FINANCE:

How DOE dealt with a 'tsunami' of clean-tech applicants

On a snowy day last March, senior Energy Department officials met to plan how they would handle one of the largest and quickest grant awards projects in history. They knew that thousands of applications for American Recovery and Reinvestment Act clean-energy grants would soon flood their agency.

"The image was of a very large tsunami headed this way," explained Matthew Rogers, the Energy Department special adviser who has overseen the review and award of 2,830 Recovery Act grants for $18.4 billion, as of Thanksgiving week. Awards since then have taken the administration more than halfway toward committing its $37 billion in funding under the act.

Rogers, a senior partner in McKinsey & Co.'s energy practice and a member of President Obama's transition team, was picked in February by Energy Secretary Steven Chu for the daunting task.

In an interview, he described the vetting process, which involved a total of 1,300 outside analysts from universities, financial firms and elsewhere, working with staff from DOE and other federal agencies. He defended the layers of confidentiality protections that are tightly wrapped around the program. And he acknowledged that the administration wants to set a high bar for judging its success.

"This is one of the largest peer-review processes that has ever happened, in one of the shortest periods of time," Rogers said of the multi-stage screening process. "It is a large task, and it has many humbling aspects to it. But I think we are making real progress.

"What I get most excited about is when you look at the quality of the projects we've been able to fund, and you see the rate of innovation in energy technologies accelerating." He said he was also impressed by the numbers and quality of the losing applicants. In the largest programs, 1 of every 4 applicants won out. In the competition involving the most experimental technologies, there were 3,700 contenders for 37 grants.

"You see a really deep pipeline of further innovation that's out there that, as the markets come back, will also get funded," Rogers predicted.

"In the near term, we really have to drive job creation and economic recovery," Rogers said. Expectations of slow job recovery next year and growing concerns about the impact of federal budget deficits add to the urgency for demonstrated results from the recovery spending.

Puzzled losers, secretive screening process

The outpouring of grants -- and the preponderance of unsuccessful applicants -- has stirred curiosity and some complaints over the DOE rating process. After the smart-grid awards last month, Mark McGranaghan, a research director for the Electric Power Research Institute, commented, "There are big names not on the list, and small ones that are on. Southern California Edison isn't on the list, and they are deploying [advanced meters] like crazy. CenterPoint [in Houston] happens to be on there. Oncor [in Dallas] isn't. But any of the Texas utilities could have been in that list. I'm sure it was a tough decision." DOE is already fielding reporters' queries concerning unhappy applicants who came away empty-handed.

The review involved a series of screening steps that included technology capability, job creation, likelihood of success, and ability to generate matching funds, DOE says. Another key factor, written into the Recovery Act, is a preference for American-made products and components. "At the same time we're trying to drive a set of these projects, we are also very committed to making sure the U.S. manufacturing base grows and develops with it. Rebuilding U.S. leadership in high-tech manufacturing is an important element of this whole program," Rogers said.

Rogers was asked whether DOE would make public the winners' applications and the review teams' analysis, to shed more light on the decision-making.

"Our plan is not to make that public. First off, all of the [private-sector] reviewers are doing this as a matter of public service, and we don't need to draw them into getting interviewed about every application." Over the summer and fall, DOE has kept a rotating corps of reviewers at work, 250 at a time, many drawn from universities in response to Chu's request.

"Secondly, and perhaps more importantly, we want to make sure that the best applications come into the department. So there is a set of intellectual property protections that become very, very important. ... We are quite sensitive to being clear about what the project is that we're funding, but also being quite clear that some of the merit information that reviewers needed to see is, in fact, proprietary and business-sensitive, and should not be shared with the American public. Because otherwise, we won't get to fund the best projects."

Each reviewer signed an ethics form that discloses potential conflicts of interest in the review process, he said. "You want people who are expert. [They] will have some level of conflict, and so the key is to be clear about what those conflicts are," and then insulate the review process from those issues. If a particular reviewer came from a university that was seeking DOE research grants in one topic area, the reviewer would be assigned to another topic, Rogers said.

An effort to assure that winners deliver

As the review process comes to a conclusion, he and others at DOE will increasingly shift attention to the fulfillment of the awards, and Rogers plans to spend more time on the road with grant recipients. "We are going to work closely with them to make sure they are successful. But we intend that they actually deliver."

The job creation is just beginning. Only $1.4 billion of the $18 billion in grants awarded had been spent as of Nov. 27.

The longer-range benchmark is the program's success in fundamentally changing the nation's energy sector, he said. "The scale of the investment portfolio we have here really allows us to make a down payment on the nation's energy and environmental future," Rogers said of the DOE awards. "And that, I think, will be how we are evaluated over the long term."

Obama referred to the program yesterday in a speech at the Brookings Institution, saying that his incentives to promote energy efficiency and clean energy manufacturing don't automatically create jobs or lower carbon emissions. "But," he added, "these steps provide a framework in which companies can compete and innovate to create those jobs and reduce energy consumption."

Rogers said a key test of the administration's program is its ability to be a catalyst for private-sector spending. DOE has made $3.3 billion in grants in the smart grid category that was matched by $4.7 billion in pledges by grantees. "We brought in $4.7 billion of capital off the sidelines into the market, into a set of really good projects," he said.

DOE investments in smart meters and other advanced technologies will reduce consumers' costs and increase grid reliability and security, and that is a story that consumers, regulators and investors need to hear, he said.

"We're demonstrating to the market that these are high-return projects that the private markets can then take on." Pilot projects funded by smart-grid grants should also build consumer confidence and generate evidence that some skeptical state utility commissions will insist on before approving widespread deployment of the new technologies. The grants will provide "very specific economic and engineering evidence that this is a powerful direction for the industry to move," Rogers explained.

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