WASHINGTON — In late 2009, the federal government gave $151 million in grants to advance 37 clean energy ideas deemed too radical or too preliminary to attract much private financing — like electricity storage that mimics photosynthesis and batteries that double or triple the energy stored per pound.
Since then, six of the projects have made enough progress to attract $108 million in private venture capital financing — about four private dollars for every dollar the taxpayers spent to get them rolling — the Department of Energy plans to announce today.
While none of the projects is expected to produce commercial products for years to come, the Obama administration is emphasizing the early signs of success as it seeks to persuade a sometimes skeptical Congress to approve more money for clean energy innovation.
Success is probably 10 to 20 years away, said Arun Mujamdar, director of the program, which is called the Advanced Research Projects Agency-Energy.
But the private investment is “a good sign, an endorsement of some sort,” he said. “The best thing the government can do is to catalyze investment.”
While the government took ownership stakes in automakers and banks that got taxpayer help, it has not done so with the energy companies it has financed through the program, known as ARPA-E, so taxpayers reap no direct benefits.
Congress modeled the program after the better-known Defense Advanced Projects Research Agency, or DARPA, which provided early seed money for the Internet and sponsored competitions to build sophisticated robot vehicles, among other projects. Most of DARPA’s projects fail to produce commercial products, but the basic research it finances has sometimes led to breakthroughs.
Sun and wind success
For the first round of ARPA-E projects, the Energy Department focused on wind and solar energy production, energy storage and the capture and storage of carbon dioxide.
No carbon storage project attracted outside investment, in part because investors no longer expect a government cap on carbon dioxide emissions to help drive demand.
But sun and wind power and storage technologies did lure investors.
Envia Systems, which received $4 million in government money, used a material licensed from Argonne National Laboratory to build a better cathode, or negative terminal, for a battery. Envia, which is based in Newark, Calif., recently signed a contract with General Motors to begin delivery in 2014 of a material that will let batteries store roughly twice as much electricity per kilogram compared with the batteries now going into the Chevrolet Volt, said Michael Sinkula, the co-founder of the company.
Envia raised $17 million recently from an alliance of investors that included GM, and it is now pursuing research on a better anode, or positive terminal, which will yield an even bigger improvement in the weight-to-energy ratio, Sinkula said.
Another battery company, 24M, a spinoff of the Massachusetts Institute of Technology and A123 Systems, got a $2.55 million federal grant and took in $10 million in venture capital money. It is also working on a lithium-ion battery with much higher energy density.
A solar cell company, 1366 Technologies, received $4 million from ARPA-E and has raised $33.4 million in private money. 1366, based in Lexington, Mass., casts silicon wafers, a basic building block of solar cells, directly into their final form, which is eight-thousandths of an inch thick. That cuts the price of the finished solar cells about 40 percent, the company says.
Sun Catalytix, of Cambridge, Mass., uses a catalyst to help break up water molecules when they are exposed to electric current. The hydrogen from the water is absorbed by other molecules into an energy-rich material that can be burned in an internal combustion engine or converted back into electricity, said Amir Nashat, who is the acting chief executive of the company and also a principal in a venture capital firm Polaris Venture Partners.
Polaris and others, including Tata of India, have put $9.5 million into the company, after it got a $4 million ARPA-E grant. But Sun Catalytix is still years from shipping a product, Nashat said.
The two other ARPA-financed companies that attracted private investment are General Compression, which is developing a demonstration plant for a method to store electricity for later use and leveraged a $750,000 grant into $12 million in private capital; and FloDesign, which is working on a more efficient wind turbine based on the design of jet engines and used its $8.3 million grant to eventually raise another $27 million.
Uncertain future
The Energy Department wants to promote ARPA-E’s successes now in part because the program’s funding is in question.
ARPA-E’s initial $400 million in funding came from the Recovery Act, to be spent over two years. Thus, it received no new appropriation last year. When Congress failed to pass a budget for the current year and simply continued the previous year’s funding levels, it also got nothing. The Obama administration intends to seek money for the next fiscal year, which begins on Oct. 1.
But money is tight in Washington and there is some philosophical opposition to the program. Rep. Ralph Hall, the Texas Republican who is chairman of the House Science Committee, said he favored funding basic research but that Obama’s goal of financing more clean energy technologies suggested to him an emphasis on commercialization. “These are activities often best left to the private sector,” he said.
Another question is whether the government should be seeking an equity stake in these startups, much as it took in bailed-out companies like GM and AIG. Lerner, of Harvard, said he had seen Energy Department labs do that in trying to commercialize their discoveries, but it sometimes discouraged private investors from joining in.
Arati Prabhakar, a partner at U.S. Venture Partners and a former DARPA official, said if the government took an equity stake as venture capitalists did, it would steer companies toward commercialization instead of scientific exploration, which is also important. Her firm has not invested in ARPA-E companies.
Vinod Khosla, whose venture firm, Khosla Ventures, invested in three ARPA-E companies before or after they received government funding, predicted that half of all the companies that got grants would eventually attract private investment.
Government funding, he said, was an important validation of their prospects. “If I see a company and I’m evaluating it, I don’t see all the competitive technology,” he said. “ARPA scientists don’t understand all the business issues, but they probably saw all the competitors.”
