June 18, 2001

TO: National Energy Plan Hearings - US Department of Energy

FR: Scott Sklar, President, The Stella Group, Ltd.
733 15th Street, N.W., Suite 700, Washington, D.C. 20005
Phone: 202-347-2214, Fax: 202-347-2215 E-mail: solarsklar@aol.com

The Stella Group, Ltd. is a strategic marketing firm for distributed energy generation which facilitates key partners, financing and unique customer relationships for applications utilizing advanced batteries, concentrated solar energy, fuel cells, microgenerators, modular biomass, photovoltaics, small wind and "smart" interconnection.

The testimony provides a set of issue responses and recommendations for a wide array of programs within the Energy Efficiency and Renewable Energy programs within the U.S. Department of Energy.

Overarching issue review: The Secretary of Energy's public comments which attempted to justify precipitous budget cuts for the FY 2002 renewable energy and energy efficiency programs were not only incorrect but poor public policy. In fact, the renewable energy and energy efficiency programs have some of the highest industry costshares for RD&D within the Department of Energy portfolio. These cost-shared RD&D programs were started within the prior Bush Administration as a way to rebuild these RD&D programs and leverage the research into a more market-based approach. These RD&D programs served as a model for many other DOE RD&D programs. The renewable energy RD&D programs have yielded astounding results with a US-based renewable energy industry having over $5 billion in aggregate global sales of goods and services in 2000 alone, compared to less than $100 million in 1980.

Compared to Fusion RD&D which has spent billions in RD&D and has no commercialization at all during the same time period or Fission RD&D where there have been no sales of nuclear reactors in the US for the last decade—renewable energy and energy efficiency industries have been growing over 25 percent per year over the last seven years.

Civilian energy RD&D is s small part of the Department of Energy portfolio and conventional energy RD&D appears to have the largest interest by DOE senior management, Programs supported by the FY 2002 budget recommendations are skewed towards mature industries, with mature technologies, in mature markets. The federal government has no appropriate role in subsidizing mature technologies in mature markets, especially when federal tax payers provide between $2-$8 billion of tax subsidies for the conventional fossil and nuclear industries. These tax subsidies for conventional energy, which deeply distort the marketplace against emerging technologies, should be enough. If they are not, the generous subsidies should be sharply reduced as soon as possible.

Department of Energy analysis regarding energy trends especially relating to distributed energy is very poor. The energy models have "no" capability to incorporate market decisions based on energy reliability or power quality. The models severely underestimate the use of renewable and distributed energy applications beyond the electric grid and natural gas pipelines. The existing analytical models are unable to ascertain when distributed energy is more cost effective in stabilizing and reducing stress in electricity transmission and distribution systems and natural gas pipelines RATHER than using traditional infrastructure upgrades such as running higher voltage power lines. This lack of analytical capability, which has crossed several Administrations, is skewing decision making within the US Department of Energy and forcing policy conclusions that undervalue the use of distributed energy applications and underestimate market penetration levels that these technologies are capable of.

Similar analytical deficiencies occurred within the computer and telecommunications industries and their government counterparts in assessing the early market potential of personal computers vis-à-vis mainframes and cellular technology vis-à-vis traditional wired telephone systems. Both of these distributed technologies were discounted in the early 1970's as being too costly and of little serious value -- which of course now have been disproven. A similar analogy exists within traditional energy analysis of renewable energy technologies and applications which are primarily distributed generation.

Department of Energy RD&D Program Recommendations and Comments:

Concentrated Solar Power -- The Administration unjustly recommended an 86% cut of this $14 million program based on a faulty report which stated there was no industry, no market and no RD&D benefit -- when in fact the industry has $90 million of private investment just in 2000/2001, has several installation projects underway, and has the potential of providing over 200 megawatts of power in the Southwestern United States alone over the next few years. The federal RD&D budget for this program should be $25 million, to be increased over time, and be cost-shared with state governments primarily in the South to accelerate deployment and continue technology validations to smooth the way for new technologies into the market.

Distributed Energy Generation RD&D and Combined Heat and Power RD&D -- The Administration requested level funding of DEG RD&D and severely cut CHP RD&D. Both programs are essential integrated efficiency and renewable energy technologies and should be increased over time based upon performance. An RD&D focus on interconnection equipment that is more versatile and interactive with breaker boxes and smart electric meters should receive priority as a way to ease interconnection barriers, increase safety, and speed actual interconnection. Combined Heat and Power RD&D has a similar set of issues within the industrial sector and a great emphasis on integrating technologies including heat engines and advanced controls/interconnection which could reap vast and fast results over the next few years. Both programs should be funded at a minimum of $12 million in FY 2002

Fuel Cell RD&D -- The traditional RD&D program has focussed on the fuel cell and greater RD&D emphasis needs to focus on the weakest technological links - both the reformer or modular hydrogen generator to insure greater market acceptance and reliability of this promising technology. Newer fuel cells technologies should also be validated to insure vitality in the marketplace with special attention to linking these technologies with concentrated solar, heat engines and photovoltaics and advanced inverters and controls. The fuel cell effort with the energy efficiency programs should be no less than $50 million per year.

Photovoltaics RD&D -- Two of the three core cost-shared programs within the PV RD&D program were established by the first Bush Administration and have had very successful results. The PV manufacturing Initiative allowed the industry to cost-share with government to overcome technological hurdles in automating manufacturing which has resulted in the building or expansion of over 20 US-based manufacturing facilities over the last five years. TheThin Film Partnership has brought no less than eight new thin film technologies into the marketplace within the last seven years with lower cost, higher efficiency and reliable stability over time. The newest PV RD&D collaborative Building Integrated PV in less than a few years has introduced a multitude of new PV products already demonstrated on buildings from the skyscraper at 4 Times Square (NYC), to commercial PV on foam blocks, to solar PV roofing shingles and stick-on modules for metal-seamed roofs. These cost-shares are proven successes and need continued support with a PV program at $100 million in FY 2002

Solar Buildings RD&D -- The Administration made a grave mistake in its failure to support the new direction within the Solar Building RD&D program called "Zero Energy Buildings". This program which is integrating energy efficiency and renewable energy technologies in ways that national builders can affordably market the portfolio of these technologies is a critical step.

Even in just one year, the Zero Energy RD&D effort has yielded positive results with Shea Homes, Pulte West, and Design Homes with Solar Strategies, Inc, all offering blended products to the consumer. The speed in which the results have been made validate this new RD&D direction and deserves much greater RD&D support at least at $10 million per year for several years. With inclusion of these homes within the National Energy Report, I hope that the Department of Energy will seriously reconsider their earlier recommendations.

Storage RD&D -- The Administration essentially recommended level funding of this $9 million program but greater RD&D emphasis on integrating advanced storage technologies with existing distributed generations systems such as concentrated solar., modular biomass, photovoltaics, fuel cells, heat engines, and advanced controls. The advanced battery RD&D programs are too esoteric and need to be revitalized in a more pragmatic relationship with the emerging industries that will accelerate their use.

Biomass Power RD&D -- The Administration wisely supported level funding of this important RD&D program. The BioPower RD&D program has been too focussed on large-scale technologies where large quantities of biomass need to be brought to the generation facility. These RD&D programs are not supporting economic scenarios and none of them have achieved economic success. Within this RD&D program is the modular biopower RD&D effort which has competitively supported firms to create smaller units that can be brought to the biomass supply, whether it is beyond the fence of a commercial plant, a landfill, or either at sites where agricultural residue, forest thinnings or organic urban waste is collected. These smaller generation facilities which are more agile and flexible in the market place would reduce initial investment costs to the consumer and reduce transportation and tipping costs to the generator - making them inherently more economical. The prior Administration fixated on large biopower plants, whereas this Administration should support a more focussed set of facilities incorporating modularity and utilization of biorefinery technologies (getting many products out of one conversion facility) should be the core RD& program within this budget category.

Conclusion -- Distributed energy generation offers three values to the marketplace and the consumer that has been under appreciated by the traditional RD&D programs. First, these on-site technologies allow consumers to immediately address their own energy concerns - whether its capping high rates or preventing brownouts in their business or home. "Speed" and "choice" are solid attributes. Second, these on-site technologies are inherently cleaner, quieter and less disruptive providing a way for increased consumer support for siting and utilization. Third, these distributed energy technologies can immediately reduce strain on transmission and distribution lines as well as natural gas pipelines, reducing the higher incidences of brownouts, power sags and swells, and high peak rate and fuel costs. This band-aid effect is under-appreciated and under analyzed.

I commend The Administration on its initiative to gather greater public input. It is clear from the public hearings already taken place that the vast majority of presenters supported a greater priority for Renewable Energy and Energy Efficiency RD&D by the US Department of Energy. This support should translate into greater funding levels and greater focus within the Department.