Advancing the Landscape of Clean Energy Innovation February,February 20192018 Prepared for Breakthrough Energy Coalitionby by IHS Markit and Energy Futures Initiative Advancing the Landscape of Clean Energy Innovation, February 2019 1 Foreword We are pleased to submit our report, “Advancing the Landscape of Clean Energy Innovation.” In this report we describe today’s U.S. ecosystem of clean energy innovation from the perspectives of technological potential, investment patterns, institutional roles, and public policy. The report identifies critical strengths and weaknesses of this ecosystem and offers recommendations for making that ecosystem more effective. It examines the different technology readiness stages through which innovation passes and the importance of feedback among those stages. It also discusses the significant opportunities to accelerate the pace of clean energy innovation that are presented by rapid advances occurring today across a myriad of technologies originating outside the energy sector. We would like to emphasize three observations from our report. • First, the U.S. has shown over many decades an unparalleled capacity to nurture energy innovation. This capacity reflects a rich and durable collaboration among government, universities, research institutions, industry, and entrepreneurs. This collaboration is grounded in the belief that energy innovation contributes importantly to economic growth, energy security, and environmental stewardship. • Second, even with our capacity to innovate, and even with the emergence of innumerable technological opportunities, there are significant challenges in moving forward with clean energy technology. These challenges arise from the sheer size and complexity of existing systems, the degree to which these systems are embedded in our economy, and the high public expectations of safety and reliability they must meet. Energy systems traditionally have evolved incrementally. • Third, these challenges can be met only by building on the collaborative strengths that our ecosystem has already demonstrated. Clean energy innovation depends on a national commitment to technological research; private-sector efforts to develop, apply, and commercialize products incorporating that research; and public policy. Advancing the Landscape of Clean Energy Innovation, February 2019 2 In this report we convey the need for a comprehensive approach involving both public and private sectors in order to expand the current landscape of clean energy innovation and accelerate its processes. We hope that our report contributes to an understanding of the challenges presented and the approaches needed to address those challenges effectively. There is no final word on the subject. We see this report as a contribution to a continuing national dialogue and hope that it will stimulate further discussion, understanding, and action. We are grateful for the opportunity that Breakthrough Energy and its partners have provided to explore this topic and recognize their commitment to advancing a meaningful and timely national dialogue. We hope that our report informs an appreciation of the complexity, reach, inherent dynamism, and promise of the U.S. clean energy innovation landscape and of the leadership that the United States can continue to provide. Ernest J. Moniz Daniel Yergin Former U.S. Secretary of Energy Vice Chairman IHS Markit Project Co-Chairman Project Co-Chairman Advancing the Landscape of Clean Energy Innovation, February 2019 3 Project Team Co-Chairmen Ernest J. Moniz Daniel Yergin Former U.S. Secretary of Energy Vice Chairman, IHS Markit Project Directors Melanie Kenderdine Tim Gardner Principal, Energy Futures Initiative Vice President, IHS Markit (EFI) Associates Contributing Authors Energy Futures Initiative IHS Markit (EFI) Associates Atul Arya, Senior Vice President Joe Hezir, Principal Jamey Rosenfield, Senior Vice President Mike Knotek, Distinguished Associate Carolyn Seto, Director Jeanette Pablo, Senior Associate James Coan, Associate Director Alex Kizer, Director Tim Bushman, Senior Analyst The analysis and conclusions of this report are those of IHS Markit and Energy Futures Initiative. IHS Markit and Energy Futures Initiative are solely responsible for its contents. Advancing the Landscape of Clean Energy Innovation, February 2019 4 Advisory Committee Breakthrough Energy, IHS Markit, and Energy Futures Initiative would like to thank these individuals for their invaluable contributions and guidance throughout the course of this project. Matt Baker Jan Mazurek Program Officer — Environment, Program Director for Clean Power, William and Flora Hewlett Foundation ClimateWorks Foundation Drew Bond Charlotte Pera Senior Fellow & Director of Energy President and Chief Executive Officer, Innovation Programs, American ClimateWorks Foundation Council on Capital Formation Center for Policy Research Jonathan Pershing Program Director — Environment, Josh Freed William and Flora Hewlett Foundation Senior Vice President for the Clean Energy Program, Third Way Brook Porter Partner and Co-Founder, G2VP Kelly Sims Gallagher Professor of Energy and Jeffrey Rissman Environmental Policy at The Fletcher Industry Program Director & Head of School, Tufts University Modeling, Energy Innovation LLC Director of the Center for International Environment & Ellen Williams Resource Policy, Tufts University Distinguished University Professor, University of Maryland Jason Grumet Former Director, Department of Founder and President, Energy, Advanced Research Projects Bipartisan Policy Center Agency — Energy Hal Harvey Jetta Wong Chief Executive Officer, President, JLW Advising Energy Innovation LLC Former Director, Department of Energy, Office of Technology Transitions Advancing the Landscape of Clean Energy Innovation, February 2019 5 Contents Executive Summary . 14 Chapter 1: Framing the Clean Energy Innovation Discussion . 22 Findings: Framing the Clean Energy Innovation Discussion . 23 Focus on the Future: Opportunities in Clean Energy Innovation . 24 The Changing Energy Landscape . 24 Challenges Facing Clean Energy Innovation . 35 Aligning the Components of the Clean Energy Innovation Ecosystem . 39 Chapter 2: The Private-Sector Role in Clean Energy Innovation . 41 Findings: The Private-Sector Role in Clean Energy Innovation . 42 Private-Sector Challenges in Clean-Energy Innovation . 43 Investment Patterns . 45 Navigating the Private-sector Innovation Pathway. 55 Institutional Support . 64 Strengthening the Private-sector Role in Clean Energy Innovation . .71 Recommendations: The Private-Sector Role in Clean Energy Innovation . 76 Chapter 3: Focusing the Energy Innovation Portfolio on Breakthrough Potential . .77 Findings: Focusing the Energy Innovation Portfolio on Breakthrough Potential . 78 Clean Energy Innovation: the Need for a Focused Portfolio . 79 Drivers of Clean Energy Technology Breakthroughs. 80 Identifying Technology Breakthrough Priorities . 84 Storage and Battery Technologies . 88 Advanced and Small Modular Nuclear Reactors as Sources of Carbon-free Electricity and Process Heat for Industry . 92 Hydrogen as Clean Energy Carrier, Storage Medium, and Enabler of Decarbonized Industrial and Transportation Sectors . 96 Advanced Manufacturing Technologies . 99 New Energy Technologies for Buildings . 103 Systems: Electricity and Smart Cities. 105 Deep Decarbonization: Large-Scale Carbon Management . 108 Next Steps in Portfolio Development . 112 Recommendations: Reshaping the Energy Innovation Portfolio for Breakthrough Potential . 116 Advancing the Landscape of Clean Energy Innovation, February 2019 6 Chapter 4: The Role of the Federal Government in the Energy Innovation Ecosystem . 121 Findings: The Role of the Federal Government in the Energy Innovation Ecosystem . 122 Setting the Scope and Scale of the Federal Clean Energy Innovation Portfolio . 123 The Central Role of the Dept. of Energy in Clean Energy Innovation. 125 Energy-Related Innovation Support at Other Federal Agencies . 142 Refocusing Future Federal Tax Policy to Spur Innovation . 152 The Looming Impact of Discretionary Spending Caps. 155 Seeking Federal Funding Certainty for Direct Federal Investment in Innovation . 159 Recommendations: Regarding the Role of the Federal Government in the Energy Innovation Ecosystem . 162 Chapter 5: The Role of State, Local, and Tribal Governments in Clean Energy Innovation . 163 Findings: The Role of State, Local, and Tribal Governments in Clean Energy Innovation. 164 The Role of States in Creating Clean Energy Markets . 165 The Role of Cities, Tribal, and Rural Communities in Clean Energy Innovation . 181 Federal Initiatives that Support State, Local, Tribal and Government Leadership in Clean Energy Innovation . 189 Recommendations: The Role of State, Local, and Tribal Governments in Clean Energy Innovation . 193 Chapter 6: Fostering Regional Clean Energy Innovation Ecosystems . 194 Findings: Fostering Regional Clean Energy Innovation Ecosystems . 195 The Growth of Regional Innovation Ecosystems . 196 Energy Innovation Ecosystems: Features, Players, Trends . 200 Creating Regional Innovation Opportunities Where Innovation Clustering Does Not Exist . 206 Recommendations: Fostering Regional Clean Energy Innovation Ecosystems . 208 Chapter 7: Mobilizing Increased Private Sector Investment in Energy Innovation 209 Findings: Mobilizing Increased Private Sector Investment in Energy Innovation . 210 Landscape of Private Sector Investment in Energy Innovation. 211 Conclusion: Enhancing Private Sector Options