Cities on the Front Lines

In the Obama era, the federal government will play a much more active role promoting green economic development. In the meantime, cities and states have been the front lines of innovation. However, even the most creative of them are producing relatively few local jobs.

A good case in point is solar energy. The problems boil down to three. First, while solar-energy installation can produce hundreds of thousands of jobs nationally, there are far fewer solar-energy jobs in design and installation than in production -- and most manufacturing jobs are already being outsourced globally. Second, despite a lot of creative local efforts, not every city can emerge as a center in the nation's solar-energy industry. Third, in the absence of federal standards subsidizing more rapid development of solar-energy technologies and mandates or incentives for their use, one state or city acting alone cannot bring solar conversion to scale. One can tell a similar story about wind power, conservation, the shift to non-polluting cars, and jobs doing retro-fitting and environmental cleanup.

Consider Austin, Texas. Here, all the elements are seemingly in place to make the city a pioneer in the use of energy as a catalyst for economic development. They include strong and supportive political leadership, a friendly local city-owned utility, as well as citizen groups pressing for even more aggressive action. The University of Texas' flagship Austin campus has a clean-technology research program. A well-educated work force and existing base of high-tech industries make Austin attractive to green tech companies. Financial incentives for locally produced solar panels are in place. Even the local business community is on board, with the Chamber of Commerce leading a green economic-development initiative. Yet the Austin story also illustrates that even when they do everything right, cities are only one link in the policy chain needed to create jobs in renewable energy.

When Austin's City Council passed a renewable-energy resolution in 1999 calling for Austin Energy (AE), the city-owned electric utility, to obtain 5 percent of its energy from renewable resources by the end of 2004, Austin became one of a handful of cities with what's known as a renewable portfolio standard -- a hard requirement that a set percentage of energy be purchased from renewable sources. Within just two years, AE was obtaining 6 percent of its power from wind farms in western Texas.

After Mayor Will Wynn was elected in May 2003, Austin increased its renewable portfolio standard to 20 percent by 2020 (later raised to 30) and passed a companion measure requiring an increase in energy efficiency of 15 percent. And in December 2003, AE announced the ambitious goal of developing 15 megawatts of solar-energy generating capacity by 2007 and increasing to 100 megawatts by 2020. AE began offering the nation's highest solar-energy rebate, $5 a watt, to encourage consumers to install solar panels. For a $20,000, 3-kilowatt rooftop system, Austin Energy pays between 50 percent and 65 percent of capital costs.

But despite the incentives, by mid-2005 AE had achieved less than 7 percent of the 2007 15-megawatt solar-energy goal -- mostly because of the high cost of solar energy. Then in 2008 AE announced plans to build a 30-megawatt solar-energy farm -- the nation's largest -- on a 300-acre parcel of city-owned land in nearby Webberville. Once that farm comes on line by the end of 2010, AE will have achieved about 33 percent of the goal of 100 megawatts of solar energy by 2020. The delivered price will be just 16.5 cents per kilowatt -- or about four times the cost of natural gas. Herein is a core problem. Capacity added now is expensive and may become outdated as thin-film and nanosolar technologies are commercialized.

Nonetheless, AE General Manager Roger Duncan explains that Austin Energy is making the investment to promote solar-energy expansion and to hasten its competitive development. "I have no doubt that in the future, solar will be the dominant source of energy in the world," Duncan says. In addition, AE plans on adding close to 600 megawatts of wind energy to its current portfolio of 439 megawatts and 12 megawatts from landfill methane-gas toward the goal of achieving 30 percent of its total energy from renewables by 2020.

AE is also a leader in developing smart-grid technology to support wind and solar power. About half of the city's meters have been replaced with smart meters with full deployment to all of Austin Energy's 397,000 customers expected to be completed by the end of summer 2009. The two-way meters are capable of sending and receiving information to reward consumers who reduce energy use during peak demand periods. In addition, AE, the Environmental Defense Fund, the Austin Cham-ber of Commerce, the Austin Technology Incubator, and other local partners started the Pecan Street Project to, according to the project's mission statement, "make the City of Austin America's clean energy laboratory" and "to develop, test and implement the urban power system of the future." The project will test prototypes for storing and distributing renewable energy and will be the nation's first project of its type for testing smart-grid technologies.

Austin's Clean Energy Incubator, launched in 2001 by the Austin Technology Incubator at the University of Texas and the U.S. Department of Energy's National Renewable Energy Laboratory, provides space and technical assistance to clean-energy start-up companies. Among incubator companies' products and services are energy-storage devices, evaluation of solar-energy system performance, and pollution- and runoff-reducing irrigation systems.

Another initiative is the Texas Clean Energy Park. With $600,000 in start-up funding from the Texas Workforce Commission and additional support from Austin Energy and the University of Texas, it will start with a research park, which will be followed by a business park. In December 2007, HelioVolt chose the park over California, Pennsylvania, and New York locations as the site of a manufacturing facility to test and produce thin-film solar cells. The company was founded in 2001 in Texas but entertained competitive offers from the other states when it decided to build a new manufacturing facility. In addition to $101 million in private venture-capital funding, HelioVolt received a 60 percent tax abatement for 10 years for locating in Austin and $1 million from a state business-incentive fund. The company will invest $80 million in the facility and pledges to create 150 jobs. Another coup was landing DT Solar, a New Jersey-based developer of large-scale solar-energy facilities that located its Southwest headquarters in Austin. The office will only create about 25 jobs but will have significant impact as it starts to develop solar-energy projects in the $30 million to $300 million range.

But even with all of these elements in place, Austin is not seeing the hoped-for development of a large-scale solar-energy industry. To date, HelioVolt is the only company in the Austin area producing solar panels. Most of the solar-energy employment growth has been in system design and installation. This is not trivial but only provides a couple of thousand jobs.

The reality for Austin is that cities and states are entering into a competitive frenzy to attract renewable-energy companies, and the price keeps going up. While nearly every locality can shift to renewable energy and gain installation jobs, every state and city cannot be a national production and design center. Texas and Austin were early movers in promoting solar energy. However, neighboring New Mexico and Colorado as well as other states have started aggressively courting renewable-energy companies with attractive incentives packages, and industry happily plays off one against another.

Solar Array, a company incubated in Austin with local subsidies, is looking to locate its first production facility to manufacture large-scale and industrial thin-film solar panels -- the emerging next-generation technology. The company's vice president for marketing, John Merritt, told me that New Mexico and New York are offering more attractive financial packages. The company is weighing these benefits as it seeks to build a plant that will initially employ about 250 workers.

If Solar Array locates elsewhere, it won't be the first renewable-energy company Austin has lost. After nine years in the Austin area, wind-farm developer Renewable Energy Systems Americas announced it was moving its headquarters to Colorado, where it will develop a large wind farm. RES took along 70 full-time employees and plans to add 70 more workers in Colorado. Company officials cite a more diverse economy and labor-market base as a key factor in the move along with Denver's larger airport being served by more airlines.

The competition will only get stiffer as the federal stimulus package adds more incentives for renewable-energy development. Despite the disappointing results in solar-energy manufacturing, Mayor Wynn seeks to keep Austin competitive in several green technologies. He notes that Austin has consistently been cited by Forbes as one of the nation's top metropolitan economies and consistently is in the top 10 of various green-city lists. He hopes to capitalize on the indirect benefits of being perceived as a national leader in the climate-change movement and to keep the momentum going with the city's involvement in research on peak load management, renewables, water conservation, and other green technologies.

If building a solar-energy industry is difficult in even environmentally conscious places like Austin, one might conclude that it would be impossible in Toledo, Ohio. Yet the nation's largest thin-film solar-panel manufacturer is located there, and the metropolitan area employs more than 6,000 people in 15 research and manufacturing businesses and institutions contributing to the solar-energy industry. And if Steve Weathers, director of the Regional Growth Partnership has his way, the area will gain 100 new high-tech and advanced-manufacturing start-ups by 2010.

The secret is Toledo's capacity to build on a traditional source of manufacturing strength -- glass technology and manufacturing. With one-third of its manufacturing jobs lost since 2000, Toledo hopes to retool its glass industry to produce thin-film solar panels. Unlike current solar panels, thin-film solar technologies use non-silicon semiconductor materials, and unlike panels, are produced using a roll-to-roll manufacturing process that is similar to printing paper. Thin film is cheaper to produce but has lower efficiency. However, this is expected to change.

The transition from producing specialty glass to producing solar-energy technology is not as far-fetched as one might think. Solar panels -- whether photovoltaic or thin-film -- are primarily a glass product. The most advanced automobile glass uses the same thin-film technology to deposit microscopically thin layers of materials between layers of glass -- which, for example, allows a windshield to respond to changes in glare. There's a wind connection too -- 70 percent of the raw material that makes up a wind turbine is made by Toledo-based Owens Corning, which also produces building-integrated solar-energy products.

Solar energy isn't new to Toledo. The University of Toledo's Wright Center for Photovoltaics Innovation and Commercialization has been around for 25 years. What's new is an influx of funds from the state in 2007. Hoping to stem the tide of 200,000 manufacturing jobs lost since 2000, the Ohio Department of Development invested $18.6 million in university solar-energy research centers, about half of which went to the University of Toledo. With an additional $30 million in contributions from federal agencies and industrial partners, the university was able to dramatically advance its research and solar-energy-incubator activities. The center's alternative-energy incubator has spun off seven solar-energy start-ups.

The jewel in the crown is First Solar, which began as Glasstech Solar in 1984. Today, it is a national leader in the production of thin-film solar panels. All told, it took about $150 million in public and private funding to develop the product and manufacturing process. In 2000, First Solar built a $16 million factory outside of Toledo, the world's largest solar-panel factory at the time. Since then, annual production has increased by 800 percent and revenues grew from $6 million to more than $500 million in 2007 while production costs fell from $3 per watt to $1.12 per watt.

The company already produces more panels than any other U.S. producer and announced an expansion in late 2008 that will add 134 employees to its work force of 700. Recently, First Solar invested $25 million in SolarCity, a San Francisco?area design and installation company. First Solar will sell SolarCity 1.4 million solar panels that will be produced in Ohio. The expansion marks the company's move into the residential market. The two companies had been discussing the deal for over a year, but it was finalized only when the renewal of a 30 percent federal tax credit, which was part of the federal financial-rescue package, made future growth enough of a reality for First Solar to seal the deal.

Like First Solar, many high-tech start-ups need business assistance, and the Regional Growth Partnership (RGP), a private nonprofit economic-development corporation, has stepped up to provide it in northwestern Ohio. Until recently, RGP followed an attraction, retention, and marketing-based approach to economic development typical of such organizations. It is now focused on innovation. The RGP offers business assistance to start-up companies seeking to develop their technology and obtain venture-capital funding for commercialization. The goal is to accelerate the time from conception to production. The partnership also started northwestern Ohio's only venture-capital fund for high-tech and renewable-energy companies. In the last year and a half, RGP has launched 40 companies, with a total of 90 alternative-energy, advanced-manufacturing, and biotech companies in the pipeline.

One of its stunning success stories is a start-up called Xunlight. RGP director Weathers recalls University of Toledo physics professor Xunming Deng and his wife, Liwei Xu, walking into his office in 2000 with a scientific paper and an idea about producing flexible solar panels that could be integrated into roofing material. With RGP's assistance, the company wrote a business plan and a funding proposal that produced almost $60 million in venture capital, a $2 million loan from Lucas County, and almost $1 million from the state's Third Frontier program to improve product yield in its manufacturing process.

Xunlight was founded in 2002, opened a facility in 2007, and will begin shipping product later this year. Eighty people are employed in research and production on the 25-megawatt pilot line. The goal is to tap European and U.S. markets, particularly in California, Ohio, and New Jersey.

Another success story is Solargystics, whose flexible thin-film cells can be integrated into building materials. As with Xunlight, RGP helped the company develop a business plan and proposal that yielded a $1 million grant from the Third Frontier program. Researchers on the Solargystics team started out in Michigan but relocated to Toledo because of its university's research facilities and Ohio's Third Frontier program, says CEO Jeff Culver. As members of the university's Wright Center, company researchers have access to testing equipment that they couldn't procure on their own. Culver's plan is for Solargystics' highly efficient manufacturing process to bring production costs down to 50 cents per watt -- half of what industry leader First Solar is doing.

In addition to Third Frontier, the Ohio Department of Development's Green Places Initiative supports local green energy and technology initiatives. A key program is the Advanced Energy Jobs Stimulus Fund, which is injecting $150 million over 3 years into advanced-energy development. Of that, $28 million a year for three years will provide support for advanced-energy projects in the early commercialization and later stages. The fund also provides incentives to companies that are retooling to add workers or repurpose their equipment to supply the wind- and solar-energy market.

Like Austin, Toledo has all of the polices in place to succeed -- a university research program, an economic-development organization focused on fostering start-ups, and several state government programs that provide various types of assistance. More than 6,000 jobs is a good start, but can Toledo continue to spin off companies, and will the ones they have stay? First Solar has already built plants in Malaysia and has one coming online in Germany. But RGP director Weathers doesn't see these as negative developments. In fact, Weathers predicts that Xunlight also will open factories in Asia and Europe. Like longtime Toledo presence Owens Corning and newcomer First Solar, Weathers maintains that successful companies have to locate plants all over the world to compete in international markets. His plan is to create as many successful new companies as he can, knowing that some will stay, some will have a presence in Toledo while expanding elsewhere, and some will fail. The goal is to innovate and stay ahead of the game by assisting new start-ups.

How is it that a high-tech city like Austin has not been able to create a renewable-energy cluster while Toledo, an ailing manufacturing city, is making progress? Both are pursuing similar strategies.

The answer lies in the manufacturing base. Toledo's glass specialists have been able to retool to meet the needs of thin-film solar-panel producers, while Austin's info-tech specialization evidently does not translate well into the skill sets needed in solar-energy production. Solar-energy companies will continue to locate production facilities in multiple countries. But places doing commercialization research will also land facilities. There is also plenty of opportunity for retooling manufacturing companies to supply renewable-energy companies, particularly in wind. But as George Sterzinger points out in this issue, even though we have the manufacturing capability, federal and state policies to develop renewable-energy projects will not translate into manufacturing jobs without explicit policy to invest in retooling.

In sum, this is a good-news/bad-news story. The good news is a good deal of local creativity as well as some successes in converting old-line industries into the advanced-energy industries of the 21st century. And some cities can rely on state support for research and commercialization. But for the opportunity to be maximized, the national government needs to become involved in a much more coherent way -- by combining a clean-energy policy with an industrial policy. Our two leading industries, bio-tech and aerospace, are the direct result of major federal investment and standard setting.

At the same time, we should be realistic about the direct employment potential of renewable-energy production, which is not massive without the manufacturing component. And we need to assess how much public subsidy to provide to create these jobs. Still, becoming and remaining a world leader in clean-energy technology is an objective too important to pass up. If we remain in this game, it will lead to industrial possibilities that we can only begin to imagine.

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