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Financing Innovation

A Win for Regional Innovation

Interagency Energy Efficiency Cluster Initiative to be Located in Philadelphia

The Philadelphia Navy Yard. The Philadelphia Navy Yard, after closing a decade ago as a military base, is in the process of being redeveloped as a commercial and industrial site. In the coming five years it will serve as the campus for the first Energy Regional Innovation Cluster and a laboratory for testing and demonstration of advanced building energy efficiency technologies.

Yesterday may well be remembered as a turning point in our nation’s technology innovation policy. The Department of Energy announced that a consortium of more than 90 public- and private-sector organizations based in the Philadelphia region will host the first Energy Regional Innovation Cluster or, E-RIC, a new interagency program to accelerate energy innovation and commercialization. The new E-RIC was selected among many applicants to win $129 million dollars in grants and programmatic support from the DOE and six other federal agencies for investment in energy efficiency technology innovation and commercialization.

The award itself is important because buildings directly or indirectly account for approximately 40 percent of national global warming pollution; technology innovation in this sector has the potential to make a big impact on climate change. CAP has documented extensively how energy efficiency is among the best ways to create jobs, reduce our dependence on foreign fuels, and save money.

But the concept behind the award is equally important from a policymaking perspective. Watching this first-of-a-kind public-private interagency collaboration unfold will shed light on the very process of bottom-up, American innovation itself.

What is an E-RIC?

This pioneering Energy Regional Innovation Cluster program represents a whole new level of interagency coordination rarely before seen from the federal government—a triumph for the Obama administration and the Recovery Act. The Department of Energy, the Department of Commerce’s Economic Development Administration, National Institute of Standards and Technology, and Small Business Administration, the Department of Labor, the Department of Education, and the National Science Foundation will all coordinate new and existing programs to deliver grants, services, and programmatic support to the researchers, builders, and entrepreneurs of the new innovation cluster. The hope is that by bringing together diverse public and private sector actors to solve a problem collaboratively, the sum of the whole will exceed the sum of the individual parts.

The diverse group of organizations in the winning consortium, which goes by the name Greater Philadelphia Innovation Cluster or, GPIC, includes 11 academic institutions, two DOE laboratories, five high-profile industry partners, and federal and regional economic development agencies. Not all members of the consortium are local. Some are multinational corporations such as IBM Corp., or are located as far away as Lawrence Livermore National Lab in California.

While final details of the funding for GPIC are yet to be finalized, the initial Funding Opportunity Announcement for the E-RIC program issued by the government indicated that the approximately $129 million in grant funding and programmatic support is expected to break down as such:

  • $122 million over five years to be provided through the DOE’s Energy Innovation Hubs program, funded through the Recovery Act and subsequent appropriations. This is the third such Energy Innovation Hub grant award from the DOE, the first two being a consortium based in Oak Ridge, Tennessee that will focus on advanced nuclear energy modeling, and another led by CalTech researching fuels made from sunlight, respectively.
  • $3 million from the Department of Commerce’s Economic Development Administration in Public Works and Economic Development funds, and $2 million in Economic Adjustment Assistance funds over a period of up to 5 years.
  • Up to $1.2 million over four years for commercialization activities to be delivered in the form of expanded services and programmatic support at existing Small Business Development Centers through the Small Business Administration.
  • $1.5 million over three years to be delivered in the form of dedicated program support for manufacturing process innovation through the Manufacturing Extension Partnership program.
  • The Education Department and Department of Labor, while not providing any additional cash to the cluster, will coordinate existing Workforce Investment Boards, One-Stop Career Centers, and other existing grant programs to ensure that the supply of skilled laborers in the region can meet the cluster’s demand.
  • The National Science Foundation likewise will leverage its Emerging Frontiers in Research and Innovation program, the Engineering Research Centers, the Industry/University Cooperative Research Centers, and the Small Business Innovation and Research, or SBIR grant programs in support of the cluster’s activity in lieu of new spending.

Additionally, Pennsylvania’s Governor Rendell also pledged $30 million in state funding to construct a new facility at the Philadelphia Navy Yard, which will serve as the main campus for the cluster’s activities. The 1,200 acre Navy Yard’s extensive and self-contained utility and electrical grid infrastructure, diverse stock of over 200 buildings, and plans for future growth made it a perfect spot for a research, development, and demonstration laboratory.

What it means for U.S. regional innovation

The cluster strategy is significant for three reasons. First, it will be a boon to the region’s economy, creating new jobs, attracting talent and investment from across the country, and providing worker training opportunities and new skill ladders. At the same time, it will foster the development and commercialization of new energy efficiency technologies that will lessen our dependence on foreign and dirty fuels while positioning American technologies, companies, and industries to lead the world in the emerging building energy efficiency sector. Finally, it will be invaluable as a new working model for 21st century public-private collaboration on regional innovation, shedding light on the very process of technology innovation itself.

Without a doubt the seeding of a new innovation center will create jobs and provide opportunities for workers to gain new skills as companies join the innovation cluster to help commercialize the new technologies. Although, jobs are just one of the many economic benefits that the DOE expects this new cluster to bring, among them:

  • Development and demonstration of sustainable and efficient models for attaining national strategic objectives, with a focus on developing, expanding, and commercializing innovative energy efficient building systems technologies, designs, and best practices for national and international distribution, and reducing the carbon footprint of the United States
  • Creation and retention of good jobs
  • Elimination of gaps between the supply and demand for skilled workers in the E-RIC through training and education
  • Increased regional gross domestic product
  • Promotion of innovation in science and technology generally
  • Enhanced economic, technological, and commercial competitiveness of the United States on the global stage

What distinguishes the Energy Regional Innovation Cluster from the plethora of other similar Department of Energy programs is its focus on the critical and often neglected middle stages of innovation—demonstration  and commercialization—and the increasingly diverse network of innovation stakeholders that are needed at those stages.

Since a market already exists for building energy efficiency systems, the transition to demonstration, manufacture, scale-up, cost-reduction, commercialization, and the corresponding job-creation can occur rapidly. In contrast, Energy Frontier Research Centers focus on laboratory research to find new scientific discoveries to overcome technical hurdles in the earliest stages of energy innovation, while ARPA-E and the other two energy innovation hubs similarly focus on technologies at “the bench-top discovery phase” that are further from commercial readiness.

The fact that the Greater Philadelphia Innovation Cluster boasts such a diverse array of stakeholders—from major corporations to universities, to regional and federal economic development agencies, and others—is a strength that probably helped it to win the many bundled awards in the interagency E-RIC program. The bundling of energy research grant funding with small business loans, manufacturing support, workforce training, and regional planning will bring a more diverse array of stakeholders into the innovation process, fostering a beneficial effect innovation scholars call “interactive learning.”

Science Progress advocated for such a bottom-up federal approach to innovation in the 2009 report “The Geography of Innovation.” The report emphasized the importance of linkages and interaction among all the many kinds of local stakeholders in the innovation process, from knowledge-generating institutions, to entrepreneurs and start-up companies, to large companies with manufacturing capacity, to the private finance community, to local governments and federal stakeholders. CAP’s energy policy experts also noted how innovation policy is most effective when it creates incentives for not just researchers, but manufacturers, users, and private investors in the technology.

Finally, this is the biggest step the federal government has ever taken to support bottom-up innovation network formation and technology acceleration. Watching the progress of the cluster and measuring its performance over the coming years will provide innovation scholars and policymakers with valuable information about how to improve these and similar policies in the future.

Sean Pool is Special Assistant for Energy, Science and Technology Policy at the Center for American Progress.

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