As the Biden administration ramps up efforts to cut carbon from heavy industries, it’s seeking ways to sweeten the deal for massive plants it hopes will demonstrate that clean technologies work.
The sweeteners include not only a new $6 billion program to fund up to 50% of project costs but also a push to make green products competitive in the marketplace through direct federal procurement and other possible incentives.
The sales pitch to the private sector poses an early test for the Energy Department’s Office of Clean Energy Demonstrations’ $20 billion portfolio, which includes clean hydrogen, advanced nuclear reactors, carbon capture, long-duration energy storage, and projects in rural and remote communities.
The Energy Department, long known as a research and development engine, has “never had a program that had significant resources to really help these clean energy technologies demonstrate what they can do at a commercial scale,” Kelly Cummins, the office’s deputy director, told Bloomberg Law in a recent interview. “I really do think this is a huge opportunity for us to fill this critical gap.”
Business, Political Risks
But success hinges on convincing companies to take a big leap, energy experts said in interviews.
Some of the biggest opportunities to slash emissions are also some of the most difficult to achieve. Carbon-intensive industries such as steel, chemicals, cement, maritime, and food and beverage production often need to run all the time to meet customer demand and generate profits.
“We’ve got the technologies, and now we just need to figure out how do you implement them at scale,” said Neal Elliott, director emeritus at American Council for an Energy-Efficient Economy and an author of a 241-page industrial decarbonization roadmap the department published last year.
“If I’m talking about $3 billion in capital investment on the table here, and it doesn’t work,” Elliott said, “I’m potentially risking the financial viability of my company. This is real money, and this is money that can make or break a corporation.”
Technology at the demonstration stage is “actually still a pretty high-risk part of the technology development cycle,” coming after years of expensive research and development but before it’s proven enough to get financing from commercial banks and investors, said Sasha Mackler, executive director of the energy program at the Bipartisan Policy Center. The department’s program is designed to generate operational data so specific technologies can be built, financed, and replicated, he said.
The situation could create “some very difficult tensions within the agency and in the marketplace around how much risk program managers and leadership are willing to take, because no one wants to get called on Capitol Hill to talk about why their project didn’t work,” he said. Future administrations could dial back support, though it is highly unlikely they would terminate an existing contract, Mackler said.
In a Senate hearing last month, Sen. John Barrasso (R-Wyo.), the top Republican on the Senate Energy and Natural Resources Committee, told a top DOE official that “the amount of money that the department has received over the last two years is staggering.”
“So the question is not whether the department is going to waste taxpayer dollars,” Barrasso said. “But how to reduce the amount it will waste.”
Last August, the department’s inspector general found the office needs to sufficiently hire more people and build internal controls and independent oversight systems to guard against fraud and abuse of taxpayer money. Prior audit reports have made similar findings.
The department, aware of the risks, is putting rigorous controls in place, Cummins said.
In January, the department established a Demonstration and Deployment Advisory Board, a panel of senior DOE officials chaired by the under secretary for infrastructure.
The board plans to hold its first meeting in the spring. Its members will be briefed by independent experts on how large demonstration and deployment projects are performing against cost and schedule baselines, Cummins said.
The Office of Clean Energy Demonstrations, established shortly after the bipartisan infrastructure bill passed in November 2021, has hired more than 100 federal staff and contractors and estimates needing 275 people total—including project managers, engineers, scientists, and engagement and commercial specialists.
The Energy Department has coordinated or attended dozens of events to reach hundreds of industry representatives, including a March 3 White House meeting with industry executives that aimed to accelerate private sector investments in decarbonization.
The department is also requesting comments, due by April 1, on ways it could spur demand for low-carbon products.
“We don’t expect every single project to be successful—if every single project was successful, we probably weren’t taking enough risks,” Cummins said. “But we do expect the entire portfolio to be successful, and so we want to manage that and make sure that we are meeting our goals of getting us closer to the adoption, wide scale, of these technologies.”
The department’s efforts are appealing to the steel industry, which accounts for roughly 8% of global carbon dioxide emissions.
DOE is interested in “the kinds of technologies you’ll see in our roadmap to net-zero” by 2050, said Richard Fruehauf, senior vice president and chief strategy and sustainability officer for US Steel Corp. Companies are trying to find iron-making methods that don’t use coal. One pathway is a method switching from using coal to natural gas, which could then be converted to using hydrogen produced from renewables or nuclear energy.
The buying power of the federal government—such as purchasing steel for construction projects—is a powerful incentive discussed during the White House meeting this month, said Fruehauf, who attended the meeting with US Steel’s CEO David Burritt.
In a request for information this year, the Energy Department floated federal options such as direct procurement through a request for proposal or reverse auction, advanced market commitments, and guaranteed price floors. It is accepting comments through April 1.
“We see demand for green steel coming, and some of it is already here,” he said. But “it’s not even across sectors.”
In allocating funding, the department will have to weigh how to spread its resources among big and small projects. DOE expects to award money for up to 65 projects, according to the funding announcement this month.
One company that plans to apply for funding is Skyven Technologies, a Texas-based company that pays for and installs clean heat-generating industrial systems, such as industrial heat pumps. Skyven assumes the projects’ upfront risk, billing customers for the heat consumed to pay back the upfront costs.
The company currently oversees projects at six industrial plants, but those industrial heat systems need to be demonstrated at a larger number of sites, said Arun Gupta, the company’s founder and CEO.
“We’re talking about dozens, maybe even a hundred-plus systems that all need to be built and demonstrated,” Gupta said.
“The tolerance to downtime and operational risks—like causing poor quality products to be put out—is very low because they operate with such low margins,” he added. “Just a few days of downtime can kill a manufacturing facility.”
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