country a technological world leader for decades – had already begun to erode. The American COMPETES Act, however, remained unfunded until the stimulus package was passed in 2009. In a supplemental report in 2010, NAS emphasized that our "ability to compete for quality jobs in the global economy has continued to deteriorate in the last five years" calling for sustained investment in education and basic research to stem the tide. Since then, ARPA-E has generally been less politicized than other DOE initiatives that support clean energy innovation and thus received significantly increased appropriations funding from Congress when EERE did not.
Despite the Program's bipartisan foundation and increased funding over the past five years, ARPA-E's strong ties to the Obama Administration's climate change efforts and recent scrutiny from the Government Accountability Office, DOE Inspector General, and House Science, Space, and Technology Committee staff regarding private sector investments associated with ARPA-E's current portfolio all put the program at risk. Indeed, there is a decided lack of attributable success when only 45 out of the 500 projects awarded to date – by ARPA-E's own admission – have garnered private sector funding totaling slightly more than 1.25 billion. This increased scrutiny of ARPA-E's track record, along with its perceived alignment with the Obama Administration's climate change agenda, may represent an existential threat if the program resists realigning with its original statutory objectives.
Other DOE Programs Update
Loan Programs Office (LPO)
By contrast with other program offices at DOE, the LPO has received its funding authority to issue loans for the commercial development of innovative energy and vehicle technologies through appropriation bills in 2007 and 2009, and this funding authority remains available until committed. Indeed, LPO's Title XVII Program has more than $24 billion in loan authority remaining, while its Advanced Technology Vehicles Manufacturing (ATVM) Program has more than $16 billion remaining. For the Title XVII Program, LPO issues loans ranging from several million to more than $1 billion for advanced fossil, advanced nuclear, renewable energy, distributed and energy efficiency projects that employ "new or significantly improved technology." For the ATVM Program, LPO issues loans for advanced "ultra-efficient" vehicle and/or component manufacturing.
While both programs are actively soliciting quality applications across all technology areas, the LPO has received no shortage of negative attention over the years. A small number of notable bankruptcies have put the LPO in the crosshairs – despite the failure rate being only approximately 8 percent. The Republican-controlled Congress has unsuccessfully tried to rescind ATVM funding on several occasions. ATVM has also been accused of playing favorites with clean-energy loans and rejecting the loan application from a carmaker trying to make a "clean" SUV. For all of these reasons, LPO officials have become increasingly risk averse, requiring applicants to now demonstrate a product sales pipeline prior to even entering due diligence. There also appears to be an increasing reluctance to issue loans to any early-stage companies, especially in ATVM.
While we believe the LPO likely will remain intact in a Trump Administration – especially given its statutory underpinnings – we anticipate this trend toward requiring ever more stringent risk mitigation strategies to continue. We also anticipate an increased appetite to promote the advanced fossil and nuclear components of the program, which have a combined $21 billion in existing authority. The renewable energy, distributed energy and energy efficiency components of the program will likely not see its $4 billion in authority increase but may still garner some administration support as part of an "all of the above" energy strategy.
Office of Fossil Energy (FE)
FE is the federal government's lead office for coal, natural gas and oil exploration and development. By contrast with EERE's $2.069 billion in funding, FE received just $632 million for FY 2016. Currently, FE oversees approximately 600 research and development projects in advanced fossil fuel resource development and manages the U.S. Strategic Petroleum Reserve. In recent years, the Republican-controlled Congress has demonstrated a clear appetite to increase funding for this office, authorizing more than was requested by DOE. We believe that this office may shift away from its priority of supporting carbon mitigation efforts toward technology development that would enable further fossil fuel resource development.
Office of Electricity Delivery and Energy Reliability (OE)
OE is the federal government's lead agency for all matters pertaining to the delivery of electricity. OE funds research and development into innovative solutions for storing and delivering electricity. The office also seeks to identify and prevent potential weakness in electricity infrastructure that could lead to large-scale power outages. By contrast to EERE's $2.069 billion and FE's $632 million, OE received $206 million in funding for FY 2016. Given that OE was created statutorily in 2005, the office is likely to remain in place in a Trump Administration. Its current focus on helping integrate renewable and distributed energy may be altered to more broadly focus on energy resiliency as well as the hardening of transmission and distribution infrastructure and other grid support solutions in an economic manner. Even with this change, grid solutions that deploy energy storage are likely to remain attractive, thereby still assisting renewable energy generation.