Meet the leader in charge of doling out DOE’s $25B for novel cleantech

SEATTLE — As head of the U.S. Department of Energy’s Office of Clean Energy Demonstrations, David Crane has a tough job: turning about $25 billion for not-yet-commercially-viable technologies into infrastructure that can power a U.S. clean energy revolution.

To be sure, the word ​“demonstration” implies some uncertainty as to the outcome of this unprecedented federal investment in clean hydrogen, carbon capture, advanced nuclear reactors, long-duration energy storage and other key decarbonization tools. But that doesn’t mean it’s funding science experiments.

“I’d say the single greatest failure I would have at this job is if in 20 years we looked at the hydrogen hubs we helped incent with our grants, and they all looked like Summer Olympics sites…they’re all ghost towns,” Crane, the former CEO of U.S. utility NRG Energy, told Canary Media during this week’s Breakthrough Energy summit in Seattle. ​“The key to success is that these things will be thriving 10 to 20 years from now.”

Crane, who was appointed DOE’s Under Secretary for Infrastructure earlier this year, was referring to the $8 billion for ​“clean hydrogen hubs” now being pursued by hydrogen project developers, investors and politicians across the country. Those grants, meant to fund six to 10 sites capable of producing hydrogen without carbon emissions via a variety of technologies, are just the largest of a set of multibillion-dollar investments Congress directed the Office of Clean Energy Demonstrationsto administer in last year’s infrastructure law.

Other work funded by the law includes nearly $3.5 billion for carbon capture demonstration and large-scale carbon capture pilot projects, $2.5 billion for advanced nuclear reactors, $5 billion for power grid modernization and resilience, $1 billion for rural and remote area energy projects, and about $500 million apiece for reducing industrial emissions, energy storage and long-duration storage pilots and clean energy on former mine lands.

Not all of these projects are necessarily destined to become central parts of the country’s clean energy future. The hydrogen hubs hold particular promise, though, and are ​“supposed to be the foundational elements of a hydrogen economy,” he said, one that can replace fossil fuels in applications like chemicals production, steel- and cement-making, heavy transportation fuel and other hard-to-electrify sectors.

Many of the startups backed by Breakthrough Energy, the initiative founded by Microsoft co-founder and philanthropist Bill Gates that held its annual conference in Seattle this week, are developing technologies to tackle these challenges. Breakthrough Energy has raised more than $2 billion in committed capital to focus on technologies with much longer timelines to commercialization than typical venture-backed companies.

In an on-stage conversation during Tuesday’s opening session, Gates highlighted the difficulty of investing in next-generation decarbonization technologies, where ​“the costs have to be borne now and the benefits are mostly out there in the future.” While the costs of solar and wind power and batteries for electric vehicles have fallen dramatically, the ​“green premium” for harder-to-decarbonize sectors remains dauntingly high, he said.

Breakthrough Energy’s portfolio includes hydrogen startups C-Zero, Electric Hydrogen and H2Pro; Rondo Energy’s plans to generate high-temperature industrial heat via renewable energy; and long-duration energy storage from ESS, Form Energy and Quidnet. But scaling up these kinds of technologies will require government support to make the commercial case for broader private-sector investment.

Crane highlighted the potential for Breakthrough-backed technologies to play a role in the kind of projects that the Office of Clean Energy Demonstrations (OCED) is funding, such as the $500 million that the office is putting toward cutting emissions from ​“hard-to-abate” industrial sectors.

“We’re at the very early stage of mapping out what that looks like, but we’ve heard a lot at this conference already about cement and steel,” he said, including technologies from low-carbon cement startup Brimstone Energy and low-carbon steel via Boston Metal’s electric-powered iron ore processing technology.

Overcoming massive scale-up challenges

But Crane, who spent years restructuring NRG to focus on distributed solar, electric vehicle charging and energy efficiency before being ousted as CEO in a corporate retrenchment in 2016, said he’s clear-eyed about the challenges these first-of-a-kind projects will face.

He cited the example of direct air capture (DAC) technologies that pull carbon out of the atmosphere — a task that climate science shows is needed to forestall the worst impacts of climate change. The Inflation Reduction Act set a target for these DAC projects to capture 1 million metric tons of carbon per year, he noted. That’s roughly 30 to 40 times what the handful of DAC companies with active projects today such as Climeworks and Carbon Engineering have achieved thus far — and a rule of thumb from Crane’s energy industry experience is ​“never try to scale up more than 10 times what’s been done before,” he said.

But the pressing threat of climate change doesn’t permit for this kind of scale-up challenge to derail OCED’s efforts, he said. The Inflation Reduction Act’s hundreds of billions of dollars in tax credits to support clean energy and decarbonization technologies over the next 10 years is ​“effectively a price on carbon, but it’s a price on carbon that disappears” as the funding phases out, he said.

That said, Crane noted that OCED was mindful of the pitfalls that can dog projects attempting these kinds of rapid scale-ups. He pointed to NRG’s Petra Nova project, the only U.S. project aiming to capture carbon from a coal-fired power plant that was actually completed before being shuttered.

Crane wasn’t at the company to oversee the eventual failure of the Petra Nova project, which shut down in 2020 after receiving nearly $200 million in federal funds along with $300 million from NRG and another $300 million from Japanese oil and gas company Jippon NX. Last month NRG sold its stake in the project for a mere $3.6 million, the latest in a long line of failed efforts to capture carbon emissions from fossil-fueled power plants.

Learning from past mistakes

Crane also highlighted some important changes in the OCED’s structures for funding carbon capture and clean hydrogen projects. One example is improved criteria for assessing and measuring the multiple values of projects competing for hydrogen funding, he said.

“A lot of DOE demonstration projects have tried to make sure there’s fair competition, to get down to a single envelope competition, where the person who bids the lowest price wins,” he said. But that structure runs the risk of succumbing to ​“the ​‘greater-liar theory’ — whoever is most optimistic about what it will cost wins.”

OCED’s new criteria for selecting hydrogen hub projects are more broadly structured, he said. They encompass not only the expected costs to produce low- or zero-carbon hydrogen, but also the potential for that hydrogen to cost-effectively be stored, transported and put to use, both by industries that use it today such as fertilizer production or oil refining and for decarbonizing transportation, power production and other target industries.

The new criteria also take into account ​“community impact,” he said, including whether projects have the potential to reduce local environmental harms from polluting industries and to drive the growth of jobs and economic opportunities. ​“When we talk to would-be bidders, we’ll say, ​‘You have to take this seriously,’” he said, with an independent review by specialists to ensure ​“we don’t fall victim to what I call ​‘happy talk.’”

This community focus is particularly important, given that the majority of ​“fenceline” communities living near polluting fossil fuel infrastructure tend to be disproportionately lower-income and communities of color.

OCED’s ​“carbon management program has significant bipartisan support,” he said, partly because ​“it’s a way for fossil fuel plants to stay alive. As we like to say, we’re not hostile to fossil fuel; we’re just hostile to the carbon emissions.” But ​“the communities that have hosted these fossil fuel facilities may have very strong feelings about the perpetuation of these facilities.”

“We at the Department of Energy have to follow what Congress has told us to do,” he added. For the hydrogen hubs funding, that includes picking at least one project that produces hydrogen generated via electrolysis of water using renewable energy, another using nuclear power to electrolyze water, and at least one project that converts fossil gas to hydrogen and uses carbon capture to reduce the consequent emissions.

It also requires selecting projects with ​“geographic dispersion across the United States,” he said. Today, the country’s only large-scale hydrogen pipeline systems are in the Gulf Coast region, where hydrogen is in heavy use for petrochemical refining. But the need for sites in different parts of the country means ​“it’s going to be a total jigsaw puzzle to figure out the best approach,” he said.

Other categories of spending, like the $1 billion for rural and remote energy systems, can be more flexibly applied, he noted. Beyond a requirement that such projects benefit communities of less than 10,000 people, the program has relatively little in the way of restrictions, which could ​“unleash incredible creativity” in terms of the projects being proposed, he said.

Managing uncertainty on a tight timeline 

OCED’s task of bringing novel technologies to commercialization demonstration scale doesn’t mark the endpoint for DOE’s support. Energy Secretary Jennifer Granholm pointed out during a Tuesday talk at the Breakthrough Energy conference that under the Inflation Reduction Act, DOE’s Loan Programs Office has been authorized to give out up to $300 billion in loans to projects that have proven technology but need government support to cross the ​“bridge to bankability” in the eyes of private-sector lenders.

This DOE lending authority has already backed two U.S. hydrogen projects, Crane noted. Private-sector lenders ​“do want to be repaid,” as does the DOE’s Loan Programs Office, he said. The demonstration grant programs, ​“on the other hand, require no return on capital.”

At the same time, OCED does have a duty to shepherd taxpayer money to avoid undue risk, he said. He cited the example of advanced nuclear program spending, which is geared to bring down the now-exorbitant costs of building new nuclear power plants, the world’s second-largest source of carbon-free electricity after hydropower.

“Nuclear’s tough,” Crane said, with uncertain timelines and cost projections for the latest generation of smaller, more modular nuclear reactors to be brought to commercial-scale deployment. ​“On the other hand, these are first-of-a-kind projects, and we have to take risk — and to my mind, the small nuclear reactor program is a risk worth taking because the potential is so great.”

He cited the recent work from DOE that assessed whether and how coal-fired power plants across the U.S. to be shut down and replaced with modular nuclear reactors. That could retain both the value of the existing power grid infrastructure and the jobs and economic activity that ​“could provide a lifeline” to coal communities, he said — a concept that Bill Gates–backed nuclear startup TerraPower is pursuing in Wyoming.

All of these considerations will be coming into play as OCED starts to field its first applications for its various funding pools. For the hydrogen hub projects, concept papers are due next month, and OCED expects to reply within the next two months to ​“either encourage or discourage” various plans ahead of an April 2023 application deadline.

“The hydrogen hubs are their own thing because they’re the largest part of our program,” he said. ​“It’s going to be a herculean task.”