Ellen Lutz CEO, Clean Markets LLC September 28-October 1, 2010

NASEO and ASERTTI jointly sponsored study Purpose: – To provide State Energy Offices with best practices & key success factors in energy technology innovation – To minimize risk in funding innovative R&D – Develop recommendations for State Energy Officials when evaluating higher risk technology innovation projects Status: study undergoing participant review

Literature review of technology innovation Twenty-one in-depth interviews with organizations who have created clean energy technology breakthroughs Data analyzed by stage of development Stage of Development Number of Interviewees Sectors R&D6 projectsUniversities, National Labs Research institutions, Innovation Centers, State Energy Offices, Non- profits, Private companies, other State partners Demonstration5 projects Deployment10 projects

INNOVATION MODELSTRADITIONAL RDD&D MODELS “Ideation” stage precedes start of R&D activity R&D direction generally based upon research to date Intention: to discover completely new ways of addressing problems Intention: to achieve incremental progress in technology performance Requires multidisciplinary teams to act as one Clean lines of separation exist between organizations and their responsibilities Market “pull” – integrates market analysis early in research planning Market “push” – research “pushed” into development with minimal market input Significant overlap between phases – faster prototype and testing Uses “phase gated” approach – stages of RDD&D treated as sequenced efforts

Assemble project & transfer to end user site Activate project at end user site Solicit end user feedback Install O&M processes & procedures Execute manufacturing plans to create economy of scale Work with partnerships Conduct basic and applied research Investigate existing materials Synthesize new materials Model devices & approaches Analyze technologies, market, policies, environmental issues Develop partnerships Develop & deploy working prototypes Monitor & evaluate performance Solicit peer/end user feedback Make adaptations Connect/simulate prototype with networked infrastructure Develop & work with partnerships R&DDEMONSTRATION DEPLOYMENT

Execute: ramp up for commercial success Understand end user behavior and competitive set Determine competitive advantage Create long range forecasts Execute business, marketing & operations plans Continuously assess gaps & evaluate resources & partnerships Create new ideas Review ideas methodically Evaluate market trends and technologies Assess internal capabilities Identify opportunities & focus RD&D Find the right partnerships Transform ideas into business opportunities Mitigate technical & operational risk Transfer & integrate technology Rapid prototyping: Create real world pilots Evaluate past failures and develop lessons learned Develop business plan based upon end user feedback IDEATIONINCUBATION COMMERCIALIZATION

GOALS AND STRATEGY RESOURCES PROCESSES TEAM ENVIRONMENT INNOVATION SUCCESS Environment Economy Project Management Intellectual Property Diversity Experience Commitment Champion Market-Facing Innovation Culture Partnerships Capabilities Funding Technology Advancement

Broad reaching goals: – Solve environmental or economic problems – Improve existing technology performance Focused on: – technology performance – bottlenecks to achieve larger R&D goal Incorporate market performance indicators: – Expedite market adoption – Deploy commercial application R&D DEMONSTRATION DEPLOYMENT

Team Qualities: Experienced, passionate, committed, talented leader and team Diversity: Multidisciplinary; involve R&D, commercialization, end users early Project Champion: Provides long term vision, networking, belief in project’s success Market Expertise: Understanding of market and ability to position in marketplace Culture: Allow time for creativity and innovation

PROJECT MANAGEMENT Provides clear direction & touchstone for evaluation Needs flexibility to adapt to changing conditions Many R&D organizations had rigorous metrics Routine meetings & regular reporting Majority had exit strategy in place INTELLECTUAL PROPERTY Majority had IP process Major concern, especially R&D Private sector funders often require first right of refusal Manufacturers often want exclusive rights at demonstration stage IP rights well defined by private commercialization partners

PARTNERSHIPS One of most critical success factors Most effective & expeditious way to fill gaps Eliminates need to develop from scratch Goal to round out experience & skills of team: often R&D partnered with business acumen or vice versa FUNDING R&D: Multiyear budgets 1-10 years; consistency reduces waste & keeps momentum Demonstration: 1 ½-3 years; $400k- $10.3M Deployment: $3M-$130M over multiple years Some exceptions: – smaller budgets create greater sense urgency – Early success with small budget attracts more resources

Traditional RDD&D process can be adjusted to accommodate faster pace, flexibility & simultaneous development of innovation Best Practice areas involve: Goals, Team Environment, Processes and Resources State Energy Offices are in unique position to be an innovation catalyst within their states & create new categories of manufacturing jobs State Energy Offices can minimize risk of funding innovation by designing selection criteria for projects around best practices identified in this study

Strive for game changers: Identify gaps in the state’s clean energy supply chain and challenge universities and industry to fill those gaps with innovative solutions. Reward good behavior: Develop project selection criteria that rewards innovation best practices and methodologies Require structure: States should require project management plans for high- risk projects, and have protocols in place for managing intellectual property arising from R&D projects. Look for an innovative environment: Look beyond the project to the culture within the project team itself. Encourage external funding. There is still value in soliciting projects that states cannot fund alone, and requiring external partners to contribute the needed cost share.

Ellen Lutz Ellen Lutz President and CEO Clean Markets, LLC