Public investment in clean energy innovation in general – both in the United States and abroad – is limited and underwhelming. For example, while the Advanced Research Projects Agency-Energy (ARPA-E) has done good work, an annual budget of several hundred million dollars which has to be renewed by Congress year after year is insufficient for developing the clean energy technology needed to mitigate climate change. Unfortunately, the private sector has also traditionally underfunded research, development, and demonstration, key pieces of the energy innovation puzzle – which is why Scientific American writer Melissa Lott’s recent look at the trend of “innovation partnerships” is so encouraging.
According to Bloomberg New Energy Finance (BNEF), while global clean energy investment (public and private) in 2012 totaled $268.7 billion, only $30.2 billion, or a little more than 11 percent, went to research and development. Worse, total investment in the United States dropped by 32 percent. Furthermore, BNEF’s findings mirror that of Cleantech Group, which estimates that global clean-technology venture investment fell to $6.46 billion in 2012 – down 33 percent from the $9.61 billion invested the previous year. “Venture capitalists,” the San Jose Mercury News reported, “are shying away from capital-intensive deals…And global economic uncertainty took a toll.”
Energy companies themselves have traditionally been risk averse in a sector characterized by projects that are both capital and time-intensive. In fact, the Breakthrough Institute estimates that U.S. energy firms reinvest less than 1 percent of annual revenues in research, development and demonstration. In comparison, firms in industries like IT, semiconductors, and pharmaceuticals reinvest as much as 15 to 20 percent of revenues in RD&D and product development. “In energy, stability and reliability have traditionally been favored over technological change,” observes Breakthrough Institute policy analyst Alex Trembath.
Enter innovation partnerships. “Big corporations partner with cleantech startups,” Lott writes. “These partnerships allow big energy companies to tap into the potential within these smaller pockets of innovation, while helping startups survive long enough to bring their product successfully to market.” Lott points to several prominent examples, including Chevron Technology Ventures, which has a group dedicated to partnering with startups on demonstration projects and one solely focused on developing advanced biofuels and General Electric Ventures, which not only invests in startups, but also provides assistance with technology testing and prototyping and a market outlet with commercial agreements. ITIF has also highlighted important innovation partnerships, like startup Envia Systems’ work with General Motors to commercialize their breakthrough electric vehicle battery.
Working with established startups provides large companies with a less risky option than solely conducting new technology RD&D in-house, and establishing innovation partnerships with larger entities provides startups with key funding that they might not otherwise receive from the public sector or venture capitalists. These kinds of partnerships are thus win-win solutions. And ultimately, as global clean energy investment stagnates or declines, innovation partnerships will only grow in importance.
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