With the clock ticking against a legislated sunset for California’s $350 million per year Public Interest Research, Demonstration and Development Program, Governor Jerry Brown has thrown support behind an effort to extend and reform the existing program.

Administered by the California Energy Commission with funds collected via a monthly “public goods charge” on regulated utility customers, the research grant program has allocated hundreds of millions of dollars to renewable energy projects, energy efficiency programs, emerging technologies and research approaches that otherwise would not find funding in utility budgets.

Currently, the CEC divides the public goods funding in this way: energy efficiency and conservation $228 million; renewable energy, $62.5 million; and energy RD&D, $62.5 million. 

A revised Senate bill introduced this week for consideration under the budget emergency session, SBx1-28 (authored by state Senators Padilla and Steinberg) would increase those amounts and extend authorization through 2020.  The new budget allocations would be $250 million for efficiency, plus $75 million each for renewables and research & development.

The need for such funding lies in the fact that the electric utility industry spends far less on R&D than any other major sector of the economy -- about 0.1 percent of annual revenues, while industry sectors from pharmaceuticals to software routinely spend from 12 percent to 20 percent. 

While the CEC has tried to document successes of the program spending, in terms of jobs created and technologies advanced, the program has been hit with several criticisms. Worst was a rather scathing assessment from the Legislative Analyst’s Office (LAO) earlier this year that questioned whether the current funding process was doing much of anything to meet California clean energy policies. Large manufacturers and some taxpayer advocates also oppose continuing the program, mainly because it costs money.

Sen. Padilla, in response, had previously introduced SB 35, which would have replaced the current CEC program in favor of one much more subject to utility and third-party influence.  Padilla’s bill was an attempt to address criticisms that the CEC program was not spending funds as intended, that the application process had gotten too complex, and that it was difficult to ascribe the kinds of ratepayer benefits to the public goods investments that the Legislature initially intended.

What we see in SBx1-28, therefore, is far more state-level control over the funds, with two new levels of oversight over program priorities, and much more specificity as to how the money should be spent. Even before the bill was formally introduced, Gov. Brown had promoted it for incentivizing renewable energy and jobs. He indicated during a news conference that the new version was already vetted by his office and various stakeholders as an improvement on the current structure.

Whether this will actually translate into much of an improvement in outcomes is uncertain at best.

At 13 pages, the proposed Clean Energy Jobs and Investment Act is too detailed for thorough examination in this space, but those interested may find a link to the measure below. It roughly follows many of the same proposals for what Sen. Padilla’s SB 35 called the Clean Energy Research & Technology Act, obviously couching the revised measure in Governor Brown’s new initiatives for jobs and investment.

Two major administrative changes are included, creating a Clean Energy Investment Council to set priorities for the funding, and inserting the state Legislature into the disbursement process.  The investment council would be made up of top officials from the CEC, the California Public Utilities Commission, the Air Resources Board, the Independent System Operator, the state Treasurer and leaders of the state Senate and Assembly.  The Renewable Energy Trust Fund, formerly administered by the CEC, would turn into a Clean Energy Innovation Program Fund within the Treasury, subject to appropriation by state lawmakers.

Padilla had previously proposed a “coordinating council” structure with representatives of utilities, non-profit groups, state agencies and universities along with several legislators.  This idea remains in the new measure as an “advisory council” and would be expanded to about 25 members, with additional seats for environmental justice advocates, publicly-owned utilities and representatives of the clean energy industry.  This somewhat ungainly body would meet no less than twice each year to identify funding opportunities and potential barriers to meeting state energy policy goals.

Such goals have now been expanded to include energy storage, smart grid and system integration applications in addition to renewable energy and efficiency programs. Other new wrinkles include a preference for funding California-based applicants “unless there is a unique need that can only be met by an entity outside of California.” 

More importantly, the bill specifies that the funds should be spent for “projects that may lead to technological advancement and breakthroughs.”   Applicants would have to show how they would achieve such breakthroughs, and would also have to agree to currently unspecified requirements by the state for sharing intellectual property rights and royalties.

These latter requirements raise the ante from the program’s current focus on “promising new energy technology concepts” in the Energy Innovations Small Grant program, or the emphasis on further developing “established concepts” in the larger PIER grant program (which was seen as a way to improve the odds of success). Also, there had never been an in-state requirement before, only a need to show that the research is “relevant to the California market.”

While the existing PIER program has returned something like $50 million in the form of royalties on patents and innovations, it is clear that the state will in the future expect more certain returns from its investments.

Which raises the fundamental question:  Can we expect such research always to pan out?

Clearly, research does not always lead to breakthroughs nor will valuable advances necessarily lead to royalties or direct IP benefits that would completely pay back the investment.  Even venture capitalists cannot point to such a track record -- hoping at best that one in a dozen investments will be a rousing success, and often settling for an easy exit from far less successful funding experiments.

While it is good for the state to continue to fund research and other programs to advance its ambitious energy policy goals, the new regime should not hamstring future funding with unreasonable expectations from the start. 

Read more here:

Text of SBx1-29 (introduced Aug. 29, 2011)

Letter from Legislative Analyst's Office (Jan. 18, 2011)

Arthur O’Donnell, The Energy overseer, is an independent journalist and energy market analyst.  Look for his work at www.energyoverseer.com and #energyoverseer on Twitter.