Putting Energy in the White House
By Dave Edwards
TO: The New President
FROM: Dave Edwards
RE: Putting Energy in the White House
In the summer of 1859, the world's first commercial oil well began pumping in Titusville, Pa. Over the next century, Americans invented the modern oil economy. We fueled our own industrial revolution and two world wars, with a healthy surplus to export.
In more recent years, America has gone from being the world's largest energy producer to the largest importer. Without a transformation of the energy industry, the unchecked American reliance upon fossil fuel will diminish our economy, distort our foreign policy, and further disrupt our natural environment.
We can do better -- much better. The United States has the opportunity to be the world's energy innovation leader, creating a cleaner, more secure, and more prosperous future. This leadership would build a competitive advantage for the U.S. as the nation becomes less reliant on increasingly expensive and volatile fossil-fuel sources. Such leadership would clear the way for a new, vibrant export business, creating strong growth in high-value jobs.
In order to truly change the energy sector, you will need a dedicated team of experts to advise you, and they will need the full weight of the presidency behind them. I therefore propose that you elevate energy policy within the White House by creating a National Energy Council (NEC) on par with the National Security Council and the National Economic Council.
No longer should energy be seen as a mere derivative of economic, security or environmental policy. In fact, energy policy may have a bigger impact on our children's future than anything else government does over the next decade -- and you should organize your administration accordingly.
The National Energy Council's primary purpose would be to advise you on energy innovation. It should be staffed by energy experts who coordinate with related agencies like the Department of Energy, the Environmental Protection Agency, and the Interior Department. In addition, there is a wealth of technical, operational, and investment talent within the clean-tech industry that can help you and the NEC encourage the development of new, transformative technologies and practices.
The NEC could begin by focusing on three strategic initiatives: advancing science; modernizing the electrical grid; and spurring private investment in clean energy.
1. Advancing Science
Since the industrial revolution, technological development has enabled multiple waves of economic progress. The transportation revolution that took place between the Civil War and the Great Depression saw the successive adoption of railroads, automobiles and aircraft. The modern information-technology revolution began in earnest with the commercialization of computer mainframes in the 1960s. Later, in the 1980s, the spread of PCs and related software drove corporate efficiency. Over the following two decades, the development of the commercial Internet and mobile devices has created vast new opportunities for entrepreneurs and consumers. Looking forward, technology is poised to generate similar breakthroughs in the energy industry.
As with these transformational technologies of the 19th and 20th centuries, many of the most important energy technologies of today were developed in the United States. From solar panels to modern wind turbines, government and academic labs across the country have advanced the technologies that we now hope will enable us to create a cleaner and more secure energy future. This leadership position must not be squandered.
While the Department of Energy provides important funding and guidance to the national labs, the NEC could help set research priorities for the country as a whole. The NEC should set standards -- not pick winners. The market will likely be better than government at choosing the least expensive technology.
For instance, a carbon-content standard for fuels is preferable to an ethanol standard because the former incents industry to attain a broadly accepted public-policy objective (reducing carbon emissions), while the latter simply skews the market toward a particular product. At every turn, the NEC should set standards that encourage our energy sector to advance the cause of energy security while also reducing pollution.
2. Building a New Interstate Electricity Grid
As new communication systems enabled nationwide commerce in the early 20th century, it became clear that our road system was no longer sufficient to meet evolving demands. As late as the 1940s, it still took roughly two months for a truck convoy to cross the country. In response to this situation (and to the perceived civil-defense needs of the emerging Cold War), the federal government built the interstate highway system -- a public project that enhanced America's competitive economic advantages and increased productivity.
The current U.S. electricity system has deficiencies similar to those of the old road system. The designers of the original electrical grid could not have foreseen -- nor did they design for -- the current system requirements. For example, the present network cannot accommodate enough intermittent renewable generation, such as solar and wind power. Its design is inadequate for the reliability and security needs of the digital age. Nor was it built to provide a recharging infrastructure for electric vehicles.
In short, a modernized grid is essential for unlocking the energy options of the future -- and for providing a backbone for a robust 21st century economy.
A new "interstate electricity system" would deliver benefits analogous to those brought about by the interstate highway system half a century ago. With the government setting design standards (such as for transmission ownership, access, and connection), the country can build a new energy infrastructure that connects local or remote sources of renewable energy with centers of demand. The new system could also increase electricity reliability and security by incorporating dynamic storage and embedded intelligence throughout the network.
This new infrastructure will increase economic development, decrease reliance on foreign energy sources, and provide electricity that meets present and future demands. As with the interstate highway system, a new national grid would restore the basis for America's competitive advantage.
The NEC could begin this work by resolving the complex regulatory issues that limit interstate transmission of electricity. This would allow the United States to truly tap its renewable energy potential, sending the electricity generated by wind or solar power in one part of the country to markets hundreds of miles away.
Another important step the NEC could take in improving our power network would be to enable a wider range of parties to participate in electricity markets. We are seeing the emergence of new companies looking to provide new sources of energy and demand-reduction services. The telecommunications marketplace has been transformed by the entry of such new companies and services; electricity markets could follow a similar path.
3. Catalyzing Private Capital
Despite the current capital crisis, there are private dollars ready to be deployed to transform the energy industry. Investors understand that this is one of the most promising sectors in the economy.
That said, the full realization of this potential will require a steady hand from government. The duration of support is the most important factor in unleashing private investment. The NEC should focus on policies (including standards, mandates, and subsidies) that catalyze investment of private capital for a sufficient duration. Many energy technologies and projects can take years to develop, requiring a long-term commitment from government in order to increase predictability for investors.
The federal government should not fund the transformation of the energy industry itself. Instead, it should focus on long-term policies that mitigate investment risk, reduce scale-up cost, and send proper price signals to the market. For instance, a cap-and-trade system can send a market cue for carbon reduction, while loan-guarantee programs can reduce the financing risk of an unproven technology.
Conclusion
For the past eight years, America has been saddled with a retrograde energy policy tilted toward fossil fuels. Now you have a striking opportunity to begin our country's transformation into a clean-energy economy.
While the sheer complexity of the problem may seem daunting, there is one theme that can unite these initiatives: enabling innovation. Today's sources and technologies will not solve our energy problems; new ones will be needed. Innovation in energy generation and use will allow the United States to modernize its petro-centric energy industry and remain the world's leading economy.
Government policy must make the difficult trade-off to favor the innovative over the entrenched. From the Model T to semiconductors to the Internet, the United States has proved time and again to be the most powerful force for innovation in the world. Now we must concentrate our nation's collective ingenuity on reinventing the energy industry and employing the next generation of Americans in a clean-energy economy.
To help meet these objectives, I hope you will put a National Energy Council in the White House, both to demonstrate the priority you give the issue and to drive the necessary policy changes throughout the executive branch.
Energy concerns should no longer take a back seat to other urgent national priorities. The issue is too large, too complex to be managed across the usual patchwork of government bureaucracies. The country will benefit greatly from a senior policy team that can devise strategies to enable energy innovation, creating a more profitable and sustainable future for the United States.
Dave Edwards is a partner at VantagePoint Venture Partners in Silicon Valley. Previously, he was an equity-research analyst at Morgan Stanley, with a portfolio
that spanned the solar, wind, efficiency, storage, and bioproducts markets. Prior
to that, he was a partner at ThinkEquity Partners and founder of that firm's cleantech
practice. Edwards also served as a buy-side analyst for a hedge fund and as a
partner for Charles River Ventures; worked in project finance at Kenetech Windpower;
and was a product manager at Apple Computer and Macromedia.