And for 4 years in a row now we have been rated outstanding in every single category in every evaluation that NASA has made on this program. As you know, it is once every 6 months.

In the past year, we have gotten industrial interests to the point where John Deere has cost-shared approximately 25 percent of the part of the program they are now involved with, manufacturing Mod II engines.

We also now have a Stirling engine in Army generators being fully tested at Fort Belvoir. We have another one going into an Air Force van and at the request of the Air Force. And I just came back from a week-long stint in Texas where the gas and oil industry and some of their investors are very interested in taking Stirling engines and applying them to the commercial-sized heat-pump situation.

So I believe that we have lived up to our promises to the subcommittee that we would get the private sector involved and that we would find market initiatives for these engines to start proving out their operation and warranty characteristics so that they could eventually be viable for the automotive marketplace.

That concludes my testimony. Thank you.

[The prepared statement of Dr. Lloyd Lawrence follows:]

Testimony

before the

Energy and Natural Resources Committee

Subcommittee on Research and Development

U.S. Senate

on the

DOE Conservation Budget

Mr. Chairman and Members of the Subcommittee. I am Dr. L. R. Lawrence, Jr., and I am Vice President for Technology Development with Mechanical Technology Incorporated (MTI). Our firm is a high-technology corporation dedicated to the development and application of high-efficiency energy conversion products and quality control equipment for manufacturing industry. MTI began in 1961 with 7 dedicated engineers, and through innovation, product development, and manufacturing, we have grown to a firm of 850 people and $60 million in annual sales. Slightly over one-half of our revenues come from the sale of products, and the rest is from engineering services and R&D.

I am here today to discuss the need for a strengthened DOE conservation technology budget, especially in the areas of Gas-Fired Heat Pumps, Industrial R&D, and Stirling Engines. These three areas are perfect examples of the types of programs recommended for funding by the President's Commission on Industrial Competitiveness. As many of you are aware, this Commission consisted of high-level people from American manufacturing industry, banking, universities, service entities, and the Administration. In their resulting report entitled "Global Competition, The New Reality," this Commission strongly supported the type of efforts that we are addressing in this hearing today. Quoting from pages 18-19 of this document:

"Technology propels our economy forward. Without doubt, it has been
our strongest competitive advantage. Innovation has created whole
new industries and the renewal of existing ones. State-of-the-art
products have commanded premium prices in world markets, and tech-
nological advances have spurred productivity gains. Thus, America
owes much of its standard of living to U.S. preeminence in tech-
nology."

And continuing:

"In order to make technology a continuing competitive advantage for
the United States, we need to do three basic things: 1) create a
solid foundation of science and technology that is relevant to
commercial uses; 2) apply advances in knowledge to commercial
products and processes; and 3) protect intellectual property by
strengthening patent, copyright, trademark, and trade secret
protections. Attaining these goals will require actions on the part
of the Federal Government, industry, and our Nation's universities.

"There is not enough research and development with competitiveness
as its goal. The United States currently spends more on research
and development (R&D) than Japan, France, and Germany combined. As
percentage of gross national product, America spends slightly
more on R&D than any of our competitors do. But these figures have
led to a degree of comfort that is unwarranted.

a

"Roughly half of the total R&D done in the United States is funded
by the Federal Government, which spends most of its money (about
two-thirds) on defense and space programs. And in those two areas,
any commercial spillover is not a prime objective. Thus, when we
look at what the United States spends on civilian R&D, areas of
innovation from which we can reap the greatest commercial reward, we
find ourselves behind both Germany and Japan."

Mr. Chairman, the Nation this year is embarked on taking $60-80 billion out of the Federal Budget in response to the Gramm-Rudmann-Hollings Act. As we found in 1981-1983, when that amount of money is summarily removed from Government programs, it is removed from paychecks and plunges the country into a deep recession. The only way to avoid such a recession is to provide a mechanism for jobs; i.e., an increase in available dollars for paychecks from some other resource. We could find those dollars easily, if we could only correct our massive imbalance in trade. At this point, I must laud the efforts of Secretary Baker at the Treasury who is working tirelessly to bring the American currency more into line with foreign currencies, so that we may compete on a better financial basis. But that is not the entire answer. Price is only part of the competitive solution. It must be coupled with more attractive products. And as we have seen graphically in the past ten years, foreign government-industry teams, focusing on commercial items and their evolution, have consistently eroded our competitive position to the point where our balance of trade exceeded $143 billion in 1985. In total, our nation has lost $593.8 billion since 1975 through balance of trade deficits. Imagine the effect on our economy if those funds were still in this country under the control of American consumers. Instead, we have become an international debtor for the first time since 1917.

Our international indebtedness continues to grow, and some business experts predict that in the not-too-distant future, we may become the world's largest international debtor on a scale which will dwarf the indebtedness of such countries as Brazil and Mexico. According to a study by the Institute for International Economics, continuation of current trends could raise our international indebtedness to $1 trillion by the end of 1990. What do we do when we are overcome with such indebtedness and cannot pay back our loans? Threaten the world with dire consequences if they try to collect, using our massive military might which we, in peacetime, have recently assembled?

Mr. Chairman, a piece of military hardware creates jobs only when it is being built. There is no economic benefit associated with it when it is parked on a tarmac. In contrast, a commercial item requires financing, insurance, transportation, distribution, sales, and servicing, and continues in nearly constant use. It is a commercial item, then, which truly adds to our economic health.

With these thoughts in mind, Mr. Chairman, I would like to move on to a situation which has become critical, and which this Committee is in a unique position to do something about. The subject is the Gas-Fired Heat Pump.

GAS FIRED HEAT PUMPS

A gas-fired (or oil-fired) heat pump (the only difference being the burner design) is a device which uses the inherent energy in the atmosphere to provide highly efficient heating (or cooling) to a structure. By using the atmospheric energy properly, the heat that can be delivered to a house will contain more energy content than the amount of energy used to drive the device. In the heat pump itself, a fluid, such as Freon, is circulated in a refrigeration loop. Heat is added to the fluid where it is cold (i.e., outside, in the heating mode) and heat is removed from the fluid where heating is needed (i.e., inside the house). For the benefit of those who are new to this concept, I have included Figures 1 and 2 for clarification.

In the United States today, DOE estimates there are 50 million homes heated by gaseous fuel and another 15 million heated by oil or kerosene. These homes represent the candidate marketplace for gas- and oil-fired heat pumps. Most studies indicate that a well-performing gas- or oil-fired heat pump, with an installed cost of $4000 to $4500, will pay for itself in 3 to 5 years or less in much of the United States. This payback comes from a reduction in fuel use of 40-60% during the heating season. The same piece of equipment has the added advantage of being able to cool from the same fuel supply.

To examine the maximum possible market then (retrofit only), we can take the 50 million gas-fueled homes, add the 15 million oil-fueled homes, and arrive at 65 million homes to be multiplied by the installed cost of $4000. The result is then:

(50 + 15) million x $4000 = $260 billion

I think you will agree, Mr. Chairman, that $260 billion is a large figure, even by Congressional standards. If we modify this figure a bit, for instance, reduce it by one-half to make it more realistic, the number is still $130 billion. If we now average this figure over 10 years (for a gross examination of the situation), we still come up with $13 billion per year, or an economic unit close to the size of United Technologies Corporation.

Why then, with such a large market potential, will not the American private sector "pick up the ball" and fund this technology themselves? The answer is complex, but can be basically broken up into the following parts:

a.

b.

The technology is perceived to be risky and will take at least

three years to get to preproduction prototypes. Industry is

looking for a payback in that time period, not just the start of a business.

The heating industry has been generally a low-technology, "metal bending" business and does not have a high technology base to draw on for the evolution of gas heat pump products.