NATIONAL HARBOR, Md.--Although its short-term funding remains uncertain, the 2-year-old Advanced Research Projects Agency-Energy (ARPA-E) program has so far delivered on its mission to pursue high-risk, high-payoff research.

But even at this week's ARPA-E Summit, a conference to tout potential game-changers, there were reminders that even great technology doesn't guarantee commercial success, which could be crucial when questions over government R&D funding arise in the future.

In interviews at the conference, entrepreneurs and investors said that ARPA-E has brought high-caliber scientists to the Department of Energy to vet well chosen research proposals. "It's not your father's DOE," joked one successful scientist.

The program has spent $400 million over two years funding research projects--usually with grants under $10 million--geared at proving out new technology concepts within a few years.

For example, the DOE is funding commercial and academic research to speed up development of energy-dense batteries that would extend the range of electric cars to 500 miles, roughly five times what can be done now. Another ambitious effort is in the area of "electrofuels," where genetically engineered microorganisms fed carbon dioxide, sunlight, and water, create organic compounds that can be turned into liquid fuels.

Many attendees at the conference lauded the progress scientists and engineers have made on these research programs, which has catalyzed follow-on investments from the private sector. But when it comes to commercializing these technologies after they have been demonstrated at small scale, conference attendees listed a number of commercial and policy barriers.

Scaling One concern is that many energy and materials innovations incubated in the U.S. will be built elsewhere, something that happened with lithium ion batteries, which are largely made in Asia, noted Energy Secretary Steven Chu during his keynote.

To keep manufacturing in the U.S., the country needs a manufacturing strategy built around lower corporate taxes, well educated workers, and robust research and development, said John Engler, the former governor of Michigan and president of the Business Roundtable, during a panel. In places such as Germany, it's common to have manufacturing facilities located near research and development centers because one feeds the other.

"Innovation and manufacturing go very close together. It's logical that where you innovate, you prove it at scale because what happens in the lab is not always what happens when you manufacture at scale," said Suniva CEO John Baumstark.

Former California Gov. Arnold Schwarzenegger and Energy Secretary Steven Chu speak to a group of students from university energy clubs who attended the ARPA-E Summit.

Suniva, which makes solar photovoltaic panels, was spun out of Georgia Tech University and built its first factory in Georgia. But as the company looks to expand, Baumstark said there needs to be clear signals--such as a nationwide renewable energy mandate--that there will strong demand for solar in the U.S. compared to other countries.

The DOE's loan guarantee program, which is designed to lower risk for commercial bankers investing where there is new technology, is an important financial tool the government can provide, said First Solar President Bruce Sohn. "We would think these fairly modest programs are robust and are going to last, but they are under siege to some extent" in Congress, he said.

Launching energy-related products and projects tends to be expensive and requires lots of capital to get to a meaningful scale. During a panel, David Berry, an investor at Flagship Ventures, indicated that financing for Flagship Ventures' biofuels companies could come from national governments eager to invest in fossil fuel alternatives.

"The challenge is not building that first plant. There's a lot of focus on that plant because it's a milestone and defines it as a success," he said. "The question is getting access to capital (after that) at a scale that actually makes a difference."

Customers and funding ARPA-E is modeled after DARPA, the Defense Advanced Research Program Agency, which spawned a number of commercial technologies, including the Internet and GPS. DARPA differs significantly from ARPA-E in that the Defense Department typically is a customer for research projects, but ARPA-E programs don't have a built-in customer, an entrepreneur told me.

The Departments of Energy and Defense did take a step in that direction, however. Navy Secretary Ray Mabus on Wednesday announced a partnership where the Navy will test batteries being developed under ARPA-E's energy storage program, part of an initiative to cut the Navy's fossil fuel use in half this decade.

To better prepare R&D efforts for the commercial world, one venture capitalist suggested that ARPA-E programs need to complement the existing technical and scientific milestones with commercial targets. Another business-related concern is that many of the channels for selling energy-related goods--the equivalent of value-added resellers in the computer industry--are not well developed in green tech, said Rob Day, a partner from Black Coral Capital.

"I see a lot of clean tech manufacturing start-ups which haven't put thought into creating a robust channel to the market place so they can get to scale," he said.

In lighting, for example, there's a need for service companies well versed in how to install more efficient lighting products, he said. Energy storage is another area that's seeing a great deal of research, but utilities tend to be conservative with new technologies. So rather than buy and operate battery systems themselves, utilities could be more likely to contract with third-party companies that build storage systems themselves and sell power services to the grid.

Meanwhile, the funding outlook for ARPA-E is murky. The White House is seeking to invest in research and development to spur innovative technologies and stimulate the economy. As part of that agenda, the Department of Energy requested an increase to $300 million for ARPA-E in fiscal 2011 and $550 million for fiscal 2012, a DOE representative said.

In a continuing resolution measure to keep the federal government operating, the House this week cut the budget request by $250 million, which would bring the ARPA-E 2011 budget to $50 million.