Do Clean Energy Innovation Clusters Work?
- Apr 2, 2013 7:00 pm GMT
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Last week, President Obama launched the “Clean Energy Manufacturing Initiative,” along with the opening of a new carbon fiber technology facility at Oak Ridge National Laboratory. This announcement is the first step toward the “National Network for Manufacturing Innovation” mentioned in the 2013 State of the Union. It looks increasingly likely that, as mandated, one of the first three institutes will have an energy focus.
Obama requested $1 billion in one-time funding for fifteen “Institutes for Manufacturing Innovation” across the country. These Institutes will be not-for-profit organizations that focus on a particular issue (such as advanced technologies) or a particular industry area (like clean energy). The Institute will be charged with anchoring a regional cluster of universities, industry, and government with the objective of spurring innovation and accelerating collaborative projects. Each Institute could leverage $140 million to $240 million which, if directed toward clean technology, could be a big deal.
Underpinning the rationale behind these institutes is the cluster theory of competitive advantage, which is a highly regional strategy of economic development introduced by Michael Porter in 1990. These clusters are geographically concentrated collections of firms, suppliers, and related industries. According to this framework, proximity is important because it increases productivity through access to suppliers and skilled workers, accelerates innovation through competition with local rivals and knowledge dissemination, and encourages new business development due to the industry-focused environment.
The administration has already shown support for the cluster approach, with $33 million spent in 2011 aimed at jump-starting about twenty competitively awarded “regional innovation clusters.” To date, Brookings notes that there are 56 federally funded cluster initiatives — ten of which have a clean energy focus.
The Institutes will be chosen through a competitive application process. They will then perform a variety of tasks to help form an “industrial commons,” including education, applied research and development, methodology development, working with small and medium-sized enterprises, and sharing facility infrastructure. Each institute is likely to receive $70 million to $120 million in federal funding, which, with 1:1 non-federal co-investment, could raise their total revenue to $140 million to $240 million. A large portion of the initial funding in the first three years will go to equipment and startup, after which time funding primarily goes to competitive project grants and base project grants. The institute transitions to self-sufficiency in year five, shown in the chart below, as the competitive grants become the primary source of revenue.
Clean technologies currently lack an entity that can guide them across the “commercialization valley of death,” wherein large capital injections are required to get past the early-adoption stage and into full consumer acceptance. Investing in these projects has been particularly difficult because of the uneven playing field with fossil fuels, the lack of stable policy support, and the long turnover time for energy technologies in the marketplace. While a national Green Bank or a Clean Energy Deployment Administration could serve this role, neither has materialized.
The good news is that these Institutes could fill this much needed gap for clean energy, linking universities, industry, and businesses to take early-stage technologies from research and development to full commercialization. A close look at the draft funding criteria for grants reveals language on “targeting the transition of early stage manufacturing research and technology to commercial application or product,” and includes an engagement plan to work closely with universities and small and medium-sized enterprises.
An entity that can award competitive grants and then work closely with local enterprises could get more capital coalescing around projects and then lower the barrier to entry for sales and deployment. Clean energy commercialization could gain much from a network where companies performing large-scale manufacturing can go take a look at the technology prototypes in need of scale.
While this could be a boon for clean energy development, not everyone is sold on the cluster strategy. One vocal critic of innovation clusters is Vivek Wadhwa, Vice President of Innovation and Research at Singularity University, who refers to the theory as “modern-day snake oil.” Wadhwa believes that cluster theory is outdated, relying too heavily on a top-down approach to “artificially ferment innovation” instead of on policies that unleash smart, motivated, risk-taking entrepreneurs. Wadhwa thinks we would be better served breaking down barriers to entrepreneurship and fixing the university system’s commercialization process. For him, the key ingredient is people — not proximity.
Another criticism of these clusters, particularly with clean energy, is simply that $1 billion might be better spent elsewhere — such as capitalizing an entity like a Green Bank or Clean Energy Deployment Administration. This would enable investments to happen wherever the best technologies are, instead of restricting them arbitrarily based on geography. And it’s possible that the cluster theory of economic development may not spark the same kind of innovation or deployment in energy, which operates on longer time cycles, than in industries where cluster theory historically has had success.
The Clean Energy Manufacturing Initiative has the potential to incentivize new technology development and businesses across the country and help the United States secure a competitive advantage in the ever-growing clean energy marketplace. On the other hand, the focus on regional funding may not be enough to set up America as a net exporter of clean technologies.