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Several States Using Little-Known Fund to Jump-Start the Clean Economy

Report finds that 22 states are tapping "CEFs" to build renewable energy projects. Some are going further by using the money to build entire industries.

Jan 11, 2012

A little-known source of clean energy funding could prove a crucial job-creation engine in the states, as federal support diminishes and they seek fresh growth drivers.

Every state can create clean energy funds, or CEFs, which are typically supported by a small surcharge on monthly electricity bills. So far 22 states have done so, generating $2.7 billion overall for the clean technology sector during the past decade. Most have used the money to install tens of thousands of solar panel arrays, wind turbines and biomass facilities.

But a few states have gone further by broadening investments to include technology research hubs, fledgling cleantech startups and green job training programs. The idea is to use the money, which today totals some $500 million a year, to help develop all the components of the clean economy and stimulate the creation of thousands of permanent local jobs.

The strategy is still experimental, but it could turn these CEFs into a major source of economic growth, according to new report published today by the Brookings Institution, a public policy group, and the Rockefeller Foundation, a philanthropic organization. The report outlines a four-part policy strategy for every state to adopt this "next generation" of CEF spending.

Clean Energy Funds were originally set up more than 10 years ago to help decarbonize state energy systems in the face of climate change. According to the report, the funds have already helped bring forward 72,000 renewable energy installations the country urgently needs.

But times have changed, said Mark Muro, a report co-author and director of policy for Brookings' Metropolitan Policy Program. "Economic development has emerged as a parallel and complementary interest to carbon reduction ... There's been a sharpening concern that the country really needs to look to supporting the emergence of cutting-edge technologies" as a way to start new industries and create jobs, he told InsideClimate News.

According to the report, retooling these state-level funds "could not be timelier at this moment of federal gridlock and market uncertainty."

Congress isn't expected to approve new funding for green technologies in 2012 after the 2009 stimulus—which poured tens of billions of dollars into clean energy projects—dries up. And policymakers won't likely reinstate key federal subsidies that lapsed at the end of 2011, including the Energy Department's 1705 loan guarantee program, whose bankrolling of the now-bankrupt California solar firm Solyndra sparked a Republican-led effort to scale back President Obama's green agenda.

"We all need to be thinking about where we are going to get policy and finance support for further economic development in clean energy," Muro said. "As it happens, the clean energy funds are there and in a position to innovate."

The Evolution of CEFs

The country's first CEFs popped up in places with aggressive renewable energy goals, like California, Massachusetts and Rhode Island. Other states gradually followed suit, namely in the East Coast and Midwest.

They used the cash to get more solar panels on rooftops and wind turbines in the ground, which they hoped would help make renewable electricity as cheap as coal. Affordable clean power would have another benefit: it would unleash consumer demand for solar and wind, and spur new jobs in installation, manufacturing, among other areas.

But some states saw that the high cost of renewable power generation wasn't the only obstacle to realizing the promise of the green economy. In order to build lasting cleantech industries, they'd have to subsidize research and development for new technologies, like advanced biofuels, electric vehicles and highly efficient solar panels, and eventually build a ready workforce and supply chain for manufacturing.

And so, starting a few years ago, a handful of states began experimenting with ways to transform their CEFs by linking the money to strengths in their economies.

For New York, that has meant sending some of its CEF money into its growing number of regional clusters, where high-tech companies, universities and research institutions that have similar industry focus share expertise. In 2009, the New York State Energy Research and Development Authority (NYSERDA), which administers the state's CEF and other clean energy programs, saw a chance for those regional clusters to help a rising crop of clean energy startups become viable companies.

The Clean Energy Business Incubator program has given $1.5 million from the CEF to each of six business incubators, which assist cleantech entrepreneurs in organizing, staffing and funding new businesses. Together, the incubators work with around 70 companies, whose products range from analytical tools that measure wind energy resources to energy management systems and mounting devices for solar photovoltatic installations. The money gets doled out over the course of four years as companies pass certain milestones, like completing a business plan or attracting private investments.   

So far, participating companies have created several hundred new jobs, raised more than $40 million in private capital and attracted $11 million in federal funding, according to the Brookings-Rockefeller report.

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