US should act to support innovation in increasingly clean electric power technologies

Sept. 8, 2016 WASHINGTON - A new report from the National Academies of Sciences, Engineering, and Medicine urges Congress, federal and state agencies, and regulatory institutions to significantly increase their support for innovation for what the report's study committee calls "increasingly clean" electric power technologies - nuclear power, carbon capture and storage, and renewables such as solar and wind. Some of these technologies have seen recent cost and price declines and are cost-competitive in certain locations. But significantly greater market penetration of these technologies will be required to help address the worst impacts of climate change, as well as harms to human health such as asthma and premature death caused by pollution.

Currently, most increasingly clean power technologies cost too much and do not perform well enough to achieve high global levels of adoption, the report says. Reducing the cost and improving the performance of increasingly clean power technologies in ways that support wide adoption will, in many cases, require improvements to current technology that are more than incremental. Changes in the way the electricity grid is engineered and operated will be needed as well. The report recommends a range of specific steps the U.S. federal and state governments and regulatory agencies should take to support innovation that improves the performance and cost-competitiveness of increasingly clean electricity generation and grid technologies.

"We called our report The Power of Change because changing where we get our electricity from will require changing how we think, so that we see this not just as one of the greatest challenges of our time but also as one of our country's greatest opportunities," said Charles O. Holliday, Jr., chair of the committee that wrote the report, and chair of Royal Dutch Shell, PLC. "We are only in the second inning of energy innovation, but we could take the lead globally by working together as a nation, and tapping the ingenuity we have always been known best for, to achieve breakthrough innovation."

Innovation is hampered by market failures and nonmarket barriers at all stages of the innovation process, and the report identifies measures that can help overcome them:

• Proof-of-concept and pilot projects should have clear missions and goals. The U.S. Department of Energy should help advance innovation by using sector-specific road-mapping and challenge funding.

• The intermediate stages of innovation are among the most critical and often overlooked. Once a concept has been proven, it faces a range of scale-up, manufacturing, regulatory, and market challenges to commercialization. The Small Business Investment Company program can help overcome these barriers; for example, allocating 20 percent of SBIC funding to create new venture capital funds focused on early-stage increasingly clean power technologies.

• Simulation and testing of new technologies are key capabilities. DOE should take the lead in assessing public and private simulation and testing capabilities, identifying gaps, and supporting or incentivizing creation of capabilities to fill those gaps.

The report identifies additional steps that federal and state governments should take to speed innovation in and adoption of increasingly clean energy technologies.

Pricing pollution. Congress should consider an appropriate price on pollution from electricity production, including greenhouse gases and pollutants such as nitrogen oxides and particulate matter, to reflect fossil fuels' "hidden costs" to human health and the environment, the report says. Requiring electricity producers to take those harms into account would help make increasingly clean energy sources cost competitive.

Innovating to improve current generating technologies. In 2015, two-thirds of U.S. electricity was produced from fossil fuels, evenly divided between coal and natural gas. Despite significant federal and state efforts in recent years to spur deployment, wind produced less than 5 percent, solar produced less than 1 percent, and other renewables combined (mostly hydroelectric) produced about 8 percent of all U.S. electricity in 2015. The largest low- or no-carbon production of electricity came from nuclear power plants, many of which may be shuttered in the coming decades as their operating licenses expire. (See Figure 2-2 from report.)

The large leaps in performance and cost declines necessary for increasingly clean power technologies to compete in the market will require substantial improvements in currently available technologies and/or significant technological breakthroughs. The scale of innovation needed, and companies' fear that they may not realize an adequate return on their investments, make it unlikely that companies alone will pursue the needed amount of innovation. Moreover, large-scale deployment alone is unlikely to produce cost breakthroughs or technological improvements.

The report identifies steps policymakers can take to encourage innovation in and greater deployment of current increasingly clean power technologies and resources. For example, to speed development and use of carbon capture and storage technologies, Congress should direct the U.S. Environmental Protection Agency to develop a set of long-term performance standards for the transport and storage of captured CO2. In the nuclear sector, the U.S. Nuclear Regulatory Commission should prepare for a rulemaking that would change the licensing of advanced nuclear reactors to establish a risk-informed regulatory pathway for considering advanced non-light water reactor technologies, as well as a staged licensing process. As the costs of renewables like wind and solar approach becoming competitive with cheaper natural gas generation, states should expand competitive solicitation processes for the most cost-effective renewable projects and consider the long-term power purchase agreements (PPAs) necessary to enable low-cost capital for project financing.

Improving electric power infrastructure, including the transmission and delivery system. Equally important to improving the current generation technologies are changes to the electricity transmission and distribution system so that it is capable of integrating variable and distributed generating technologies at greater levels. Utility regulators will need to provide incentives to utilities to become fully engaged in innovation and demonstration of new technologies. State regulators and policymakers should implement policies designed to support innovation. For example, they could evaluate approaches in which utility or energy customer funds are set aside to support state and regional innovation programs.

Increasing energy efficiency. The committee also examined opportunities for reducing electricity use by increasing efficiency. It recommends that DOE, on an ongoing basis, set new standards for home appliances and commercial equipment at the maximum levels that are technologically feasible and economically justified. The agency should also increase its investments in innovative energy efficiency technologies, and in behavioral strategies to improve consumers' use of current energy efficient technologies.

Focusing subsidies on initial development of energy technologies. History suggests that such supports as direct subsidies and tax exemptions tend to continue well after technologies have matured and are market-competitive. While subsidies can serve important public policy functions in helping to establish industries, they should be structured to be performance- or outcome-oriented without regard to specific technologies, and to include sunset provisions so they expire either after a specified length of time or a certain performance level has been achieved -- as is the case with the recently renewed production tax credits for power from wind and solar. In contrast, the many subsidies for oil and natural gas have no sunset provisions despite the maturity of those industries.

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The study was sponsored by U.S. Department of Energy, with additional support from the National Academy of Sciences Thomas Lincoln Casey Fund and the Academies' Presidents' Circle Fund. The National Academies of Sciences, Engineering, and Medicine are private, nonprofit institutions that provide independent, objective analysis and advice to the nation to solve complex problems and inform public policy decisions related to science, technology, and medicine. They operate under an 1863 congressional charter to the National Academy of Sciences, signed by President Lincoln. For more information, visit http://national-academies.org. A committee roster follows.

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Pre-publication copies of The Power of Change: Innovation for Development and Deployment of Increasingly Clean Electric Power Technologies are available from the National Academies Press on the Internet at http://www.nap.edu or by calling 202-334-3313 or 1-800-624-6242. Reporters may obtain a copy from the Office of News and Public Information (contacts listed above).

Policy and Global Affairs Division
Board on Science, Technology, and Economic Policy

Division on Engineering and Physical Sciences
Board on Energy and Environmental Systems

Charles O. Holliday Jr.* (chair)
Chairman of the Board
Royal Dutch Shell
Washington, D.C.

Jay Apt
Professor
Carnegie Mellon Electricity Industry Center
Carnegie Mellon University
Pittsburgh

Frances Beinecke
President (retired)
Natural Resources Defense Council
New York City

Nora Mead Brownell
Founding Partner
ESPY Energy Solutions
Alexandria, Va.

Paul Centolella
President
Paul Centolella and Associates
Boston

David K. Garman
Principal and Managing Partner (retired)
Decker, Garman, Sullivan, and Associates LLC
Alexandria, Va.

Clark W. Gellings*
Principal
Clark Gellings and Associates LLC
Morgan Hill, Calif.

Barton J. Gordon
Partner
K&L Gates LLP
Washington, D.C.

William W. Hogan
Raymond Plank Professor of Global Energy Policy
Harvard Kennedy School of Government
Harvard University
Cambridge, Mass.

Richard K. Lester
Japan Steel Industry Professor and Associate Provost
Department of Nuclear Science and Engineering
Massachusetts Institute of Technology
Cambridge

August W. Ritter Jr.
Founding Director
Center for the New Energy Economy
Colorado State University
Fort Collins

James Rogers
Chairman, President, and CEO (retired)
Duke Energy Corp.
Charlotte, N.C.

Theodore Roosevelt IV
Managing Director
Barclays
New York City

Peter Rothstein
President
Northeast Clean Energy Council
Boston

Gary Roughead
Admiral, U.S. Navy (retired); and
Annenberg Distinguished Visiting Fellow
Hoover Institution
Stanford University
Warrenton, Va.

Maxine L. Savitz*
General Manager of Technology/Partnerships (retired)
Honeywell Inc.
Los Angeles

Paul Beaton
Study Director

*Member, National Academy of Engineering