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Energy Technology Investments Face Funding Cliff

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Funding for research and development in the U.S. is running up to a cliff. If sequestration kicks in on March 1, across-the-board cuts and a decade-long spending cap will go into effect. According to the American Association for the Advancement of Science (AAAS), this would mean an 8.2% ($4.6 billion) cut in the Department of Energy’s R&D budget between now and 2017. These cuts could impact not only the Department’s national laboratories, but also universities and research programs around the country.

Looking at the numbers - the U.S. federal government typically spends $4-6 billion a year on energy RD&D. So, sequestration essentially means eliminating funding for one year out of the next five. While this amount is less than one-fifth of the more than $33 billion per year that the government spends on health research, it is no chump change. And, in invests in the basic research that fuels technological innovation. These funds support graduate students around the nation, and are the seed money for research, development, and demonstration projects that have impacts throughout the industry (for example lithium ion batteries and hydraulic fracturing).

On the private side, US energy firms reinvest a significant amount of money into technology development. According to Bloomberg New Energy Finance, global investment in renewables topped $268 billion in 2012. But, all told, less than 1 percent of energy company revenues are reinvested into research, development, and demonstration (RD&D), compared to the 15-20% level seen in IT, semiconductor, and pharmaceutical companies. The majority of these investments are not in basic science, but in more advanced developing energy technologies.

This is an industry where stability and reliability reign (for many reasons, including legal obligations and social welfare considerations). Their many accomplishments - for example, successful use of floating platforms for deepwater oil drilling - are undeniably impressive engineering feats. But, these are slow developments occurring over decades and not sudden technological revolutions.

The industry’s profile and the nature of energy projects could shed some light on these relatively low numbers and (arguably) more conservative investment approach. Briefly stated, the energy industry is primarily comprised of capital-intensive and long-lived projects. For example, more than half of coal plants operating in the U.S. were built before 1967, with an average age of 43 years. And building a new scrubbed coal power plant would cost upwards of $3.5 billion and require at least a 4-year lead time.

But, with innovation sitting as a critical component in the move toward a more sustainable energy future, these numbers are (quite frankly) concerning. Especially if, in the face of extreme budget problems, a primary energy R&D supporter in the U.S. will not be able to issue checks for awhile.

Photo of American flag and dollar bills © Copyright MinimalistPhotography101.com and licensed for reuse under this Creative Commons Licence.

The views expressed are those of the author and are not necessarily those of Scientific American.

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