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Cleantech Stimulus Still Not Stimulating | Alternative Energy Stocks

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Cleantech Stimulus Still Not Stimulating DavidGold

The stimulus bill along with the $31Bcleantech element focused on grants and loan guarantees through theDepartment of Energy was passed into law over 18 months ago. About a year ago I wrote about how the cleantechstimuluswas not very stimulating to our economy. I suggested atthat time that the goals of stimulus and of long-term investment arelargely incompatible, and the evidence is bearing that out. Atthe time, I felt like a bit of an outcast for having such a criticalview and yet being an ardent supporter of clean technologies and theneed to wean our nation off fossil fuels. On the anniversary of myfirst post on this topic it seems appropriate to take a fresh look atwhere things stand.

While stimulus supporters and the presslove to focus on the selection of award winners for grants and loans,funds appropriated but sitting in the U.S. Treasury have zeropotential to stimulate the economy irrespective of whether a winnerhas been selected. As of September 10, 2010 and about 19 monthsafter the stimulus became law, according to the ObamaAdministration’s Recovery Act web site, recovery.gov,the Department of Energy had paid out just over 23% of the $31B offunds appropriated to the department for various cleantech activitiesunder the stimulus bill. At that rate it will take roughly sixyears for all funds to be dispersed. According to DOE’smore detailed numbers, in the past 12 months, the department hasawarded (i.e. selected winners) for about $14B in grants. Lessthan 10% of that amount has actually been disbursed to date. Inaddition, there are over 730 awards representing $1.2B that were madein 2009 for which no funds have been paid out at all. Many ofthese likely still are trying to get their contracts in place, anoften-arduous process that can take many months.
In the Smart Grid segment of stimulus,where stimulusactuallyslowed spending because utilities stopped work to waitand see whether they would win a grant, less than 8% of the over $4Bappropriated has been paid out. People in the utilityindustry who have received grants have told me about calls from DOEstaff “virtually begging them” (in the words of one source) tospend money against the grants that have been awarded morequickly. In other words, the government seems more concerned about optics ofgetting the money spent than having it spent wisely.

As stated on recovery.gov, the goal ofthe Recovery Act was to “… jumpstart our economy, save andcreate millions of jobs, and put a down payment on addressinglong-neglected challenges so that our country can thrive in the 21stcentury.” It’s amusing that the recently releasedAdministrationReporton the Recovery Act emphasized that its focus would beonly on “the ‘Reinvestment’ part of the Recovery Act”and completely avoids any comment on the stimulus’ impact on theeconomy or jobs. Seems like quite a testament to failure of therecovery spending to provide stimulus in any meaningfulway.
If the focus of the cleantech“stimulus” was really on reinvestment, then the government wouldbe careful and diligent about naming grant/loan winners rather thanrushing to make awards as fast as possible (which is motivated bystimulus). Yet, while money has been slow to flow from DOE,award winners havebeen selected for virtually all of the $31B from the recoveryprogram. As I said earlier this year in a CleantechForumdebate with DOE Renewable Energy Grants Advisor SanjayWagle, the government is simply incapable of both getting grant/loanmoney out the door quickly and spending it wisely. I stillmaintain that programs like Cash for Clunkers and energy efficiencytax credits (whether you agree with the specific policy or not) havea rapid positive impact on the economy. The evidence on thegovernment’s own recovery site seems to bear that out: bycomparison, 77% of all tax-related stimulus benefits (only some ofthis cleantech-related) have been paid out to recipients in the formof reduced tax obligations. While one can debate thedegree of impact those funds may have, funds awarded but nottransferred from the federal treasury have no chance of stimulatingthe economy.

Much of the press focus on thecleantech stimulus has been on the Advanced Research Projects Agency– Energy (ARPA-E) funding into early stage cleantech technologieswith “game changing” potential. The government has longplayed a role in funding early stage research and such a program hasworthy goals. Yet, ARPA-E represents only about 1.3% of DOE’sstimulus funding with most other funding going to much lessdisruptive grant/loan programs in which the government is trying toplay business person and has a notoriously bad track record of doingso. And ARPA-E’s appropriation for 2011 is likely to be lessthan 2010 with the House number passed at a 50% reduction.
The unfortunate reality is that byusing the stimulus bill as a vehicle for pushing funds through theslow and ineffectual government bureaucracy rather than focusing onstimulative policies that would have had greater impact on theeconomy, the Administration may very well have lost the opportunityto enact macro-economic policies affecting the cost structure forenergy that could have had much more far-reaching and long-termpositive impacts on the goal of reducing our consumption of fossilfuels. I believe time will bear out that many of the grant/loanawards made in such a hurry will turn out to be a waste of money.

Conversely, the macroeconomics ofenergy are certain to change as finite fossil fuels continue to beconsumed… it is only a question of over what time period. It isthat reality which is driving the private sector investments thatmust be the backbone of any sustainable change in our energyeconomy. Careful federal policy around carbon-based fuels couldhave provided greater visibility into the time frame and degree ofincrease in the market cost of fossil fuels even if there was a veryslow phase in of such a policy to avoid collapsing the economy. The result would have been greater clarity of when (and shorter timehorizons for when) clean technologies could become costcompetitive. This would have resulted in a corresponding increase in investment bythe private sector in building those businesses to profit from theimpending change. And that would have been extremelystimulative to our economy without needing to borrow a penny to fundit.

David Gold is an entrepreneur and engineer with national publicpolicy experience who heads up cleantech investments for Access VenturePartners (www.accessvp.com).Thisarticle was first published on his blog, www.greengoldblog.com.
Posted by David Gold on September 24, 2010 11:41 PM | Cleantech Stimulus Still Not Stimulating

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