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Bill Gates, clean energy investment and the role of government

It's not often in recent months that I have had cause to discuss hearings of the U.S. Senate Committee on Energy and Natural Resources here in this column.

But in light of news announced in yesterday's Boston Business Journal that Bill Gates, chairman and former CEO of Microsoft, is among the investors in Liquid Metal Battery Corp.'s $15 million Series B round, it seemed appropriate to discuss the May 22 Senate committee hearing on the American Energy Innovation Council's (AEIC's) report, "Catalyzing American Ingenuity: The Role of Government in Energy Innovation."

You see, Gates is also one of the seven members of the AEIC, an independent and informal group "who came together because of our common concern over what we consider to be America's insufficient response to one of the greater challenges facing our nation today; namely, the provision of energy," according to Senate committee written testimony of another member of the group, Norman Augustine, retired chairman and CEO of Lockheed Martin Corp.

Clearly, Gates is putting his money where his mouth is on this topic.

Cambridge, Mass.-based Liquid Metal Battery Corp. is in the midst of commercializing a new battery technology, invented in the laboratory of MIT professor Donald Sadoway, with aims to transform grid-scale electricity storage. According to the Boston Business Journal article, the Series B investment round will allow the company to "bring its technology to market for applications that include facilitating full integration of variable renewable generation like wind and solar; relieving grid congestion, reducing the need for power plants; and transmission and distribution infrastructure."

Augustine, who spoke to the U.S. Senate Committee on Energy and Natural Resources this past Tuesday about the AEIC's report, made it clear that, while his written testimony drew from the work of the AEIC and its two reports to date, he had no special authority to speak for the group as a whole. "I do, however, believe that my testimony represents the general view of my colleagues," he wrote.

I'd like to share here a bit of Augustine's presentation of the dilemma facing clean technology innovators, in the eyes of the AEIC, because I think it points directly to the struggles being faced by the innovators of our industry today.

"America's investment in energy innovation from the public and private sectors together is less than one-half of one percent of the nation's energy bill," Augustine told the committee. "[Our] second report addressed the limited but important role the federal government will need to play in catalyzing American ingenuity as it seeks to meet the energy demands of the future," he wrote.

"In pursuing this process [of innovation] it is not uncommon to encounter what many innovators refer to as 'The Valley of Death' - that period where an idea appears promising but has not yet been demonstrably shown to be workable in practice - and therefore is deemed to risky by most investors. To surmount the latter generally requires financial resources - thus the dilemma.

"In many of the potential avenues for providing large quantities of energy there is also a second 'Valley of Death.' This latter valley is the gap that spans from proof-of-principle using, say, a prototype, to verification of market utility, including economic viability, with a near commercial-scale demonstrator. The latter valley, which also deters investors from participating, is a consequence of the characteristic that the steps in the process of developing new forms of energy often come in large quanta, making it very expensive to remove uncertainties as to ultimate scalability of an otherwise promising project.

"Further complicating energy innovation is the capital intensiveness of most forms of energy production, delivery and storage, a characteristic that makes the economic threshold for replacing old plants with new ones very high.

"In short, due to the risk entailed, private sector investment will often be unavailable to assist in crossing either of these important developmental gaps. In the case of basic research, market payoffs are usually well over a decade in the future, and may not exist at all. In the case of scalability, the size of the investment required is often large and the results uncertain. But in spite of these consideration, the development of new energy sources remains of critical importance to the nation ... hence means of overcoming them must be found."

One comment in his written testimony particularly stood out: "The energy dilemma seems to be exactly the sort of issue which governments are designed to help solve, at least in democracies with free enterprise markets," Augustine wrote. "That is, this is a case wherein there is an important benefit to be had by the citizenry as a whole but private resources cannot, or will not, provide that benefit because of financial risk, extensive delays in receiving returns, small or even negative returns and the possibility that the returns will not even accrue to the investor or performer."

The Senate committee heard testimony from two other representatives at that hearing, as well: Ethan Zindler, who is head of policy analysis for Bloomberg New Energy Finance, and Jessie Jenkins, director of energy and climate policy for Breakthrough Institute. Check my blog, here, for insights from their testimony, as well.

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