Energy Department’s ARPA-E Program Jump-starts Next-Gen Clean Energy Startups, Bridging Key Gap in US Market, New Report Finds

November 15, 2017

WASHINGTON—Next-generation clean-energy firms that have received funding from the U.S. Energy Department’s ARPA-E program go on to raise more private capital than other clean-energy startup firms, and they have particularly high odds of being in the top 10 percent of the fundraising distribution, according to a new report released today by the Information Technology and Innovation Foundation (ITIF), a leading science and tech-policy think tank.

The study concludes that, contrary to claims from the White House Office of Management and Budget, ARPA-E’s results are complementary to the work of the private sector and have the potential to unleash innovations that the private sector would not support, so Congress should reauthorize and expand the program.

“The United States has succeeded in launching some of the world’s most important industries, but it has fallen far short of its potential when it comes to ushering in better and cheaper energy. That’s why ARPA-E is so important—and why the results it is producing are so encouraging,” said David M. Hart, a senior fellow at ITIF and the report’s lead author. “ARPA-E bridges the critical gap between early stage R&D and market entry. In just a few years, its awards have led to the formation of more than 50 companies that have been able to attract $1.8 billion more in follow-on investment from the private sector. And it’s still early days—there are many more promising ARPA-E–funded companies in the pipeline.”

Based on ARPA-E’s results to date, the report recommends sustaining and expanding the program and infusing its most effective practices into other federal R&D funding agencies. The report concludes that:

  • ARPA-E’s operational autonomy and distinctive operating procedures should be maintained. Although consultation and collaboration between ARPA-E and the rest of DOE should be encouraged, efforts by the Department of Energy (DOE) headquarters and senior management to exert greater control over ARPA-E should be resisted.
  • ARPA-E’s budget should be expanded. There are many more “white spaces” in energy technology that have not been explored, and the impressive responses to ARPA-E solicitations suggests that there is no shortage of potential innovators.
  • ARPA-E should be reauthorized. Reauthorization would send a strong signal that ARPA-E’s autonomy should be maintained and lay the groundwork for expanding its budget.
  • An ARPA-E trust fund should be established with royalties from oil and gas production on federal lands. In an era of federal constraint, such a fund would provide stability and certainty for the agency.
  • ARPA-E practices should be infused into the rest of DOE. Adoption of appropriate elements of the ARPA-E model would improve the performance of DOE’s famously byzantine bureaucracy.

“The evidence is increasingly clear that the private sector cannot support clean-energy innovation alone, in part because of a misalignment between the incentives of early stage financial markets and the realities of capital-intense technology development that occurs over long time horizons,” said co-author Michael Kearney. “ARPA-E’s unique organizational architecture and flexibility allows for the selection of a set of high-risk, high-reward projects and provides the technical validation necessary to attract private capital. Cutting ARPA-E would eliminate a productive asset in the U.S. innovation ecosystem and stymie America’s ability to tackle urgent problems of energy supply, management, and use.”

Read report.