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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

January 2012: 

Department of Energy: 

Advanced Research Projects Agency-Energy Could Benefit from 
Information on Applicants' Prior Funding: 

GAO-12-112: 

GAO Highlights: 

Highlights of GAO-12-112, a report to congressional requesters. 

Why GAO Did This Study: 

The Department of Energy’s (DOE) Advanced Research Projects Agency-
Energy's (ARPA-E) purpose is to overcome long-term and high-risk 
technological barriers in the development of energy technologies. 
Since 2009, ARPA-E has awarded $521.7 million to universities, public 
and private companies, and national laboratories to fund energy 
research projects. 

GAO was asked to examine (1) ARPA-E’s use of criteria and other 
considerations for making awards and the extent to which applicants 
identify and explain other private funding information, (2) the extent 
to which ARPA-E-type projects could have been funded through the 
private sector, and (3) the extent to which ARPA-E coordinates with 
other DOE program offices to avoid duplicating efforts. GAO 
interviewed ARPA-E program directors, award winners, and nonwinners 
with characteristics similar to those of award winners. GAO also 
analyzed private venture capital funding data and spoke with venture 
capital firms. 

What GAO Found: 

ARPA-E uses four selection criteria, such as the potential impact of 
the proposed technology relative to the state of the art, and other 
considerations in awarding funds. Other considerations include 
balancing a variety of technology approaches and the likelihood the 
technology would be brought to market. GAO identified 18 out of 121 
award winners through ARPA-E’s first three funding rounds that had 
received some prior private sector investment, and ARPA-E took steps 
to identify and understand how this funding was related to proposed 
projects. Beginning with the third funding round, ARPA-E began 
requiring that applicants explain why private investors were not 
willing to fund proposed projects. However, ARPA-E did not provide 
applicants with guidance, such as a sample response, to assist them in 
completing this requirement, and responses were generally limited. 
Some applicants provided general information about prior research but 
did not specifically explain why private investors would not support 
their projects. When applicants provided little prior funding 
information, ARPA-E’s program directors spent time and resources to 
determine the extent of such funding for proposed ARPA-E projects. One 
applicant included a letter from its venture capital investor to 
explain why the investor was not willing to fund the work proposed to 
ARPA-E, an approach the National Institute of Standards and Technology 
uses as a check in its funding applications for advanced research but 
that ARPA-E currently does not use. Also, ARPA-E officials said that 
they have considered but have not used venture capital data to 
identify applicants with prior private investors. Examining such data 
allowed GAO to quickly cross-check applicants’ prior private funding. 

GAO’s review suggests that most ARPA-E projects could not have been 
funded solely by private investors. Private venture capital firms told 
GAO that, among other considerations, they generally do not fund 
projects that rely on unproven technologies and tend to invest in 
projects that can be commercialized in less than 3 years. Data from 
ARPA-E on award winners show that 91 out of 121 ARPA-E projects from 
the first three funding rounds had technological concepts that had not 
yet been proven in a laboratory setting. Also, nearly all of the ARPA-
E award winners and applicants GAO spoke with estimated that their 
projects were at least 3 years away from potential commercialization. 
In addition, GAO found that few eligible applicants that were not 
selected for an award later secured private funding. 

ARPA-E officials have taken steps to coordinate with other DOE offices 
to avoid duplication. For example, ARPA-E program directors told GAO 
they engage in outreach with officials from related DOE offices in 
advance of funding announcements to identify funding gaps in research. 
In addition, program directors have recruited officials from other DOE 
offices and the Department of Defense (DOD) to review ARPA-E 
applications. This cross-agency interaction may also reduce the 
potential for overlap in funding. 

What GAO Recommends: 

GAO recommends that ARPA-E consider providing applicants guidance with 
a sample response explaining prior sources of funding, requiring 
applicants to provide letters from investors explaining why they are 
not willing to fund proposed projects, and using third-party venture 
capital data to identify applicants' prior funding. ARPA-E commented 
on a draft of this report and concurred with key findings and 
recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-12-112] or key 
components. For more information, contact Frank Rusco at (202) 512-
3841 or ruscof@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

In Addition to Its Selection Criteria, ARPA-E Also Considers 
Applicants' Prior Sources of Private Funding; However, Most Award 
Winners We Reviewed Did Not Explain This Information: 

Most ARPA-E Projects Likely Could Not Have Been Funded Solely by 
Private Investors: 

ARPA-E Officials Have Taken Steps to Coordinate with Other Department 
of Energy Offices in Advance of Awarding Funds: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: ARPA-E Program Technology Areas: 

Appendix III: Description of ARPA-E Award Winners with Prior Private 
Investment: 

Appendix IV: Comments from ARPA-E: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1: ARPA-E Funding Announcement Program Technology Areas: 

Figures: 

Figure 1: ARPA-E's Described Role within DOE and the Private Sector: 

Figure 2: Current Battery Range for Electric Vehicles and Goals of 
ARPA-E Research: 

Abbreviations: 

ADEPT: Agile Delivery of Electrical Power Technology: 

America COMPETES Act: America Creating Opportunities to Meaningfully 
Promote Excellence in Technology, Education, and Science Act: 

ARPA-E: Advanced Research Projects Agency-Energy: 

BEEST: Batteries for Electrical Energy Storage in Transportation: 

BEETIT: Building Energy Efficiency Through Innovative Thermodevices: 

DARPA: Defense Advanced Research Projects Agency: 

DOD: Department of Defense: 

DOE: Department of Energy: 

EERE: Office of Energy Efficiency and Renewable Energy: 

GENI: Green Electricity Network Integration: 

GRIDS: Grid-Scale Rampable Intermittent Dispatchable Storage: 

HEATS: High Energy Advanced Thermal Storage: 

HVAC: heating, ventilating, and air conditioning: 

IMPACCT: Innovative Materials and Processes for Advanced Carbon 
Capture Technologies: 

NIST: National Institute of Standards and Technology: 

NVCA: National Venture Capital Association: 

PASTA: Panel of Senior Technical Advisors: 

PETRO: Plants Engineered To Replace Oil: 

REACT: Rare Earth Alternatives in Critical Technologies for Energy: 

PHEV: plug-in hybrid electric vehicle: 

SBIR: Small Business Innovation Research: 

TRL: technology readiness level: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

January 13, 2012: 

The Honorable Ralph M. Hall: 
Chairman: 
Committee on Science, Space, and Technology: 
House of Representatives: 

The Honorable Paul Broun, M.D. 
Chairman: 
Subcommittee on Investigations and Oversight: 
Committee on Science, Space, and Technology: 
House of Representatives: 

U.S. energy consumption has increased by 20 percent over the past 20 
years and is projected to continue to grow.[Footnote 1] Volatile 
prices, global supply disruptions, and the impacts of energy use on 
climate and the environment have driven interest in reducing energy 
demand, improving energy efficiency, and expanding supplies with both 
renewable and traditional energy sources. In 2005, members of Congress 
asked the National Academies what actions federal policymakers could 
take to enhance the nation’s science and technology enterprise so that 
the United States could successfully compete, prosper, and be secure 
in the global community of the 21st century.[Footnote 2] The National 
Academies compiled their findings and recommendations in a report that 
identified two key challenges: (1) creating high-quality jobs for 
Americans, and (2) responding to the nation’s need for clean, 
affordable, and reliable energy.[Footnote 3] The report also 
highlighted the idea that scientific and technical innovations are key 
drivers of economic growth in the United States. Among the report’s 
recommendations was the creation of an organization within DOE to 
sponsor energy research that industry by itself cannot or will not 
support and in which risk may be high but success would provide 
dramatic benefits for the nation in meeting long-term energy 
challenges. 

In 2007, the America Creating Opportunities to Meaningfully Promote 
Excellence in Technology, Education, and Science Act (America 
COMPETES) established the Advanced Research Projects Agency-Energy 
(ARPA-E) within the Department of Energy (DOE) to overcome the long-
term and high-risk technological barriers in the development of energy 
technologies.[Footnote 4] ARPA-E borrows from the Defense Advanced 
Research Projects Agency (DARPA) model, an agency created within the 
Department of Defense (DOD) in 1958 to direct and perform advanced 
research and development projects. As specified in statute, ARPA-E’s 
program goals are to enhance U.S. economic and energy security through 
the development of certain energy technologies and to ensure that the 
United States maintains a technological lead in developing and 
deploying advanced energy technologies. 

Since first receiving an appropriation in 2009 in the American 
Recovery and Reinvestment Act of 2009, ARPA-E has awarded $521.7 
million to universities, public and private companies, and national 
laboratories to fund 181 projects that attempt to make 
transformational-—rather than incremental––advances to a variety of 
energy technologies, including high-energy batteries and renewable 
fuels.[Footnote 5] Award winners must meet cost share requirements, 
through either in-kind contributions or outside funding sources. 
[Footnote 6] 

ARPA-E is required by statute to achieve its goals through energy 
technology projects that, among other things, accelerate 
transformational technological advances in areas that industry by 
itself is not likely to undertake because of technical and financial 
uncertainty. At the same time, the Director of ARPA-E is required to 
ensure, to the maximum extent practicable, that ARPA-E’s activities 
are coordinated with, and do not duplicate the efforts of, programs 
and laboratories within DOE and other relevant research agencies. This 
report responds to your request that we examine ARPA-E awards. Our 
objectives were to examine (1) ARPA-E’s use of criteria and other 
considerations for making awards, and the extent to which applicants 
identify and explain other private funding information; (2) the extent 
to which ARPA-E-type projects could have been funded through the 
private sector; and (3) the extent to which ARPA-E coordinates with 
other DOE program offices to avoid duplicating efforts. 

To address these three objectives, we reviewed ARPA-E applications and 
conducted interviews with applicants, award winners, representatives 
of venture capital firms and other experts, and DOE and other federal 
agency officials. ARPA-E has released a total of four funding 
announcements—meaning the agency was accepting project proposals for a 
set period of time—in April 2009, December 2009, March 2010, and April 
2011. Our review focused on ARPA-E’s first three funding rounds, which 
had closed prior to the start of our review. The fourth funding round 
did not close until September 2011.[Footnote 7] ARPA-E awarded funds 
for 121 projects out of 4,788 applicants across the three funding 
rounds we examined. To address these three objectives, we reviewed 
ARPA-E applications and conducted interviews with applicants, award 
winners, DOE officials, and representatives of venture capital firms, 
among other activities. Specifically, 

* To examine ARPA-E's use of criteria and other considerations for 
making awards, we selected a nonprobability sample of 20 applications 
from the 4,788 applications in the first three funding rounds and 
reviewed these 20 applications. To examine the extent to which 
applicants identify and explain other private funding information, we 
searched for evidence of prior private funding for all 121 award 
winners in VentureDeal, a venture capital database.[Footnote 8] As a 
result of our search, we identified 18 award winners that had some 
prior private venture capital funding from the 121 award winners. We 
then reviewed the applications of these 18 award winners and 
interviewed their representatives.[Footnote 9] 

* To analyze the extent to which ARPA-E projects could have been 
funded through the private sector, we analyzed data on the state of 
technology and potential time to commercialization for the 121 award 
winners from ARPA-E's first three funding rounds. In addition to 
analyzing data for the 121 award winners, we conducted structured 
interviews with 22 of 33 "contingently selected" applicants chosen by 
ARPA-E during its second and third funding rounds. Contingently 
selected applicants are those applicants that met ARPA-E's selection 
criteria but were ultimately not awarded funds.[Footnote 10] We also 
conducted structured interviews with a nonprobability sample of 13 
award winners selected from ARPA-E's first three funding rounds and we 
spoke with the 18 ARPA-E award winners mentioned above that we 
identified through the VentureDeal database to discuss key differences 
between their prior research and their ARPA-E-funded projects. 
[Footnote 11] We also conducted interviews with a variety of companies 
and individuals knowledgeable about research associated with ARPA-E-
type projects, including six venture capital firms. 

* To examine the extent to which ARPA-E coordinates with other DOE 
programs to avoid duplicating efforts, we spoke with the ARPA-E 
program directors as well as officials from other DOE program offices, 
DARPA, and the DOE Office of Inspector General. We also asked award 
winners and contingently selected applicants to discuss their 
understanding of other potential sources of DOE funding for their 
projects. 

We provide a more in-depth discussion of our methods in appendix I. 

We conducted this performance audit from November 2010 to December 
2011 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Background: 

In 2005, the National Academies recommended to Congress the creation 
of an organization within DOE like DARPA. In 2007, the America 
COMPETES Act created a new agency within DOE called ARPA-E. In line 
with the National Academies' recommendation, the America COMPETES Act 
as amended directs ARPA-E to achieve its goals by identifying and 
promoting revolutionary advances in fundamental and applied sciences, 
translating scientific discoveries and cutting-edge inventions into 
technological innovations, and accelerating transformational 
technological advances in areas that industry by itself is not likely 
to undertake because of technical and financial uncertainty. As such, 
ARPA-E officials told us that ARPA-E was designed to sponsor research 
beyond basic science, yet riskier than what the private sector alone 
or DOE's applied offices would support.[Footnote 12] (See figure 1.) 
The National Academies recommended that ARPA-E should not perform 
research and development itself, but should fund it to be conducted by 
universities and others in the private sector. In 2009, the American 
Recovery and Reinvestment Act of 2009 appropriated $400 million for 
ARPA-E. 

Figure 1: ARPA-E's Described Role within DOE and the Private Sector: 

[Refer to PDF for image: illustration] 

The illustration depicts a matrix as follows: 

Vertical axis: Risk, from low to high; 
Horizontal axis: Technology readiness levels: 
Basic science research; 
Feasibility research; 
Technology research; 
Technology demonstration; 
Small-scale deployment; 
Large-scale deployment. 

Depicted are: 

Office of Science; 
ARPA-E; 
Venture capital and small business (oval box); 
Applied offices (e.g., Office of Energy Efficiency and Renewable 
Energy); 
Private equity/capital and large corporations (oval box); 
Loan Programs Office. 
Source: ARPA-E and GAO. 

Note: Private sector groups are in oval boxes and DOE offices are in 
rectangular boxes. According to ARPA-E officials, higher-risk research 
is less likely to be successful in being brought to market but may 
have greater potential benefits in increasing energy supplies and 
creating jobs. Technology readiness levels are used by DOE to 
categorize research according to its proximity to basic science or 
large-scale deployment. 

[End of figure] 

ARPA-E is an agency with fewer than 30 federal employees, and its 
eight program directors, who are generally scientists and engineers, 
create and manage funding programs for the agency. ARPA-E's program 
development and award selection process takes 6 to 8 months from start 
to finish, beginning when the agency hires a program director for a 3-
year term and tasks the program director with identifying a gap in 
energy technology research and developing a program to fill that gap. 
For example, ARPA-E's batteries for transportation program, called the 
Batteries for Electrical Energy Storage in Transportation (BEEST) 
program, was established to fill a gap in existing federal research 
programs on batteries for electric vehicles. Identifying these gaps 
and designing the program involves research; consultation with 
scientific experts, including a workshop with outside experts; and 
internal discussion at ARPA-E. From this process, program directors 
develop funding announcements that describe the technical requirements 
specific to each program's technology area that applicants: 

have to meet and the four criteria that ARPA-E uses in its selection 
process.[Footnote 13] The four criteria are the: 

* Impact of the proposed technology relative to the state of the art. 
The applicant must demonstrate the potential for a transformational--
not incremental--advancement over current technologies. (See figure 
2.) More specifically, the applicant must demonstrate an awareness of 
competing commercial and emerging technologies and identify how its 
proposed concept/technology provides significant improvement over 
these other solutions. 

* Overall scientific and technical merit. The applicant must 
demonstrate that the work is unique and innovative. The applicant must 
also demonstrate a sound technical approach to accomplish the proposed 
research and development objectives. The outcome and deliverables of 
the program, if successful, should be clearly defined. Specific 
technical requirements that are unique to each individual ARPA-E 
program funding announcement must also be addressed. 

* Qualifications, experience, and capabilities. The applicant must 
demonstrate that it has the expertise and experience to accomplish the 
proposed project. In addition, the applicant must have access to all 
facilities required to accomplish the research and development effort. 

* Sound management plan. The applicant must have a workable plan to 
manage people and resources. Major technical research and development 
risks should be identified. The schedule and budget should be 
reasonable. 

Figure 2: Current Battery Range for Electric Vehicles and Goals of 
ARPA-E Research: 

[Refer to PDF for image: illustration] 

Current battery technology: 20-to-100 mile electric motor range. 

Next generation batteries: 1600-to-190 mile electric motor range. 

ARPA-E's battery technology goals: 300-to-500 mile electric motor 
range. 

Source: GAO. 

[End of figure] 

ARPA-E employs the following three-stage application process: 

* Concept paper. Applicants initially submit a 5-to 7-page abstract of 
their projects. Scientific experts from industry, government, and 
academia serve as reviewers. 

* Full application. After reviews of the concept paper, ARPA-E 
encourages some applicants to submit full applications using ARPA-E's 
online application system. ARPA-E's current instructions request that 
applicants provide, among other things, information about other prior, 
current, and pending public and private sources of funding, as well as 
why other funding sources are not willing to fund the projects. Full 
applications are then reviewed by leading scientific experts in the 
field, who evaluate them against the four criteria and assign 
numerical scores. 

* Reply to reviewer comments. After assessing the full applications, 
reviewers provide comments and questions to the applicants, who then 
have the opportunity to respond. 

The applications with the reviewers' comments are forwarded to a three-
person panel beginning the next three phases of ARPA-E's award funding 
process, which are as follows: 

* Selection. The three-person panel, usually chaired by the relevant 
program director, considers the reviewers' comments and numerical 
scores, and recommends applications to award. The final decisions on 
which applicants to select are made by the selecting official, which 
is usually the ARPA-E Director. 

* Award negotiations. Negotiations proceed for approximately 2 months. 
Program directors work closely with the award winners to set up a 
project plan with technical milestones that are to be met during the 
funding of the award, which are planned to last between 2 and 3 years. 
Funds are awarded following the negotiations. 

* Monitoring. ARPA-E monitors and supports the project through 
quarterly reviews and site visits. After about 1 year, the agency 
decides whether to continue or terminate the project if the agreed-to 
milestones are not met. 

In April 2009, ARPA-E started its funding award process by releasing a 
funding announcement soliciting proposals for all energy ideas and 
technologies. Following the review process, 36 projects were awarded 
funds after being selected from 3,700 applications that spanned the 
technology areas of 10 programs. ARPA-E released additional funding 
announcements in December 2009, March 2010, and April 2011. (See table 
1.) Money appropriated by the American Recovery and Reinvestment Act 
of 2009 funded ARPA-E's first three funding rounds. After receiving an 
appropriation in DOE's fiscal year 2011 appropriations act, ARPA-E 
announced a fourth round of funding in April 2011. 

Table 1: ARPA-E Funding Announcement Program Technology Areas: 

(Dollars in millions). 

Funding announcement 1: April 2009; 
Program (number of projects): 
Biomass energy (5); 
Building efficiency (3); 
Carbon capture (5); 
Conventional energy (1); 
Direct solar fuels (4); 
Energy storage (6); 
Energy-efficient water purification (1); 
Renewable power (4); 
Vehicle technologies (5); 
Waste heat capture (2); 
Total funding: $150 million. 

Funding announcement 2: December 2009; 
Program (number of projects): 
Batteries for transportation (10); 
Materials for carbon capture (15); 
Electrofuels (13); 
Total funding: $113 million. 

Funding announcement 3: March 2010; 
Program (number of projects): 
Grid-scale electricity storage (12); 
Building efficiency (16); 
Electrical power electronics (14); 
Total funding: $94 million. 

Funding announcement 4: April 2011; 
Program (number of projects): 
Advanced thermal storage (15); 
Electricity network integration (14); 
Plants engineered to replace oil (10); 
Rare earth alternatives for energy technologies (14); 
Solar electrical power technology (7); 
Total funding: $156 million. 

Source: GAO analysis of ARPA-E data. 

Note: The table shows 116 total projects funded by ARPA-E in its first 
three funding rounds. In August and September 2010, ARPA-E selected 5 
additional projects for funding, raising total funded projects over 
these three rounds to 121. These 5 projects were in the following 
program technology areas: building efficiency, vehicle technologies, 
renewable power, and energy storage. Funds awarded across the four 
funding rounds totaled $521.7 million. For further details on ARPA-E's 
program technology areas, see appendix II. 

[End of table] 

In Addition to Its Selection Criteria, ARPA-E Also Considers 
Applicants' Prior Sources of Private Funding; However, Most Award 
Winners We Reviewed Did Not Explain This Information: 

In addition to applying its four criteria, ARPA-E gives program 
directors discretion to use additional considerations to award funds 
to projects, including whether ARPA-E applicants received private 
funding. Most ARPA-E award winners did not receive prior private 
funding, but for those that did, most award winners we reviewed did 
not explain these funds. 

ARPA-E Program Directors Use the Agency's Four Selection Criteria and 
Other Considerations to Select Projects: 

Of the 20 applications we reviewed for award selection criteria, all 
contained supporting information addressing the agency's four 
criteria. In our analysis of the ARPA-E reviewers' evaluations from 
these 20 applications, we noted regular assignment of numerical scores 
rating applicants on the extent to which they met the criteria. All 
eight ARPA-E program directors told us they considered or, if they 
were recently hired, will consider all four criteria, but several 
focused more heavily on two criteria--the impact of the proposed 
technology relative to the state of the art and its overall scientific 
and technical merit. 

In addition to basing the numerical scores applicants receive on the 
extent to which they meet the four selection criteria, program 
directors told us the agency gives them the ability to take other 
qualitative considerations into account when awarding funds. One of 
those considerations is to fund a broad range of potential 
technological solutions with varying levels of risk in solving a given 
technical problem. Two program directors selected projects to reflect 
a variety of technologies, and they told us they believe that this 
approach increases their programs' overall chances of success. 
Specifically, one program director told us he chose projects that 
employed a variety of new battery technologies, a strategy that should 
increase the likelihood that at least one of them will work. This 
program director also chose some battery projects with much higher 
potential storage capacity but with a lower probability of success in 
achieving project milestones and in ultimately being brought to 
market. In those cases, ARPA-E provided smaller awards to the projects 
with the lower probability of success.[Footnote 14] 

Several program directors also told us that during the selection 
process, they considered the applicants' projects' proposed project 
scope and duration, requested funding levels, and technical milestones 
and negotiated to revise these, if necessary, to better align 
applicants' projects with ARPA-E's program goals. According to our 
review of ARPA-E data from the first three rounds of funding, the 
agency reduced requested award amounts by 5 percent or more on 31 out 
of 121 projects, for a total of $59 million below total requested 
award amounts for these rounds. When ARPA-E makes these kinds of 
adjustments, the agency may also reduce the proposed project scope to 
fund only what the program directors consider to be the 
transformational part of the project and to avoid funding applied 
research or development work that would be outside ARPA-E's program 
goals. For example, the agency reduced the award amount and proposed 
project scope for an energy storage technology project designed to 
improve energy storage on the electrical grid. The project proposal 
initially requested nearly $5 million to demonstrate the technology at 
nearly full scale. During award negotiations, ARPA-E reduced this 
amount to $750,000 to focus the project only on smaller-scale 
development and testing of the technology. ARPA-E officials told us 
the larger-scale demonstration could likely be funded by the private 
sector.[Footnote 15] 

ARPA-E Also Considers Applicants' Prior Sources of Private Funding, 
but Most Award Winners We Reviewed Did Not Explain This Information: 

When making award decisions or adjusting the scope of proposed 
projects, ARPA-E program directors may also consider the 
identification in applications of sources of private funding and the 
extent to which that funding might support the proposed projects. This 
information can help provide program directors with assurance that 
ARPA-E funds do not overlap with private investment. During the first 
two funding rounds, ARPA-E required that applicants identify relevant 
private investors if the applicant believed these funds were related 
to the proposed project. Of the 18 applications we reviewed from award 
winners that we identified as having received private venture capital, 
14 applied during ARPA-E's first and second funding rounds. Most of 
these award winners did not explain why investors were not willing to 
fund proposed work. ARPA-E program directors and an ARPA-E official, 
speaking on behalf of the agency, told us they took additional steps 
to clarify outstanding prior funding questions when ARPA-E was aware 
that applicants had received private sector funding. For example, one 
applicant we reviewed from the first funding round had previously 
received substantial private funding for work that appeared very 
similar to its proposed ARPA-E project. ARPA-E officials told us they 
were initially unable to determine why the private investor was not 
willing to also fund the proposed ARPA-E project and that the 
company's application did not include an explanation. ARPA-E officials 
told us that getting this information required them to draft a series 
of direct and detailed questions that elicited several pages of 
written responses from the applicant. ARPA-E officials also told us 
they conducted multiple rounds of written and oral follow-up with the 
applicant and the private investor. Through these efforts, ARPA-E 
determined that the technological risks of key parts of the project 
were too high for the private investor and therefore decided to fund 
the research.[Footnote 16] 

Because ARPA-E officials recognized the need for applicants to provide 
better prior funding explanations, beginning with its third funding 
announcement, the agency required applicants to explain why proposed 
work was not sponsored internally if the applicant was a large 
company, or why private investors were not willing to support the 
project if the applicant was a small business or start-up company. 
ARPA-E did not provide guidance on how applicants should respond to 
this additional requirement by, for example, providing a sample 
response. Of the 18 ARPA-E award-winning companies, 4 applied during 
the third funding round, and these companies provided a range of 
information in response to this new requirement in their funding 
applications. Two explained how ARPA-E funds would allow them to go 
beyond currently funded work but did not provide reasons why investors 
were not willing to support the proposed work. Another wrote only that 
the ARPA-E research was too risky for the company's private investors. 
One application contained an explanation outlining the specific 
research its private investors were and were not willing to fund. This 
applicant explained that private funds were directed toward lower-risk 
and higher-cost technologies.[Footnote 17] This application also 
included a letter from the company's venture capital investors that 
explained which parts of its research the investors were planning to 
continue funding and which research was too risky for them, although 
not requested by ARPA-E. This letter provided additional third-party 
support for the funding information in the application. Officials from 
the National Institute of Standards and Technology's (NIST) Technology 
Innovation Program told us they request that applicants provide 
letters from private investors to document why applicants' projects 
could not be privately funded.[Footnote 18] 

When we followed up with the 18 companies, they were generally able to 
explain to us why their private investors were not willing to 
undertake the additional risk and uncertainty associated with the 
proposed projects.[Footnote 19] When we examined the data in the 
VentureDeal database for a number of applicants, the data allowed us 
to quickly cross-check the names of prior private investors that 
applicants reported to ARPA-E. ARPA-E officials said that they have 
not used such data for these purposes but that they have considered 
doing so. Without an examination of outside venture capital data on 
its applicants, the agency may be missing a time-saving opportunity to 
check information on private funding provided in applications, 
especially in instances where applicants may not have been thorough in 
their explanations. We found a number of readily available 
subscription-based venture capital data services that provided company 
names, transaction amounts, and funding purposes. We found that the 
web-based VentureDeal database matched formats and data available from 
other venture capital data services. 

Most ARPA-E Projects Likely Could Not Have Been Funded Solely by 
Private Investors: 

Our review suggests that most ARPA-E-type projects could not be funded 
solely by private investors. Private venture capital firms told us 
that, among other considerations, they generally do not invest in 
projects that cannot be commercialized in less than 3 years. Nearly 
all of the 13 ARPA-E award winners and most of the 22 of the 
contingently selected applicants we spoke with estimated that their 
projects were 3 or more years away from a potential market-ready 
product (i.e., commercialization). In addition, we found that only 2 
of the 22 contingently selected applicants we spoke with that met ARPA-
E's selection criteria but were not selected for an award subsequently 
secured private funding. 

Venture Capitalists Generally Do Not Fund Projects That ARPA-E Looks 
to Fund: 

The representatives we spoke with from six venture capital firms 
identified three factors that limit the general availability of 
venture capital funding for new energy technologies. These factors 
were consistent with data we analyzed for the 121 award winners from 
ARPA-E's first three funding rounds, the sample of 13 award winners we 
interviewed from these funding rounds, and the 22 contingently 
selected applicants we interviewed. 

First, venture capital firms generally do not fund projects that rely 
on unproven technological concepts or lack working prototypes 
demonstrating the technology. A number of venture capital firm 
representatives told us that they are generally not willing to fund 
the applied scientific research sometimes required by ARPA-E-type 
projects. Projects they fund generally focus on developing 
technologies based on known scientific principles. Data from ARPA-E on 
award winners show that 91 out of 121 ARPA-E projects from the first 
three funding rounds had technological concepts that had not yet been 
demonstrated in a laboratory setting.[Footnote 20] According to a 
recent report from the American Energy Innovation Council, private 
investors consider these projects too high risk for investment, even 
for concepts with promising technological potential.[Footnote 21] Most 
of the contingently selected applicants we spoke with--17 out of the 
22--told us they were unlikely to receive funding from other sources 
for their proposed projects because of high levels of scientific 
uncertainty, an unavailable or undeveloped market, or a lack of a 
working prototype. For example, one such applicant said that he only 
had a computer model suggesting that his high-efficiency air 
conditioning device would work, which was insufficient to convince 
potential private investors. In addition, many of the ARPA-E award 
winners we surveyed also recognized the inherent uncertainty in their 
research; 5 of the 13 told us that their projects had a fairly low 
probability of success.[Footnote 22] 

Second, venture capital firms seek more rapid returns on investment 
and closely analyze a project's potential return on investment over 
time, a factor that influences their decisions to invest in projects 
that are in later stages of development and closer to 
commercialization. Venture capital firm officials told us that they 
focused closely on the timeliness of investment returns, with one firm 
noting that the industry tended to invest in technologies that could 
be commercialized in less than 3 years and that would potentially 
exhibit exponential market growth in approximately 5 to 7 years. 
However, we found that nearly all of the ARPA-E award winners and most 
contingently selected applicants we spoke with estimated that their 
projects were 3 or more years away from potential commercialization. 
[Footnote 23] For example, 12 out of 13 ARPA-E award winners estimated 
that it would take at least 3 years for their ARPA-E projects to reach 
the commercialization stage with ARPA-E funding.[Footnote 24] Had they 
not received ARPA-E funding, most of these award winners--10 out of 
13--told us they either would not have pursued their ARPA-E project or 
that they would not have been able to develop a commercial product in 
less than 10 years. At the same time, 18 out of 22 ARPA-E contingently 
selected applicants estimated it would take at least 3 years for their 
projects to reach commercialization if they had been able to secure 
funding for the proposal they submitted to ARPA-E. 

Third, venture capital firms may not be comfortable investing in new 
energy technologies, noting the historical lack of successful venture 
capital investments in these types of projects. Venture 
representatives said that venture firms were more comfortable 
investing in software companies or other businesses with higher 
potential profit margins and less costly product development than new 
energy technologies. One venture representative noted that his firm 
looked to invest in products with potential gross profit margins of 50 
percent or more. In addition, these representatives noted that it is 
difficult for new advanced energy technologies to compete with well-
established and low-margin traditional sources of energy like natural 
gas. Venture representatives also noted that venture firms had become 
more risk averse and reluctant to fund new energy technologies after 
lackluster investment returns have made the venture industry more 
aware of the challenges associated with investing in unproven energy 
technologies. 

While venture capital firms generally do not fund projects that ARPA-E 
looks to fund, our work suggests that receiving ARPA-E project funding 
may have a positive effect on some award winners' ability to attract 
follow-on funding from the private sector for their ARPA-E work. For 
example, ARPA-E's data indicate that 18 out of 121 ARPA-E award 
winners from ARPA-E's first three rounds of funding had received 
private sector funding totaling $318 million after receiving ARPA-E 
funding.[Footnote 25] In some cases, award winners received private 
follow-on funding immediately after receiving ARPA-E funding. A number 
of the award winners we spoke with stated that, given the highly 
competitive nature of the program, receiving ARPA-E funding served as 
a "stamp of approval" to venture capital or other private firms. 
[Footnote 26] These award winners told us that an ARPA-E award served 
as a signal of scientific and financial approval for potential 
investors. Economists call this rapid follow-on private funding a 
certification effect, which may explain the experiences of some of 
these award winners.[Footnote 27] This effect suggests that public 
awards address information gaps that might have otherwise precluded 
private investment. Some award winners and economists we spoke with 
told us that the government was suited to identifying technical risks 
because of its ability to draw on the expertise of many scientific 
reviewers, while venture firms may not have the scientific expertise 
on hand to fully understand potential investments. Furthermore, 
economic literature suggests that the certification effect may be 
particularly relevant in the high-technology industries, where the 
venture capital community plays an important role and in which 
traditional financial measures of risk and returns on investments may 
prove insufficient.[Footnote 28] Appendix III has more information on 
the difference between research funded by selected award winners' 
prior investors and ARPA-E funded work. 

Few Contingently Selected Applicants Found Funding from Private 
Investors or Public Sources: 

Eighteen of the 22 ARPA-E contingently selected applicants we 
interviewed sought funding after being turned down for ARPA-E funds. 
Of the 18 that sought funding elsewhere, 13 submitted project 
proposals to government sources, such as other DOE offices, the 
National Science Foundation, or nonprofit academic research 
institutes, and the remaining 5 submitted proposals to private 
investors such as venture capital firms.[Footnote 29] As of September 
2011, we found that 2 out of the 22 contingently selected applicants 
secured funding from venture capital firms for work that was very 
similar to their ARPA-E project proposals.[Footnote 30] We also found 
that 4 contingently selected applicants secured funding from a 
government or nonprofit source for their projects.[Footnote 31] In 
addition, we found that most contingently selected applicants modified 
their ARPA-E project proposals to attract subsequent funding for their 
projects by reducing the scope of their proposals or by focusing on 
more basic science research. For example, the 4 contingently selected 
applicants that secured funding from a government or nonprofit source 
modified their ARPA-E proposals to be more focused on basic science 
research, rather than on developing a commercial technology. In 
addition, 1 of these applicants told us that the funding will allow it 
to continue exploring fundamental materials science rather than 
developing a product. Also, many contingently selected applicants and 
award winners said that other government sources were limited. Some 
noted that Small Business Innovation Research (SBIR) grants would not 
allow them to make as much progress as larger ARPA-E awards.[Footnote 
32] Finally, a number of others mentioned that military funding 
agencies were not as focused on developing low-cost technologies with 
broader market appeal, because aerospace or military applications do 
not need to achieve the same low costs and market appeal as consumer 
or commercial applications. 

ARPA-E Officials Have Taken Steps to Coordinate with Other Department 
of Energy Offices in Advance of Awarding Funds: 

According to ARPA-E officials and documents, agency officials have 
taken steps to coordinate with other DOE offices in advance of 
awarding ARPA-E funds to help avoid duplication of efforts. These 
coordination efforts can be categorized into three areas: 

Prefunding coordination. ARPA-E officials told us that program 
directors engage with officials from related DOE offices in advance of 
announcing the availability of ARPA-E funds. ARPA-E program directors 
told us that early in the development of a funding announcement, they 
conduct outreach with industry, academic, and government officials 
both inside and outside of DOE in an attempt to identify funding gaps 
related to the technology they wish to develop. For example, by doing 
such outreach, one program director determined that there had been 
little funding at DOE or elsewhere for lithium air or lithium sulfur 
batteries, which have the potential to last significantly longer than 
existing lithium ion batteries. Program directors also hold workshops 
and invite relevant participants, including those from other DOE 
offices and from other federal agencies, to identify technologies that 
have little to no existing research funding but that have 
transformational potential. ARPA-E officials told us that directors 
use the workshops and other meetings to identify research areas that 
other DOE offices are not working on, and the other DOE officials 
provide insights on funding areas where they are not active. For 
example, one of these ARPA-E program directors told us that he met 
with officials from DOE's Office of Electricity Delivery and Energy 
Reliability and the Solar Energy Technologies Program within the 
Office of Energy Efficiency and Renewable Energy (EERE) before 
announcing available funds for the electrical power electronics 
funding announcement.[Footnote 33] According to this program director, 
this coordination helped him identify that there had been little 
funding for the development of magnetic devices for use in electrical 
power electronics. He ultimately designed the ARPA-E electrical power 
electronics funding announcement to focus, in part, on the development 
of improved magnetic devices because of the lack of funding elsewhere. 

In addition to inviting officials from other DOE offices to ARPA-E 
workshops, program directors told us they also engage with other DOE 
officials in other ways, both formally and informally. The program 
director responsible for ARPA-E's work on advanced batteries said that 
he was a member of DOE's Energy Storage Technology Development Team 
and regularly met with other officials who are engaged in applied 
battery research. This director said that it had become clear that 
DOE's Vehicle Technologies Program will continue to focus on 
incremental improvements to existing lithium ion battery technologies 
that are currently on the market, while ARPA-E will fund newer, 
alternative battery technologies. Other program directors told us that 
they have regular discussions with counterparts within DOE to avoid 
duplicating efforts, although through other means than a formal 
committee. 

Coordination of application reviews. Some ARPA-E program directors 
told us that they have recruited officials from other DOE offices to 
review applications submitted to ARPA-E and that these officials made 
up as many as one-third of the reviewers for one director. These 
application reviewers rate and recommend proposals for potential ARPA-
E funding. ARPA-E program directors told us that these DOE reviewers 
help them stay aware of the types of projects that other DOE offices 
are funding. For example, according to one program director, DOE 
reviewers indicated on a number of occasions that an ARPA-E advanced 
battery applicant would be better suited for funding under DOE's 
Vehicle Technologies Program because it was for a more developed 
technology. ARPA-E has also used application reviewers from other 
federal agencies, such as the Department of Defense. One program 
director told us that these reviewers have also helped avoid funding 
projects similar to those potentially funded elsewhere. 

Official DOE coordination groups. ARPA-E is also a participant in 
DOE's SunShot Initiative within the Solar Energy Technologies Program. 
The SunShot Initiative is an effort to coordinate solar energy 
research across DOE's Office of Science, four national laboratories, 
the National Science Foundation, and ARPA-E, with the goal of 
achieving costs of $1 per watt for solar-generated electricity. One 
ARPA-E program director is a member of the SunShot Initiative advisory 
board and therefore able to coordinate ARPA-E solar-related activities 
with other SunShot Initiative members. SunShot Initiative officials 
told us that DOE plans to make it a model for DOE's internal 
coordination efforts and that DOE hopes to expand the approach to 
other research areas.[Footnote 34] 

Additionally, the ARPA-E Director created the Panel of Senior 
Technical Advisors (PASTA), which is a group of high-level DOE 
managers that meet periodically to discuss current and future DOE 
research efforts. ARPA-E officials told us that PASTA is an attempt to 
avoid duplicating efforts within DOE. PASTA meeting attendees have 
included officials from DOE's applied and basic science offices. 

We were not able to directly evaluate the effectiveness of ARPA-E's 
efforts to coordinate with other DOE offices. Nevertheless, we found 
that on the basis of our interviews with ARPA-E award winners and 
contingently selected applicants, four award winners and two 
contingently selected applicants had received prior funding from other 
DOE offices.[Footnote 35] According to these award winners and 
contingently selected applicants, the prior funding was either for 
more proven technologies or was focused on more basic or foundational 
research than was the ARPA-E funded project. 

Conclusions: 

ARPA-E recognizes the need to ensure that the agency is not funding 
projects that would be otherwise funded by the private sector, and has 
taken steps to get information from applicants on their other sources 
of funding. The agency has also taken steps to coordinate with other 
DOE offices in advance of awarding ARPA-E funds. However, for the 
applications we reviewed, we found that ARPA-E's current funding 
announcements have generally yielded limited information from 
applicants that had prior sources of private funding. Where applicants 
provided little information, ARPA-E's program directors spent time and 
resources to determine the extent of such funding for projects related 
to or similar to the applicants' proposed ARPA-E projects. The 
agency's requirements for information on private sector funding could 
be improved. For example, ARPA-E does not provide guidance to 
applicants, such as a sample response, on how to meet its information 
requirement on prior private funding. An approach used by another 
federal program that funds advanced research is for applicants to 
provide letters from private investors to document why their projects 
could not be privately funded. This approach was used by one ARPA-E 
award winner, who included a letter from the company's venture capital 
investors to explain why the investors were not willing to fund the 
project proposed to ARPA-E. Also, ARPA-E officials said that they have 
not used venture capital data to identify applicants with prior 
private investors and to check information applicants provide to them, 
but that they have considered doing so. Examining such data allowed us 
to quickly cross-check applicants' self-reported prior private 
funding. Without additional tools to better understand prior private 
funding, ARPA-E program directors will continue to spend time and 
agency resources taking additional steps to clarify prior private 
funding and may miss opportunities to avoid duplication with private 
investors. 

Recommendations for Executive Action: 

To ensure that ARPA-E uses a more complete range of methods to ensure 
that limited federal funds are targeted appropriately, we recommend 
that the Secretary of Energy consider taking the following three 
actions: 

* provide guidance with a sample response to assist applicants in 
providing information on sources of private funding for proposed ARPA-
E projects, 

* require that applicants provide letters or other forms of 
documentation from private investors that explain why investors are 
not willing to fund the projects proposed to ARPA-E, and: 

* use venture capital funding databases to help identify applicants 
with prior private investors and to help check information applicants 
provide on their applications. 

Agency Comments and Our Evaluation: 

We provided a copy of our draft report to ARPA-E for review and 
comment. ARPA-E concurred with key findings and our recommendations in 
its written comments, which are reproduced in appendix IV. In its 
comments, ARPA-E outlined the steps that the agency plans to take to 
address our recommendations. ARPA-E also provided additional 
clarifying comments, which we incorporated. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to the appropriate congressional committees, the Secretary of Energy, 
and other interested parties. In addition, the report will be 
available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions 
to this report are listed in appendix V. 

Signed by: 

Frank Rusco: 
Director, Natural Resources and Environment: 

[End of section] 

Appendix I: Scope and Methodology: 

To examine the Advanced Research Projects Agency-Energy's (ARPA-E) use 
of criteria and other considerations for making awards and the extent 
to which applicants identify and explain other private funding 
information, we reviewed 20 applications drawn from a nonprobability 
sample of the 4,788 applicants ARPA-E received during its first three 
funding rounds. We selected applications from a range of ARPA-E 
technology program areas to which the applications were submitted and 
applicant institution types (e.g., small company or university). 
Because we selected a nonprobability sample of applications to review, 
information we collected cannot be generalized to all applicants; 
however, it provided us with an understanding of ARPA-E's criteria and 
other considerations for making an award. We also interviewed and 
reviewed the applications from our sample of 18 award winners, which 
were private companies that we identified as having received funding 
from private investors prior to receiving an ARPA-E award. We 
identified these 18 companies by searching for evidence of prior 
private funding for the 121 award winners in the VentureDeal venture 
capital database.[Footnote 36] In our review of these applications, we 
focused on the extent to which applicants disclosed prior private 
funding.[Footnote 37] We also spoke with all eight ARPA-E program 
directors to discuss ARPA-E's process for making awards and managing 
projects of award winners. 

To analyze the extent to which ARPA-E projects could have been funded 
through the private sector, we conducted three sets of interviews with 
ARPA-E applicants and award winners. Specifically, 

* We conducted structured interviews with 22 of the 33 contingently 
selected applicants that ARPA-E encouraged to submit full applications 
during its second and third funding rounds.[Footnote 38] Each of the 
contingently selected applicants fulfilled ARPA-E's selection 
criteria, had the same characteristics as ARPA-E award winners, and, 
according to ARPA-E officials with whom we spoke, would have been 
selected for an award had additional funds been available.[Footnote 
39] This approach allowed us to consider the potential of ARPA-E-type 
projects to receive private funding. 

* We conducted structured interviews with a nonprobability sample of 
13 award winners selected from ARPA-E's first three funding rounds. 
[Footnote 40] We selected subjects for this sample across a range of 
ARPA-E award winner characteristics, including the technology program 
area for which an award winner received funding, the stage of 
development of an award winner's project, and an award winner's type 
of institution (e.g., small company or university). Because this was a 
nonprobability sample, the information from these structured 
interviews cannot be generalized to all award winners but can provide 
examples about award winners' experiences. We conducted content 
analysis[Footnote 41] of the award winners' and contingently selected 
applicants' interview responses to quantify issues such as the ability 
of each group to secure private sector funding for ARPA-E-type 
projects.[Footnote 42] 

* Third, we spoke with the 18 ARPA-E award winners we identified 
through the VentureDeal database to discuss key differences between 
their prior research and their ARPA-E-funded projects.[Footnote 43] 

We also conducted interviews with a variety of companies and 
individuals knowledgeable about research associated with ARPA-E-type 
projects, including six venture capital firms[Footnote 44] and the 
National Venture Capital Association (NVCA), a trade association, to 
determine the availability of private capital for ARPA-E-type projects 
and the criteria venture capital firms apply in making their 
investment decisions; two additional public companies that were 
awarded ARPA-E funding to discuss the ability of a public company to 
internally fund research;[Footnote 45] and three economists to discuss 
the role and effectiveness of government-funded research and 
development of technology.[Footnote 46] 

To examine the extent to which ARPA-E coordinates with other DOE 
programs to avoid duplicating efforts, we spoke with the ARPA-E 
program directors as well as officials from other DOE program offices 
including the Office for Energy Efficiency and Renewable Energy (EERE) 
and the Office of Science. In addition, we met with officials from the 
SunShot Initiative, which is a collaboration among EERE, the Office of 
Science, and ARPA-E to make solar energy technologies cost-competitive 
with other forms of energy. We also spoke with officials from the 
Defense Advanced Research Projects Agency (DARPA) and the Department 
of Energy (DOE) Office of Inspector General. During our interviews 
with the award winners and contingently selected applicants previously 
mentioned, we asked them to discuss their understanding of other 
potential sources of DOE funding for their projects. 

To assess the reliability of data from ARPA-E and VentureDeal, we 
reviewed relevant documentation and interviewed key data system 
officials at ARPA-E and VentureDeal and determined that the data were 
sufficiently reliable for the purposes of this report. 

We conducted this performance audit from November 2010 to December 
2011 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: ARPA-E Program Technology Areas: 

* Funding Round 1: 

* Biomass energy. Biomass energy projects focus on means to convert 
crops, along with plant waste from other industrial processes, into 
energy through chemical, biological, or thermal techniques. 

* Building efficiency. Building efficiency projects focus on 
technologies that heat, power, and maintain buildings. 

* Carbon capture. Carbon capture and sequestration projects seek to 
create new methods to prevent the release of carbon dioxide into the 
atmosphere from traditional fossil fuel sources such as coal, natural 
gas, and petroleum. 

* Conventional energy. Conventional energy projects seek to 
significantly increase the efficiency of traditional fossil fuel power 
production and reduce waste generated from this use. 

* Direct solar fuels. Direct solar fuel projects seek to utilize 
photosynthetic microorganisms to produce liquid fuels and fuel 
precursors directly from solar energy. 

* Energy storage. Energy storage projects seek to revolutionize 
battery, capacitor, and other energy storage methods for significantly 
improved efficiency. 

* Energy-efficient water purification. Water technology projects seek 
to reduce the water intensity of the electricity and fuel sectors and, 
reciprocally, to reduce the energy intensity of the water sector. 

* Renewable power. Renewable power projects focus on innovative 
technologies in several sustainable energy areas such as extremely 
efficient photovoltaic solar collectors, wind turbines, and geothermal 
energy. 

* Vehicle technologies. Vehicle technology projects seek to advance 
efficiency in vehicles through technologies like new hybrid engines to 
those that convert on-board waste heat to electricity. 

* Waste heat capture. Waste heat capture projects seek to use thermal 
energy expelled by traditional industrial processes, such as coal 
smokestacks, and efficiently convert that heat into electricity. 

Funding Round 2: 

* Batteries for transportation. Batteries for Electrical Energy 
Storage in Transportation (BEEST) projects seek to develop batteries 
for plug-in hybrid electric vehicles (PHEV) and electric vehicles (EV) 
that can make a 300-to 500-mile-range electric car. 

* Materials for carbon capture. Innovative Materials and Processes for 
Advanced Carbon Capture Technologies (IMPACCT) projects seek to reduce 
the cost of carbon capture significantly through a combination of new 
materials, improvements to existing processes, and demonstration of 
new capture processes. 

* Electrofuels. Electrofuels projects intend to explore new paradigms 
for the production of renewable liquid fuels that are compatible with 
today's infrastructure. They seek to use microorganisms to harness 
chemical or electrical energy to convert carbon dioxide into liquid 
fuels without using petroleum or biomass. 

Funding Round 3: 

* Grid-scale electricity storage. Grid-Scale Rampable Intermittent 
Dispatchable Storage (GRIDS) projects seek to develop new energy 
storage technologies that are comparable in reliability and cost to 
pumped hydropower and that are modular and can be deployed in any 
location in the country. 

* Building efficiency. Building Energy Efficiency Through Innovative 
Thermodevices (BEETIT) projects focus on developing new approaches and 
technologies for cooling equipment used in heating, ventilating, and 
air conditioning (HVAC) systems in buildings, as well as in 
refrigeration. 

* Electrical power electronics. Agile Delivery of Electrical Power 
Technology (ADEPT) projects strive to reinvent the basic building 
blocks of circuits from transistors, inductors, and transformers to 
capacitors for a broad spectrum of power applications. ADEPT focuses 
on two areas: (1) creating the world's first kilovolt-scale integrated 
circuits, and (2) developing transistor switches operating at grid-
level voltages that would exceed 13 kilovolts. 

Funding Round 4: 

* Advanced thermal storage. High Energy Advanced Thermal Storage 
(HEATS) projects seek to develop revolutionary cost-effective thermal 
energy storage technologies. HEATS focuses on three areas: (1) high-
temperature storage systems to deliver solar electricity more 
efficiently around the clock to allow nuclear and fossil base load 
resources the flexibility to meet peak demand, (2) fuel produced from 
the sun's heat, and (3) HVAC systems that use thermal storage to 
dramatically improve the driving range of electric vehicles. 

* Electricity network integration. Green Electricity Network 
Integration (GENI) projects focus on innovative control software and 
high-voltage hardware to reliably control the grid network. GENI 
focuses on two areas: (1) cost-optimizing controls to manage 
sporadically available sources, such as wind and solar, alongside coal 
and nuclear, and (2) resilient power flow control hardware to enable 
automated, real-time control of grid components. 

* Plants Engineered To Replace Oil (PETRO). PETRO projects seek to 
advance technologies that optimize the biochemical processes of energy 
capture and conversion in plants to develop farm-ready crops that 
deliver more energy per acre with less processing. 

* Rare earth alternatives for energy technologies. Rare Earth 
Alternatives in Critical Technologies for Energy (REACT) projects work 
on early-stage technology alternatives that reduce or eliminate 
dependence on rare earth materials that may jeopardize the widespread 
adoption of many critical energy solutions by developing substitutes 
in two key areas: electric vehicle motors and wind generators. 

* Solar electrical power technology. Solar Agile Delivery of 
Electrical Power Technology (Solar ADEPT) projects focus on 
integrating advanced power electronics into solar panels to extract 
and deliver energy more efficiently. Solar ADEPT projects are centered 
on advances in magnetics, semiconductor switches, and charge storage. 

[End of section] 

Appendix III: Description of ARPA-E Award Winners with Prior Private 
Investment: 

The 18 award winners we identified as having received prior private 
venture capital told us that with the ARPA-E funding, they were 
generally able to pursue the development of energy technologies with 
greater scientific or technical uncertainty than they had when they 
were working with their private funding. About two-thirds of these 
award winners told us that the ARPA-E funding is allowing them to 
develop prototypes or to prove basic technology concepts on more 
advanced ideas than their prior work--6 of these award winners said 
this was for completely new research and 7 said it was for major 
advancements to prior research. A few of these award winners also told 
us they were able to work on projects with outstanding scientific 
research questions that private investors would not have funded. Five 
of these award winners reported that they would likely have been able 
to pursue some research similar to their ARPA-E projects, but it would 
have taken years longer without ARPA-E funding. 

The following three examples reflect in more detail much of what we 
heard from these 18 award winners regarding the distinction between 
research funded by their prior investors and ARPA-E funded work: 

* Sun Catalytix. Sun Catalytix was founded by a professor at the 
Massachusetts Institute of Technology to commercialize a set of 
catalysts to split water into hydrogen and oxygen gases. This reaction 
allows these gases to be cheaply produced for a variety of purposes, 
including renewable energy. Sun Catalytix was initially funded by a 
Boston area venture capital firm to develop a product based on these 
catalysts. According to a representative from this firm, the venture 
capital funding allows Sun Catalytix to attempt to develop a product 
that would potentially earn the venture firm a return on investment in 
a reasonable amount of time. At the time of the ARPA-E award, Sun 
Catalytix representatives told us they were still some years away from 
a commercial product using this new technology. According to these 
representatives, had the firm not won an ARPA-E award, further venture 
capital might not have been available to develop an initial version of 
their products. Sun Catalytix representatives told us that ARPA-E 
funds allowed the company to conduct additional applied scientific 
research that led to their discovery of a new platinum-free and 
therefore lower-cost catalyst with much wider market potential, 
including renewable energy applications. A representative from the 
venture firm told us that the firm would not have funded the 
additional advanced scientific research needed to develop the new, 
cheaper catalyst. 

* Agrivida. This small biotechnology company based in the Boston area 
is developing genetically modified sorghum, corn, and switchgrass 
crops for use in biofuel production. Agrivida representatives 
explained that the goal of their ARPA-E project is to generate crops 
capable of producing enzymes within the plant itself to internally 
break down the plant's own cellulose after harvest. This technology 
would significantly lower the costs of cellulosic biofuel production, 
because enzyme treatments are currently a large part of the costs of 
current production methods. Before winning an award from ARPA-E, 
Agrivida had received venture capital funding to develop the 
technology. We spoke with a representative of the venture firm that 
funded Agrivida, who told us that this venture funding was only for 
research on the corn crop enzymes; the firm was not willing to fund 
additional research on other crops because the amount of funding it 
could provide to any one company in the early stages of research was 
limited. Agrivida officials told us that the ARPA-E award allowed them 
to expand the scope of their work and conduct additional research on 
switchgrass, which may have potential to become a major biofuel crop. 
They said that the ARPA-E funds have enabled rapid progress, allowing 
them to complete laboratory work in 1 year that would have otherwise 
taken 5 years. Officials from Agrivida said they hope to have made 
enough progress by the time they complete their ARPA-E research to be 
able to attract additional investors and secure commercialization 
partners. 

* 24M. This is a startup company that is developing flow batteries for 
use in transportation and electrical grid applications. Unlike normal 
batteries, flow batteries generate electrical current by internally 
circulating electrically active liquids, which allows for much lower 
costs than traditional batteries. However, flow batteries do not exist 
for use in tight spaces like cars where their cost advantages could 
allow for significant improvements to electric vehicles. In 2010, 
concurrent with its ARPA-E award, 24M received $10 million from two 
venture capital firms to develop flow batteries for consumer and 
commercial applications. A representative from one of these venture 
firms told us that his firm would not have been confident in funding 
the 24M project without ARPA-E involvement. Representatives from 24M 
said that the ARPA-E award was critical to their ability to secure 
private investment and to launch the company and that they now expect 
to have a working prototype by the end of their ARPA-E project. 

In addition, the two public companies we spoke with that were awarded 
ARPA-E money told us that although their companies had internal 
resources devoted to research and development, they were not able to 
internally fund the projects they proposed to ARPA-E. They told us 
there were two reasons for this. First, the companies said that 
existing product lines placed heavy demands on their internal research 
and development budgets, and that there is continuous pressure from 
existing customers and competitors to improve existing products; since 
ARPA-E projects were still a number of years away from a return on 
investment, these investments could not be justified. Second, these 
companies told us that internal investments had to meet minimum 
investment return thresholds, and that ARPA-E-type projects were not 
able to meet these thresholds. Officials from one company told us that 
the rate of return on investment required by its management was at 
least 20 percent per year. 

[End of section] 

Appendix IV: Comments from ARPA-E: 

ARPA-E: 

To: Frank Rusco:  
Director, Natural Resources And Environment:  
Government Accountability Office (GAO); 

From: [Signed by, on December 15, 2011] Arun Majumdar: 
Director, Advanced Research Projects Agency — Energy (ARPA-E): 
Department of Energy:  

Re: ARPA-E's Response to GAO Draft Audit Report on "Advanced Research 
Projects Agency--Energy Could Benefit from Information on Applicants' 
Prior Funding"  

The Advanced Research Projects Agency — Energy (ARPA-E) thanks the 
Government Accountability Office (GAO) for the opportunity to comment 
on the above-referenced draft Report, which is the culmination of a 
thorough, yearlong audit of ARPA-E's operations and programs.  

In accordance with its statutory mission, ARPA-E is committed to 
"accelerating transformational technological advances in areas that 
industry by itself is not likely to undertake because of technical and 
financial uncertainty." ARPA-E requires applicants to fully disclose 
all prior, current, and pending funding from Federal agencies and any 
prior, current, and pending funding from the private sector that 
supports the proposed project or work that relates directly or 
indirectly to the proposed project. ARPA-E carefully structures its 
projects to avoid any overlap with public and private sources of 
funding.  

ARPA-E agrees with the GAO's finding that "most ARPA-E projects could 
not have been funded solely by private investors" and "venture 
capitalists) generally do not fund projects that ARPA-E looks to 
fund." Importantly, GAO did not identify a single instance in which 
private investors would have funded an ARPA-E project within the same, 
accelerated timeframe (3 years or less).  

GAO notes on the cover page of the report that it identified "18 out 
of 121 award winners through ARPA-E's first three funding rounds that 
had received some prior private sector investment." ARPA-E would like 
to highlight GAO's findings with respect to the 18 award winners, 
which are found in Appendix IV to the Report:  

* ARPA-E enabled about two-thirds of the 18 award winners "to develop 
prototypes or to prove basic technology concepts on more advanced 
ideas than their prior work." 
- 6 of the 18 award winners received funding for "completely new 
research." 
- 7 of the 18 award winners received funding for "major advancements 
to prior research."  

* ARPA-E enabled some of the award winners "to work on projects with 
outstanding scientific research questions which private investors 
would not have allowed."  

* ARPA-E significantly accelerated the research and development 
timeframe for 5 of the 18 award winners.  

ARPA-E also agrees wills the GAO's finding that "ARPA-E officials have 
taken steps to coordinate with other Department of Energy offices in 
advance of awarding funds." ARPA-E actively engages with other DOE 
programs, Federal agencies, national laboratories, industry, and 
academia to identify "white space" where a strategic infusion of 
funding would catalyze the development and deployment of 
transformational and disruptive energy technologies. ARPA-E uses world-
class experts from Government, industry, and academia to evaluate 
applications and assess the technical progress of its projects. In 
addition, ARPA-E participates in infra- and inter-Departmental 
initiatives in specific technology areas.  

ARPA-E concurs, with comments, on the three recommendations in the 
Report.  

Recommendation 1: Provide guidance with a sample to assist applicants 
in providing information on sources of private funding for proposed 
ARPA-E projects.  

Management Response: ARPA-E will include a sample response in future 
funding opportunity announcements (FOAs) in order to assist applicants 
in providing information on sources of private funding for proposed 
ARPA-E projects. 

Recommendation 2: Require that applicants provide letters or other 
forms of documentation from private investors that explain why 
investors are not willing to fund the projects proposed to ARPA-E. 

Management Response: In future FOAs, ARPA-E will require applicants to 
provide letters or other forms of documentation from private investors 
that explain why investors are not willing to fund the projects 
proposed to ARPA-F. 

Recommendation 3: Use venture capital funding databases to help 
identify applicants with prior private investors and to help check 
information applicants provide on their applications. 

Management Response: In the future, ARPA-E will use venture capital 
funding databases, such as VentureDeal, to help identify applicants 
with prior private investors and to help check information provided by 
applicants in their applications. 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Frank Rusco, (202) 512-3841 or ruscof@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Tim Minelli (Assistant 
Director), Paola Bobadilla, Cindy Gilbert, Robert Marek, Justin 
Mausel, Alison O'Neill, Jeanette Soares, and Franklyn Yao made 
important contributions to this report. 

[End of section] 

Footnotes: 

[1] U.S. Energy Information Administration, Annual Energy Review 2009. 
(Washington, D.C.: 2009). 

[2] The National Academies comprise four organizations: the National 
Academy of Sciences, the National Academy of Engineering, the 
Institute of Medicine, and the National Research Council; they advise 
policymakers on scientific and technical matters. 

[3] The National Academies, Rising Above the Gathering Storm: 
Energizing and Employing America for a Brighter Economic Future 
(Washington, D.C.; 2007). 

[4] Pub. L. No. 110-69, § 5012 (2007). 

[5] ARPA-E generally uses cooperative agreements to make funding 
awards, which involve the transfer of a thing of value to the 
recipient to carry out a public purpose authorized by law. Cooperative 
agreements differ from grants because substantial involvement is 
expected between ARPA-E and the recipient. ARPA-E uses similar funding 
agreements for national laboratories. 

[6] The cost share requirement for award winners is generally at least 
20 percent of total allowable costs, although under section 988(b)(3) 
of the Energy Policy Act of 2005, ARPA-E has reduced the cost share 
requirement for certain applicants, such as universities, to 5 percent 
or 10 percent for all of the funding rounds except the first. Award 
winners' cost share must be provided by a nonfederal source. 

[7] In the fourth round of funding, ARPA-E awarded 60 projects out of 
427 applicants. 

[8] We were not able to verify the completeness of VentureDeal data, 
and there may have been ARPA-E award winners that had prior private 
funding that did not appear in these data. To compile data on venture 
capital funding, VentureDeal uses (1) Securities and Exchange 
Commission regulatory filings, (2) survey information collected 
directly from venture capital firms, (3) financial news media 
announcements and press releases from venture capital firms or 
recipient companies, and (4) local business journals. 

[9] Eight of these 18 companies also appeared in the sample of 20 
applicants that we selected to examine ARPA-E's use of criteria and 
other considerations for making awards. 

[10] According to ARPA-E officials with whom we spoke, these 
applicants would have been selected for an award had additional funds 
been available. The remaining 11 contingently selected applicants did 
not respond to our requests for an interview. 

[11] Four of these 18 award winners also appeared in our 
nonprobability sample of 13 award winners. 

[12] DOE funds the development of energy technologies ranging from 
basic and applied energy research to loan guarantees for clean energy 
generation facilities. For example, DOE's Office of Science supports 
basic scientific research, including chemistry, biology, and materials 
sciences, as foundational research for a number of energy 
technologies. DOE's Office of Energy Efficiency and Renewable Energy 
applies established research to alternative and clean energy 
technologies, such as improving existing lithium ion batteries for use 
in electric or hybrid vehicles. DOE's Loan Programs Office offers 
loans to commercialize clean energy projects, such as wind farms. 

[13] ARPA-E program directors developed funding announcements for six 
program technology areas that made up the agency's second and third 
funding rounds. (See table 1.) 

[14] All the ARPA-E program directors who had finished their selection 
process at the time we spoke with them told us that for a project to 
have a high risk level is not one of their other considerations when 
evaluating projects, but that the nature of the agency's work has the 
effect of ultimately funding high-risk projects. Several program 
directors said that a high risk level is inherent in projects with 
high technological impact. 

[15] Alternatively, ARPA-E can consider only funding a specific part 
of research that must be proven before additional work is funded. For 
example, one applicant's carbon capture project involved a new means 
of solidifying carbon dioxide. The program director told us he wanted 
the applicant to first demonstrate that the approach would work, so he 
reduced the initial amount of funding by over 60 percent. 

[16] ARPA-E program directors told us they also conducted review 
efforts in a number of other cases where it was initially unclear why 
other entities would not provide additional funds to ARPA-E award 
winners. 

[17] ARPA-E officials told us that they funded only the parts of this 
project that were too risky for the private investors. 

[18] According to NIST, the Technology Innovation Program funds 
advanced research in areas of critical national need including health 
care, robotics, and civil infrastructure. 

[19] Most of these explanations related to the risk or uncertainty 
associated with the proposed projects. 

[20] These data showed that most ARPA-E award winners were at or below 
technology readiness level (TRL) 3. TRL 3 represents a level where 
potential technologies are still unproven. 

[21] American Energy Innovation Council, Catalyzing American 
Ingenuity: The Role of Government in Energy Innovation (Sept. 2011). 
The American Energy Innovation Council is a bipartisan group of 
American business leaders. 

[22] The 18 award winners we identified as having received prior 
private venture capital told us they were generally able to pursue the 
development of energy technologies with greater scientific or 
technical uncertainty with the ARPA-E funding than what they were 
working on with their private funding. See appendix III for more 
detail on these companies' prior privately funded research. 

[23] On the basis of the initial testing of our questions, we 
determined that these estimates may be optimistic, given that 
respondents are invested in attempting to bring a technology to market 
as soon as possible. 

[24] For the 12 award winners, 6 estimated their projects would take 3 
to 5 years to reach commercialization, and the remaining 6 estimated 
their projects would take more than 5 years to do so. 

[25] A number of these 18 award winners with follow-on funding were 
part of the 18 companies we identified as having received private 
funding prior to ARPA-E. 

[26] These award winners included those that had prior venture funding 
as well as the others we interviewed. 

[27] See Andrew A. Toole, Calum Turvey. "How Does Initial Public 
Financing Influence Private Incentives for Follow-on Investment in 
Early-Stage Technologies?" Journal of Technology Transfer, 34: 43-58 
(2007). See also Josh Lerner. "The Government as Venture Capitalist: 
The Long-Run Impact of the SBIR Program," Journal of Business, vol. 
72, no.3, 285-318 (1999). 

[28] Lerner, "The Government as Venture Capitalist: The Long-Run 
Impact of the SBIR Program." 

[29] One of the 5 contingently selected applicants that sought funding 
from a private investor also sought public funding. 

[30] In addition, our review of venture capital funding data for the 
other 11 contingently selected applicants with whom we did not speak 
did not show that any had received venture capital funding since not 
being awarded ARPA-E funds. 

[31] Three contingently selected applicants that submitted proposals 
to government or nonprofit sources were still awaiting responses. 

[32] Federal agencies that have budgets in excess of $100 million for 
research conducted by others (extramural research) are required to use 
2.5 percent of these budgets to establish and operate a Small Business 
Innovation Research program. The program is intended to stimulate 
technological innovation, use small businesses to meet federal 
research and development needs, foster and encourage participation by 
minority and disadvantaged persons in technological innovation, and 
increase private sector commercialization of innovations derived from 
federal research and development. Eleven federal agencies participate 
in the SBIR program, with $16 billion awarded to date. Initial SBIR 
awards normally do not exceed $150,000 and are usually for a period of 
6 months. 

[33] Electrical power electronics modify electrical energy (i.e., 
change its voltage, current, or frequency) and can be found in 
applications like lighting, motors, and electric vehicles. 

[34] In addition, SunShot Initiative program officials told us they 
are trying to share elements of ARPA-E's selection process with other 
offices within DOE--current DOE funding announcements generally take 
15 months to carry out, compared with 6 to 8 months for ARPA-E. For 
example, ARPA-E officials also told us that DOE's Energy Efficiency 
and Renewable Energy office is adopting their online application 
system because of its advantages over paper-based systems. 

[35] These award winners included those in our nonprobability sample 
of 13, as well as the 18 we identified with VentureDeal data. 

[36] VentureDeal is a company that maintains data on private venture 
capital funding. The VentureDeal database only includes businesses and 
does not include data on venture capital funding secured by 
universities or national laboratories. However, according to a 
VentureDeal official, universities and national laboratories are not 
likely to directly receive venture funding. In addition, we were not 
able to verify the completeness of VentureDeal data, and there may 
have been ARPA-E award winners that had prior private funding that did 
not appear in these data. We identified 1 of these award winners 
through an examination of ARPA-E data. 

[37] Eight of these 18 companies also appeared in the sample of 20 
applicants that we selected to examine ARPA-E's criteria for making 
awards. 

[38] The remaining 11 contingently selected applicants did not respond 
to our requests for an interview. 

[39] We spoke with 1 applicant twice because the applicant applied for 
two different projects. For each of the 33 contingently selected 
applicants, we also searched for entries in the VentureDeal database 
to determine if any had received private venture capital funding prior 
to and following ARPA-E's selection process. 

[40] We selected 15 award winners as part of our nonprobability sample 
but 2 award winners did not respond to our interview requests. 

[41] Content analysis is a systematic research method for analyzing 
textual information in a standardized way that allows evaluators to 
make inferences about that information. 

[42] We conducted pretests of our structured interview questions with 
3 award winners and 3 contingently selected applicants to ensure that 
the questions were understandable and unbiased. 

[43] Four of these 18 award winners also appeared in our 
nonprobability sample of 13 award winners. 

[44] These firms were Khosla Ventures; Kleiner, Perkins, Caufield, and 
Byers; U.S. Venture Partners; Rockport Capital; Mohr-Davidow Ventures; 
and Polaris Ventures. We selected these venture capital firms because 
they were knowledgeable about ARPA-E-funded companies according to 
NVCA. 

[45] These two companies did not appear in our earlier samples. 

[46] We selected these economists based on their publication of 
literature on the role and effectiveness of government-funded research. 

[End of section] 

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