The Department of Energy doesn’t just fund individual green technologies seeking to leap the gap from lab to market. It also funds work on how to narrow that gap, by creating new structures to bring in new investors — like charities, pension funds, mid-cap companies, commercial lenders or testing and certification labs with connections to the green energy market.
That's the kind of work that will be conducted under a year-long grant program announced Tuesday by the DOE’s Energy Efficiency and Renewable Energy (EERE) office. Dubbed its “Innovation Pathways” projects, the 11 separate efforts will receive a collective $7.8 million to develop their concepts, and a year or so to prove whether or not they work.
“We’ve designed all these projects to be self-testing,” said Johanna Wolfson, director of EERE’s Technology to Market program. As part of its December 2016 call for proposals, DOE insisted that “we only want a proposal if your idea can be proven wrong,” and that “they need to bring in private capital to show that the concept is viable without long-term government funding.”
That capital won't involve the relatively small amounts each grant winner is getting to work on their concepts, she added. Instead, the grants — seven from the Technology to Market office and four from DOE’s SunShot Initiative — will hopefully prove out that at least some of the ideas are viable solutions to speciifc barriers between investor classes and early-stage energy technologies.
“Normally when DOE addresses getting technologies to market, we put out calls for proposals for specific technology needs. This is different,” Wolfson said. “This is really about redesigning the pathway, so that R&D dollars in the future have a better chance of seeing a return.”
The open response format made for a diverse set of approaches, ranging from providing “market signals” to the earliest-stage R&D efforts, to leveraging private capital and institutional support to bring them to market. And because DOE’s call for proposals was framed in the form of a set of problems to answer, the 11 winning projects are only some of the interesting concepts that were submitted, she said.
Here’s a breakdown of each project:
- Berkeley, Calif.-based Activation Energy was the only organization to win two separate grants. The first, funded by DOE’s tech-to-market program, will help fund its development of a simple, standardized agreement for large companies seeking to form partnerships with early-stage technology developers, to reduce the cost and complexity of moving them from early stage to potentially larger opportunities. The second, funded by SunShot, will build a “first-look” investment fund — a pool of early investors willing to jointly fund testing on shared equipment in exchange for the resulting testing data, as a first step toward a potential equity investment in the future.
- San Francisco-based “venture consulting” firm ADL Ventures is taking on the challenge of expanding the pool of energy technology commercialization partners beyond the country’s biggest corporations to the wider world of mid-cap companies. The goal is a “repeatable and scalable method to overcome the unique challenges currently preventing such partnerships,” including the lack of institutional links between these two parties.
- Data science company Rho AI will use its grant to develop a “matching engine” platform, meant to mimic or improve on the role typically played by “highly networked experts” in the energy investment space. Capital IQ, the equity investment research and analysis provider bought by S&P, is a user of the company’s software.
- Oakland, Calif.-based solar industry incubator and accelerator Powerhouse will spend its grant on developing more effective ways to hold the workshops that connect early-stage technologies with more established players and end users, to reduce the burden of “identifying product-market fit for all parties. The project will include training other organizations to expand this approach beyond the solar industry, Wolfson noted.
- The nonprofit PRIME Coalition is working on ways to allow charities and philanthropic capital to invest in early-stage climate change mitigation technologies. “That’s not happening at meaningful scales right now, in part due to the need to qualify what is a charitable investment,” she said. That's a challenge that PRIME has been taking on on a deal-by-deal basis, and wants to expand into a fund through its DOE grant.
- Clean Energy Trust is another project focused on getting philanthropists into investment, aimed at creating a new fund structure that uses philanthropic dollars to pay for the operational costs of running a fund, with private capital funding company investments.
- Alpha Impact Investment Management (AiiM) Partners will use its grant to develop and test a method that could make investments more efficient, by forecasting the optimal blend of what grant, equity and debt financing is right for individual companies early-stage companies.
- Case Western Reserve University is taking on a similar challenge in a different way, by designing a tranched investment structure that could open up early-stage energy R&D to parties beyond traditional venture and corporate capital. “To see if tranched investment could be done in a single vehicle, you’d have to solve a complex set of constraints. But we think it’s possible, and Case Western will test that out,” with slices of traditional venture capital, with its 5- to 10-year payback time limits, as well as philanthropic funds, and some pension funds and insurance funds with a longer-term view.
- Debt, not equity, financing is the focus of a grant-winning program from the Los Angeles Cleantech Incubator (LACI), aimed at creating structures for lenders to make “microloans” — in this case, amounts ranging from between $50,000 and $100,000 — to early-stage manufacturing companies. “They’ve identified this really challenging Catch 22 for hardware based companies — you can’t get working capital until you’ve shown that you can be profitable, but for products that need to be manufactured, you can’t be profitable until you get working capital.”
- Finally, Texas, Austin-based Pecan Street, the multifaceted grid edge technology nonprofit and longtime DOE partner, will use its grant to demonstrate how testing and validation can streamline the pathway to investment. “They have testbeds in their facility, and they’re going to basically link third-party validation of startup technologies with subsequent investment decisions. They would bring investment capital in and unlock it in stages based on the results of technology milestones met.”