Alternative Energy Special:
Washington Update

• Alternative Energy Featured in State of the Union Address
• President’s FY 08 Alternative Energy Budget Proposal
• Hill Democrats Take from Oil and Gas, Give to Alternative Energy

Alternative Energy Featured in State of the Union Address
President Bush says, “It’s in our vital interest to diversify America’s energy supply—the way forward is through technology.”

• In his State of the Union Address, President Bush called for the Nation to make greater use of clean coal technology, solar and wind energy, and clean, safe nuclear power. He pressed for advancements in battery research for plug-in and hybrid vehicles, and expanded use of clean diesel vehicles and bio-diesel fuel. He cited the need to invest in new methods of producing ethanol from wood chips, grasses, and agricultural wastes.
• He set a national goal to reduce gasoline usage in the United States by 20 percent in the next ten years. To move the country toward achieving this goal, he proposed increasing the supply of alternative fuels by setting a mandatory fuels standard that requires 35 billion gallons of renewable and alternative fuels in 2017—nearly five times the current target. He also called for reforming and modernizing fuel economy standards for cars to conserve up to 8.5 billion more gallons of gasoline by 2017.
  
  

Highlights: President’s FY 08 Alternative Energy Budget Proposal
Energy Department Science Office, Nuclear Energy, Clean Coal, Biomass Big Winners

Alternative energy does well in the President’s FY 08 budget, especially compared to FY 06 funding levels. However, an FY 07 funding resolution fluke results in an energy R&D budget decline from FY 07 to FY 08—In last year’s State of the Union Address, President Bush announced a national Advanced Energy Initiative (AEI) which set goals for alternative energy advancements for fueling vehicles, homes and businesses. The AEI is focused on advanced batteries for plug-in hybrid vehicles, cellulosic ethanol, hydrogen fuel cell vehicles, clean coal, nuclear energy, solar and wind power. The FY 08 budget requests $2.7 billion for the AEI, a 26% increase over the President’s FY 07 request, and almost $1 billion more than the FY 06 investment.

Big Winners:  Not all alternative energy technologies have been treated equally well in the President’s budget request.  Several renewables have received huge increases in the FY 06-08 budget period—consistent with the Advanced Energy Initiative—with some seeing continued large hikes in the FY 08 budget proposal.  Favored energy technology areas include:  biomass, solar, FutureGen (clean coal), and GNEP (nuclear energy).

Department of Energy Programs in Renewable Energy: The Energy Department’s R&D portfolio would climb 5.5% to $9.2 billion, due largely to substantial increases for the Office of Science, which would receive a 16% increase over FY 07. This increase is consistent with the promises the President made to increase funding for physical sciences and engineering research through the American Competitiveness Initiative. DOE’s R&D investments in hydrogen, biomass, and solar energy would increase significantly over FY 06 funding. But an eleventh hour infusion of millions of dollars in funding from the FY 07 funding resolution creates a fluke 9% decline in energy-related R&D at DOE. Inside View: Careful reading of DOE budget details reveals the department means business. Despite the traditional Republican mantras against “picking winners and losers,” DOE is focused on doing just that in alternative energy. DOE’s “pathways” approach starts with R&D on a range of technologies, then down-selects to the most promising ones for aggressive development and “off-ramps” others, and wraps up with support for commercial demonstration or commercialization. Prime examples include: DOE’s choice of lithium ion batteries for development for plug-in hybrid vehicles, its multi-million dollar funding for the construction of “demonstration” commercial scale bio-refineries, and billions in loan guarantees for the commercialization of advanced energy technologies. TechVision21 thinks this is an outcome of OMB’s application of the Government Performance and Results Act, which requires agencies to set specific meaningful program goals and show concrete results toward achieving them.

DOE Loan Guarantees for Innovative Energy Technologies: The Energy Policy Act of 2005 established a loan guarantee program for the commercialization of advanced energy technologies. The President’s FY 08 budget proposes a $9 billion loan volume limitation, up from $2 billion in FY 07. $4 billion in loan guarantees would be allocated for technologies for central power generation facilities, $4 billion for bio-fuels and clean transportation fuels, and $1 billion for new technologies for electric transmission facilities or renewable power generation systems.

Shifts in Emphasis in the DOE Renewable Energy Portfolio: The President’s budget launches a new $41 million program in batteries for electric, hybrid electric, and plug-in hybrid vehicles with major focus on lithium-based batteries. Programs in hydropower and geothermal energy are slated for closeout. The hydrogen program moves to more aggressive support for hydrogen production from natural gas, and advanced materials for hydrogen storage, including funding for a new Center of Excellence on applied and engineering science for hydrogen storage systems. The biomass effort shifts focus to thermo-chemical and biochemical R&D for the production of biofuels, and anticipates issuing a $39 million solicitation for construction of a 10% commercial-scale demonstration integrated bio-refinery. In wind energy, a new focus on distributed wind energy in communities and on farms comes at the expense of offshore wind power.

Hydrogen Fuel Initiative: The FY 08 budget sees the President fulfill his five-year funding commitment for the multi-agency Hydrogen Fuel Initiative. Hydrogen production, storage and infrastructure would receive a 16% increase in the FY 08 budget to $132 million, nuclear hydrogen would get a 21% increase to $23 million, and basic hydrogen research would get a 19% increase to $60 million. Fuel cell research takes a small (-1%) hit, but hydrogen from coal would see funding drop by 47% down to $13 million. For the 2004-2008 funding period, investment in the Hydrogen Fuel Initiative totals $1.2 billion.

Department of Agriculture: An increase for USDA’s Renewable Energy and Energy Efficiency Program is proposed. The President would increase grant funds from $10 million to $15 million in FY 08, and increase the pool for loan guarantees from $154 million to $195 million. The renewable energy program provides grant funds and loan guarantees to agricultural producers and rural small businesses for the purchase of renewable energy systems and energy efficiency improvements. On behalf of a client, TechVision21 developed a bio-fuels proposal for the 2006 renewable energy program, which won a $500,000 grant. In addition, $11 million would go for advancing the effective use of energy crops and crop residues for conversion to biofuels, and $19 million for other bioenergy and bio-based fuels research at USDA.

Hill Democrats Take from Oil and Gas, Give to Alternative Energy
$14 Billion in New Funding for Renewable and Alternative Energy

As part of the House Democrats’ 100 hour legislative blitz, on January 18, 2007, the House passed H.R. 6 the Clean Energy Act of 2007, rolling back oil and gas subsidies and retargeting funds to alternative energy.

• The Clean Energy Act would end $14 billion in oil company tax breaks and close loopholes in offshore drilling leases.
• The freed up Federal funds are to be reallocated to a Strategic Energy Efficiency and Renewables Reserve to offset the cost of subsequent legislation that invests in renewable energy resources, alternative fuels, energy efficiency, as well as R&D and deployment of renewable energy and efficiency technologies. Speaker of the House Nancy Pelosi said a new clean energy legislative package would be ready by Independence Day.