WHY ARPA-E HAS GOT IT WRONG?

For those of you who are not familiar with ARPA-E, it is an acronym that stands for Advanced Research Projects Agency – Energy. It is an agency of the U.S. Department of Energy, and was formed in 2007 by the America COMPETES Act with the intent to emulate the success of its counterpart, DARPA, at the Department of Defense. Its charter is to promote advances in sciences related to energy, translate discoveries and inventions into innovations, and accelerate advances that industry is not likely to undertake.

From its early days, ARPA-E identified energy storage, and in particular battery technologies, as an area of focus and investment. Since 2009, ARPA-E has invested tens of millions of dollars into this research area, of which significant funds went to support research into new battery materials. In 2009, the White House announced that they would make $2.4 Billion in grants available for the development of batteries and power drive components for electric vehicles, installation of charging stations and other programs aimed at advancing the US EV industry.

Several programs benefited from this funding over the past five years. We see far more EVs on the road, especially here in California, than we ever did in the past. It helps immensely that the State of California has offered an additional set of incentives in parallel.

However, the one area that showed little progress if any despite the flow of funds is the promise of new and affordable batteries with longer driving range, in other words, larger capacity. If one were to assess a return on investment by the US government and other US-based entities, private or public, we find that we have little to show for. There are no breakthrough materials on the horizon; there is little if no hope for a meaningful manufacturing base of batteries in the US – contrary to what the White House and ARPA-E would like us to believe; and there is a long list of US-based startup companies developing batteries and battery materials that are struggling against fierce competition from the Asia battery giants such as Samsung and LG Chem in Korea, and ATL, Lishen and several others in China.

Let’s face it, the US cannot be a manufacturing base for batteries. Our cost structure is incompatible with the economic and financial constraints of battery manufacturing. Battery manufacturing requires billions in capital yet has to live on very thin profit margins. So let’s stop investing our tax dollars in funding research in new battery materials so that Asian companies can then use the intellectual property for their own benefit (or purchase it for a dime on the dollar).

Instead, the US should focus its investments on system-level innovation. Tesla purchases batteries from Panasonic. These are similar batteries used in your notebook PC with a cost of about a buck or less each. Not an exciting business. Yet, Tesla integrates these batteries into a more complex system with far better margins – and far more difficult for Asia to copy. Tesla is only one example; the same concept applies to mobile devices, and industrial or grid-level energy storage.