So why is the U.S. underfunding it?
That was the thesis to the argument proposed by Microsoft chairman Bill Gates, who joined U.S. energy secretary Steven Chu on stage here at the 2012 ARPA-E Energy Innovation Summit to discuss the state of American energy innovation.
"I do worry that people underestimate the difficulty of getting the breakthroughs and underestimate how long it will take," Gates said. "In my view, energy research in the United States is underfunded -- I would say by a factor of two. It's crazy how little we're funding this energy stuff."
The average American underestimates how far away the country is at developing solutions that reach price-parity with fossil fuels, Gates said. Even an easily digestible goal, like the push to achieve one dollar-per-watt prices, is steep in practice.
The misperception affects strategy, he said.
"If we underestimate how hard it is, that's partly why we can end up underfunding the kind of innovative work that needs to go on," Gates said. "We run a much higher risk that we won't get breakthroughs because of how much we're spending."
That is, how little.
The failure of solar firm Solyndra and ensuing scandal only makes things worse, Chu said, because political hostility makes it harder to fund budding technologies. Gates nodded his head in agreement.
"The underfunding is delaying the pace of progress," Gates said. "The failure rates are going to be well over 90 percent… This is a very complex set of technologies, so we need literally thousands of companies trying these technologies so we can get the 10 or 20 that [make it]."
SILICON VALLEY, IT'S NOT
Complicating the problem further is that the energy industry is much different than the technology industry, Gates said. Innovation cycles are at least twice as fast for microprocessors as alternative fuels -- and that doesn't even include the lightning-fast cycles of software.
That's because the energy sector is highly regulated, Gates said.
"Whatever technology they use and how it's priced for consumers is determined on a regulatory basis," he said. "It's very different than having a software company or even a chip factory where your innovation cycles are every two or three years and your dependence on government policy is very low."
Furthermore, the U.S. -- once the largest market for energy -- is a developed market that's in need of infrastructure replacement, not new capacity. Our expectations must be tailored to the reality that we're not China, Gates said.
"The biggest mark in the world is not the United States," he said. "[It's] not even close."
Cars built in America could be marketed around the world on efficiency, Chu said.
"You make the car here, you sell it abroad," he said -- from materials to engines. That's attractive to those Americans who are responsible for generating that innovation.
"Engineers love to engineer to something better," Chu said. "We still should be showing technological leadership at home."
Chu admitted that stability -- including ARPA-E's funding -- is key to attracting funding.
"The long-term signal -- 20, 30, 40 years from today -- is very important," Chu said. "It can be a modest long-term signal…it doesn't have to be a big signal. It just has to say, 'We're firm.'"
While there's a lot more action in the sector now than there was five years ago -- thanks to ARPA-E -- energy innovation depends on the government whether you like it or not, Gates said.
"More private money has come in as the opportunity has been recognized," he said -- but policy framework changes the way those private sector dollars are spent.
"We certainly need a price on carbon," Gates said, to provide enough certainty for startups to plan for the future. "What's key is the carbon tax in the 20- to 50-year period, and can politicians do something today to make it crystal clear to the risk-taker [that their bets will be favored later]."
Chu said the challenge is creating the environment where R&D and commercialization occur in lockstep. For example, batteries will inevitably become more efficient. After which power companies can be involved. After which renewables get cheaper.
Renewables will only grow as much as the system is ready for it.
"You can make this transition two-fold faster" if you plan for it, he said. "We want these things without subsidy just to take off."
THE NUCLEAR QUESTION
The conversation shifted to the topic of TerraPower, a nuclear energy startup funded by Gates. Gates said nuclear power must be part of the conversation as a non-intermittent power source that happens to -- for TerraPower and on paper, at least -- achieve 20 times more energy from fuel than traditional methods, driving down the price.
"Unless you can take hydrocarbons and take extreme [carbon] capture-and-storage, then you've got nuclear as the one left [that provides bus load power]," he said. "I think we should bet on all of these, and in each area we should have ideally hundreds of companies betting on them."
"There are nuclear designs, including ours, on paper that can compete," Gates added. "The intellectual power of what's been done in the nuclear space should allow for some radical designs that meet the very tough requirements that people have there."
The nuclear development in progress today is much different than what was done decades ago, Gates said.
"Without supercomputers, we couldn't talk about this," because companies can now simulate 100-foot waves and other extreme disaster conditions to see how new reactor designs fare.
Chu nodded. "We are the leaders in the world in advanced simulation," he said of the United States.
ODDS 'N' ENDS
The conversation covered several other topics.
- Gates on the moral imperative: "If you need humans to do something, that is not a good design -- having a guy sit there, waiting for people to do the right thing."
- Gates on the unique challenges of infrastructure uncertainty: "If offshore wind is cheap, the grid that the United States is looking at looks much different than if onshore wind is cheap. How do you prepare for [multiple economic scenarios]? Are we doing the right things to make that come about?"
- Gates on carbon utilization, versus sequestration: "Carbon dioxide doesn't have that many positive economic uses to justify taking some 7 billion tons a year and capturing it. It's to prevent [global warming]. Maybe I'll make my soft drinks a little fizzier."
- Chu on Solyndra's implosion: "[Congress] wanted the Department of Energy to invest in innovative companies. They knew that all of them would not work. They appropriated this money expecting that there would be losses."
- Gates on Solyndra's implosion: "It's easy to look at any individual loan and say, 'Hmm, how do you think about that?' Overall, we need to be able to take risks. There need to be anti-Solyndra stories -- the ability [for a startup] to pay off very dramatically. I'd like to see [funding] double. Clearly, I like risk-taking."
- Chu on global competitiveness: "We should not lose sight of the fact that America is the most innovative country in the world. We can lead. It's ours to lose; let's not blow it."
- Gates on global impact, part I: "If you look at improvement in the human condition, it really does have to do with energy. If you want to improve the livelihoods of the poorest 1 billion people in the world, having cheap energy [is a way to do it]. Can they afford transportation, fertilizer, lighting? The answer is no, without cheap energy, they stay stuck where they are."
- Gates on global impact, part II: "Cheaper energy would certainly be on the list of the three or four things you'd most want to happen to the poorest people of the world."
- Chu on U.S. strategy: "We do not want to put all our eggs in one basket. It's all this mix. You've got to diversify that supply."