As you review the role of the federal government in energy R&D, I would urge you to recognize the following: • The need for a reasonable transition period as federal budgets are reduced; The need to adhere to a consistent policy across all energy sectors; and · The need to allocate budgets more in proportion to energy use in the U.S. economy across all energy sectors. BASIC RESEARCH The federal govemment must continue to have the primary role and responsibility for funding and managing fundamental, long-term basic research. Society receives large and continuing benefits from fundamental research. However, in today's competitive environment, individual private companies are market driven and, in nearly all instances, cannot capture the economic rent associated with many benefits derived from basic research. Therefore, govemment's role as a primary funder of basic long-term research is both appropriate and essential because private industry will not and cannot fund the level of basic research necessary to achieve national goals and objectives. APPLIED ENERGY R&D Both govemment and industry have a joint responsibility to plan, conduct, and fund applied R&D to meet national energy goals. Industry should be brought in early to assist in the planning, financing, and management of the applied research. The partnership of private industry in federally sponsored R&D accomplishes several goals: If the federal research is aimed at top industry priorities, industry will provide cofunding. If industry is not willing to support research after three years, govemment should question its own role in the research, as the research may not address industry priorities. • Industry will bring rigorous cost\benefit analysis to prioritize R&D. Once industry buys into the research and participates financially and managerially, the commercialization path will be shorter because industry must get benefits from the research to survive. · When the project is ready for commercialization, industry is already on board and has a significant stake in ensuring the technology reaches the marketplace, thus ensuring success from govemment and industry investments. · Finally, duplication of research is eliminated. Congress needs to recognize the role of industry cofunding in applied energy R&D and should give a priority to those DOE gas research programs that are jointly funded with industry. REDUCTIONS IN FEDERAL R&D GRI appreciates the need to reduce government spending and knows that DOE R&D will not be exempt from spending cuts. However, there are several factors which are worthy of consideration when determining which projects to cut or eliminate: • Gas-related research in DOE is underfunded compared with other energy options. A phasing out of projects rather than an immediate termination is recommended to give industry and DOE an opportunity to finish projects which are on a near-term completion track. A coordinated phase down of projects cofunded with industry would give industry partners time to adjust their own budgets and reorder priorities; without adequate time to adjust,' industry cannot fund even all of the highest priority projects which could be terminated by Congress. · If Congress expects industry to conduct more of the energy R&D for this nation, then some kind of incentive needs to be given, especially to the regulated energy industries, to make increased private sector R&D a reality. R&E TAX CREDIT Last summer the research and experimentation (R&E) tax credit expired and is currently under consideration for extension. Those organizations that participate in collaborative research have found this tax credit as previously structured to be a disincentive. While there was no known intention to create this disincentive for collaborative research, over time it has become obvious that one exists. GRI, along with other not-for-profit R&D organizations, has been looking for ways to eliminate this disincentive and create incentives for collaborative research. This is sound policy at a time when shrinking research dollars in both government and private industry are a reality. Collaborative research is more efficient in terms of both dollars and time spent. We think the disincentives can be corrected by extending and modifying the R&E tax credit to: Recognize members' research funding contributions to 501(c)(3) collaborative research organizations as qualifying for the tax credit; Redefine "qualified research" to encompass the IRS definition of qualified research for a 501(c)(3) organization; Allow 100 percent (vs. 65 percent in the expired legislation) of qualified research expenditures for collaborative research; and · Provide a 20 percent tax credit for company contributions to collaborative research conducted by 501(c)(3) organizations. RECOMMENDATIONS GRI encourages the Subcommittee to look closely at all the Fossil Energy and Energy Efficiency program budgets to determine where the greatest impacts can be made. Currently gas-related R&D is underfunded in DOE's overall budget when you consider that natural gas provided over 25 percent of U.S. energy in 1995. Those gas-related projects which are cofunded with industry and near completion should be funded in order to capture the benefits of time and money already invested by both the federal govemment and private industry. Critical goals can be reached by continuing through logical conclusion the cofunded programs in natural gas supply, industrial-size gas turbines, fuel cells, natural gas cooling and desiccants, and cofunded industrial efficiency projects. Almost all of these cofunded projects are targeted for completion within the next four years. A gradual phase-down in the number of projects can be accomplished wisely and logically if there is a dialogue between industry and government. We at GRI are willing to work with both Congress and the Department of Energy to accomplish the goals of government and industry. SUMMARY We encourage Members of this Subcommittee to explore ways to work with industry to define what research is important; to determine how we can work together to ensure this nation's important R&D is accomplished; to identify ways in which future research can be encouraged; and to support the refinement of the current R&E tax credit to eliminate the disincentives for collaborative research. GRI thanks the Subcommittee for its invitation to testify. THURSDAY, MARCH 7, 1996. DOE WITNESS GARY A. STYLES, MANAGER OF SPECIAL PROJECTS, SOUTHERN CO. SERVICES, INC. Mr. REGULA. Southern Companies Services, Mr. Styles. Thank you for coming. Mr. STYLES. Thank you, Mr. Chairman, for giving me this opportunity to tell you about the Wilsonville Power Systems Development Facility. I would also like to thank this committee for its previous support for this national research facility. It is very important that our Nation maintain coal as an option to meet the Nation's long-term energy needs. The purpose of the Wilsonville Power Systems Development Facility is to perform research that will improve coal based electric power generating technologies that are cleaner, that are more efficient-approximately 25 percent more efficient than existing pulverized coal plants-and lower in cost than currently available technologies. The Southern Company and our industrial partners are investing over $30 million into this facility to help keep coal a competitive fuel. Without continued Federal support, however, this facility will not be completed. Mr. REGULA. Does this one deal with the emissions or with the efficiency in burning or both? Mr. STYLES. It is both. It is an integrated facility that includes the gasification or combustion of coal, the clean up of the gas that is produced, and then the combustion of that in a combustion turbine or in a fuel cell. Mr. REGULA. So it's designed to make coal attractive, environmentally as well as cost wise for power production, is that correct? Mr. STYLES. That is correct. We have to reduce the capital cost of coal fire technologies to compete. Mr. REGULA. Other than the Federal money, is this financed with money from the utility industry as well as perhaps the coal industry? Mr. STYLES. Currently, there is not any significant coal money Mr. REGULA. Of course the utilities own a lot of coal production for that matter. Mr. STYLES. Right, but this is coming predominantly from the Southern Company and Foster Wheeler, MW Kellogg, Westinghouse and other industrial Mr. REGULA. The Southern Company, is it an electricity producer? Mr. STYLES. Yes, sir. They are the largest investor owned utility in the Nation. Mr. REGULA. What's the percentage of their electricity produced from coal? Mr. STYLES. Approximately 75 percent. Mr. REGULA. So that's the real mission that they need if they keep that cost down by making coal an efficient fuel of choice. Mr. STYLES Right, particularly for future power plants. Mr. REGULA. Right. Mr. STYLES. The facility, as I mentioned, will include modules for coal gasification, pressurized combustion, hot gas clean up, combustion turbines, and fuel cells. It is an integrated facility that can develop system data as well as individual component data. The construction of two modules is almost complete, and they will start up about the middle of this year. The construction of the remaining modules should be completed in 1997. Southern Company Services request that this committee support continued construction and operation of the power system development facility by appropriating approximately $25.3 million for this important national facility in the Fiscal Year 1997 budget. Thank you very much. Mr. REGULA. This is not the clean coal program; this is more in the combustion mode? Mr. STYLES. It is a research and development system. It's only about 15 megawatts in size. Mr. REGULA. How many States do you service? Mr. STYLES. We serve currently four States in the Southeast. Mr. STYLES. That's right. Mr. REGULA. Okay, thank you very much. [The statement of Mr. Styles follows:] |