Recommendations for energy innovation: Opportunities for DOE demonstration programs 

Contributing author: Alan Krupnick, Senior Fellow, Resources for the Future

CATF collaborated with external experts to build on previous recommendations shared with DOE in a transparency letter in February 2024. These recommendations focus on actionable steps DOE can take to improve its processes for efficiency, project management, community benefits, community engagement, transparency, program evaluation, and regulations and permitting.

Since passage of the Infrastructure Investment and Jobs Act (IIJA), also known as the Bipartisan Infrastructure Law, the U.S. Department of Energy (DOE) has overseen demonstration programs to bring new energy solutions to market that are critical to meeting growing energy demand and advancing American competitiveness in the global energy market. Demonstration projects – large-scale projects that enable the commercialization of innovative clean energy technologies – offer American businesses an opportunity to attract investment across the supply chain, spurring additional investments and economic benefits. Demonstration projects also lay the groundwork for future American competitiveness, as follow-on projects will be less risky and costly; demonstration projects are a foundation for future private sector investment. These projects will create economic development opportunities in states nationwide. 

DOE’s Office of Clean Energy Demonstrations (OCED) was established in IIJA to implement these demonstration projects. Congress appropriated the new office with ~$27 billion from fiscal year 2022 through 2026 for clean energy demonstration projects for technologies like carbon capture, advanced nuclear, hydrogen, and enhanced geothermal. Working with other offices within DOE, OCED creates an innovation pipeline for projects – many that are first of a kind (FOAK) – to advance from research and development to commercialization. These investments are largely funded through IIJA with a private cost share of at least 50% for individual projects that include a wide range of technology demonstrations. 

The demonstration programs have enormous potential to prove diverse energy technologies, honoring congressional intent without picking technology winners. While DOE has made great progress in carrying out its demonstration programs, the agency should review and improve its existing processes and continue funding ongoing programs and projects to fully achieve their benefits. 

Opportunities 

IIJA implementation is well underway – funding programs have been established, projects have been selected for award negotiations, and money has moved out the door to awarded projects – but there is still work to do to effectively and efficiently deliver demonstration projects from concept to operation. The following recommendations highlight opportunities to improve demonstration programs based on lessons learned over the past three years. 

Efficiency 

DOE should standardize application systems, streamline and standardize application and negotiation processes, and documentation/reporting requirements to the extent possible across offices and funding programs to avoid unexpected roadblocks. For example, different programs and offices vary with respect to when certain information is required from applicants during application and negotiation processes and have different guidance materials for applicants. Some programs also have extensive selection criteria, which makes it difficult to understand how all of the quantitative and qualitative factors will be weighed. One way to improve efficiency in the competitive funding process is to simplify and reduce the size of Funding Opportunity Announcements (FOAs), also known as notice of funding opportunities (NOFOs), which have seen an increase in both size and complexity in recent years. 

Project Management 

DOE needs to maintain and enhance adequate staffing levels to properly and efficiently manage and provide project oversight of selected and awarded projects. As of August 2024, OCED’s staff count was at 250 – 101 positions fewer than the office identified as needing to be fully staffed. According to a recent report by the Government Accountability Office, “DOE’s hiring strategies have focused on near-term needs, so the office may not have the staff it needs to monitor funded projects.” A recent report from C2ES also highlights the need to increase program direction budgets to fund staffing in key DOE offices to ensure the timely and effective management of investments made by Congress. Since the demonstration programs have been stood up and funding has gone out the door, DOE should prioritize their commitment to demonstrating project management oversight excellence either with existing staff or as a consideration when hiring new staff. 

Community Benefits 

Improved communication is needed around the community benefits plan (CBP) process and timeline. Currently, CBPs act more as a framework for what’s to come rather than an actual plan with detailed commitments. CBPs are not legally binding, and it is hard to define the “community” for purposes of the CBP. This can be misleading for project stakeholders and inadequate for ensuring communities truly benefit from demonstration projects. Unfortunately, as the current CBP process also fits within the private negotiation process between applicants and DOE, it leaves many stakeholders left out or altogether unaware of the process. DOE should improve the benefits planning process and separate it from the initial negotiations process to avoid misrepresenting the benefits or prematurely defining what those should be, while increasing transparency for impact communities. Communities could then be free to work with businesses post-award to identify appropriate benefits and a planning process that works best for the community. Community engagement should be part of the CBP process. 

Community Engagement 

Community engagement processes need considerable investment. DOE is not best positioned to lead community engagement processes as it is not directly in the communities and is unable to share project information the same way a business developer could. Instead, DOE should support businesses by identifying community leaders and liaisons on-the-ground to lead engagement efforts and strategies, increase awareness of DOE funding opportunities, and serve as points of contact for DOE to inform of these opportunities. The community engagement process has received considerably less attention as compared to community benefits and requires further attention as many demonstration projects are ready to begin post-award engagement. 

Transparency 

Projects awarded through the various demonstration programs will be long-term and will depend on years of bipartisan support and continued buy-in from a wide range of stakeholders across the country. Data transparency around demonstration projects is critical to achieving these programs’ goals of accelerating market liftoff for the key energy technologies in DOE’s portfolio and builds confidence in these programs by the public. Transparency of process is also critical to achieve these aims, from application to negotiations and subsequent project phases. Transparency also builds market confidence, lowers future risks and costs, and strengthens competition. It is also critical to evaluate the success of demonstration projects through clear reporting. DOE should view transparency as critical to successful demonstration programs, as delivery of demonstrations data should be considered a success metric as it guides future investment decisions for government and businesses alike. 

Program Evaluation  

Future bipartisan, stakeholder and public support will also depend on demonstrations by OCED that their programs are meeting the goals set for them and that they are learning from project and program performance evaluations to improve these programs over time (see these reports from RFF). While the Office of Energy Efficiency and Renewable Energy (EERE) has still-evolving program evaluation protocols in place, OCED, as a new office, does not. To make such evaluations rigorous, applicants for grants, for instance, could be required to make information on their future performance available for evaluation both within the agency and by outside researchers. The Regional Clean Hydrogen Hubs Program already has such requirements, but only of winners, rather than all applicants, a highly desirable feature that enables analysis of success of winners against a baseline. Some agencies are more advanced in their evaluations of programs and their application of the Evidence Act, which calls for such evaluations (e.g., Health and Human Services).  

Regulation and Permitting 

While DOE is not a regulatory agency, federally funded projects must comply with regulatory and permitting requirements. These requirements are often complex and difficult for emerging technologies and businesses to navigate. DOE should make every effort to articulate and simplify permitting processes and timelines necessary for receipt of DOE resources. DOE should also work with other federal agencies to use available best practices available for existing processes (e.g., interagency MOUs, early informal consultations), and with state agencies to establish clear processes for federally funded projects. 

DOE has an opportunity to make improvements that will support existing demonstration projects and establish new ones that support American innovation and economic security. The next several years will be critical to maintain our American competitiveness in emerging technology markets and meet the growing energy demand for a reliable, affordable, and prosperous future. By enacting these recommendations, DOE will be well positioned to support our energy future.