Don’t Let Fear of Failure Stifle American Energy Innovation

All-star NBA basketball player Michael Jordan once said:

“I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. Twenty-six times I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”

If he missed so often, why did he keep getting to take those shots? To win, you have to make baskets and in order to make them, you have to shoot the ball. No risk, no reward. That’s where our nation is on climate change: the greatest risk is if our nation does nothing. If our nation won’t take shots, the American people lose.

What does basketball have to do with clean energy? Last year, the Department of Energy was tasked with distributing an unprecedented level of funding for major energy projects that will require new ways of thinking about how our government invests in promising but unproven technologies. In the enormous spending package that was the Infrastructure Jobs and Investment Act (IIJA) of 2021, Congress handed DOE a set of groundbreaking new tools to transform America’s approach to scaling up energy technologies. A key element of this toolset is the new Office of Clean Energy Demonstrations (OCED), which received $21 billion from Congress on a bipartisan basis to overcome one of the most challenging obstacles facing advanced energy innovations: commercial demonstration.

Energy experts have long recognized the important role commercial-scale demonstration plays in the journey from idea to mass deployment. Because solutions to the many daunting challenges in demonstration projects are neither easy nor cheap, this stage is often called the “valley of death.” Given high costs and risks, private companies can’t support large-scale demonstration projects independently. OCED has a critical supporting role in bridging this valley of death—but to do so, it must lean into its mission to drive innovation. Risk must be managed, but not eliminated or avoided. At the same time—to support OCED—Americans will have to cultivate an appreciation for innovative risk-taking to meet our climate goals, just as we did when navigating the Space Race with the former Soviet Union. Importantly, we should avoid drawing the wrong lessons from past experiences.

Case in point is the story of Solyndra, a now infamous company that had an outsized role in shaping public perceptions about the government’s role in financing big energy projects. Solyndra was a solar manufacturing company that filed for bankruptcy in 2011, just two years after being awarded a $535 million loan guarantee from the DOE Loan Programs Office (LPO). When the company failed to repay the loan, the incident made national headlines, the press grilled then-President Barack Obama, and Congress held probing oversight hearings, demanding answers from then-Energy Secretary Steven Chu on how DOE could have let this happen. Overall, the investment was painted as a huge embarrassment for the Obama administration and became a deeply impactful setback for the mission of DOE.

Policymakers learned the wrong lesson from Solyndra: fear of failure.

The forgotten story of the LPO—including Solyndra—shows what’s possible when the government makes cutting-edge investments in energy scaleup. Of the nearly $36 billion in direct loans and loan guarantees issued by LPO since its inception in 2005, the program made an overall profit on its portfolio—meaning no taxpayer dollars were lost by DOE. On the contrary, DOE received more than $4 billion in interest payments while suffering only $1 billion in losses, so taxpayers came out ahead. And while Solyndra was being cast as a massive failure in national headlines, LPO was driving the first wave of utility-scale solar projects, resulting in solar energy being the cheapest source of power in 2020. Nonetheless, Solyndra has dominated the public narrative around the federal role in big energy projects and cast a long shadow over DOE’s appetite for risk. After all, avoiding bad headlines can be more motivating than getting something right behind the scenes.

As OCED starts its important work, a strong culture of innovation must be part of its DNA. Congress, the stakeholder community, and the American people must reinforce the message that investing in rapid scaleup of clean, climate-friendly energy technologies—while accepting that not every project will work out–is in our shared national interest.

To help shape OCED’s approach to investing, BPC worked with a politically diverse group of experts to develop recommendations for DOE to give this new office its best chance of success (available here and here). Our recommendations include strategies for engaging relevant stakeholders such as affected communities and early-stage companies, staffing the office with the right expertise, and investing in the appropriate stage of innovation for new energy technologies.

Expanding on these recommendations, this piece highlights how OCED can take a robust approach to risk management while building support for its projects across the political spectrum.

First, in order to ensure that OCED succeeds, DOE should redefine success and failure. In particular, DOE should avoid discussion of “success” and “failure” as if they are binary outcomes. The famous innovator Thomas Edison once said:

“I have not failed 10,000 times—I’ve successfully found 10,000 ways that will not work.”

Edison’s point is that success requires failure. There are clear benefits to projects that don’t progress all the way from conception to operation, including advancing relevant knowledge for related energy technologies. The aim of well-designed risk-management practices is not to avoid risk, but rather to minimize the downside of faltering or cancelled projects that aren’t performing as expected. Second, an effective risk management framework should spread risk over several stages with clearly defined criteria for project advancement. Other federal agencies have adopted a similar phased approach for major technology projects and have learned lessons that are directly applicable to the development of clean energy technologies. Lastly, the roles that public perception and congressional oversight play in an agency’s appetite for risk cannot be ignored. To build trust, OCED should communicate clearly and transparently about its decisions regarding project selection, termination, and resource reallocation. This will help build bipartisan support for DOE’s actions in the coming years.

As a team that includes a former senior DOE political appointee, a former congressional chief of staff, and a former energy project developer, our recommendations for investing in energy scaleup reflect an understanding of DOE’s culture and decision-making processes, an appreciation for the dynamics and pressures that come with legislative branch oversight, and firsthand knowledge of the complexities that private companies face when they collaborate with the federal government on demonstration projects. We believe that the narrative around our government’s investments in major energy projects can be different than it has been in the past. There will always be fiscal and political risk when the federal government invests in new innovation, but the much greater risk would be to do nothing.