Green Solutions for Red States
By Dennis Cuneo
Much has been written about the need to expand and diversify our energy base. With the recent spike in gasoline prices and the Iranian threat to disrupt global oil supplies, some are calling for the equivalent of a Manhattan Project to develop alternative energy sources. Others say that renewables are still too expensive and that we shouldn't encourage them at the expense of fossil fuels. The highly publicized failure of Solyndra has called into question whether the federal government should continue the U.S. Department of Energy loan program, initiated under the Bush Administration, to provide funding for alternative energy projects. Supporters of the program say that without government funding, we risk ceding leadership of the alternative energy market to China.
Whatever view one holds, if you "follow the money," it is clear that private investment in alternative energy continues to grow, and is a significant driver of economic development, especially in the South. Last year, the Brookings Institution released a comprehensive study on clean energy jobs. Among the findings:
- The South has the largest number of clean energy jobs in the nation.
- Those jobs offer better pay for low and middle skilled workers than the national average.
- The newer "Clean Tech" segment of the industry produced explosive jobs gains and outperformed the national economy during the recession.
- The clean economy "increasingly looks like a promising location for the emergence of significant new technologies, processes and industries that will shape the next economy and generate new jobs."
(The Brookings Report can be found at www.brookings.edu/reports/2011/0713_clean_economy.aspx.)
Clean Tech is a term used to describe cutting edge technologies that address environmental and energy challenges. Those technologies include wind power, solar, bio-mass, bio-materials, green buildings, and carbon sequestration. The global market for Clean Tech is estimated at around $300 billion, and has grown at an average rate of 26 percent per year since 2005, according to data prepared by The Cleantech Group.
While some have argued that the demise of Solyndra signals the end of the Clean Tech boom, the facts speak otherwise. In 2011, a record amount of venture capital, $4.3 billion, was invested in U.S. Clean Tech companies, according to data from the National Venture Capital Association and PricewaterhouseCoppers. A year ago, the Wall Street Journal reported on Clean Tech investment in Silicon Valley. Just as Silicon Valley start-ups in semi-conductor chips and software led to massive economic development over the past 3 decades (think Intel, Oracle, E-Bay), Clean Tech may be the next technology driven mega-industry. ("Silicon Valley 3.0: Tech's New Wave," Wall Street Journal, Oct. 22, 2010) The business friendly South is in a position to capitalize on that growth.
I'm a baby boomer. I grew up in an era when gasoline was 25 cents a gallon. Horsepower, not miles per gallon, was the primary driver of vehicle purchases (excuse the pun). We took energy for granted, and assumed that an unlimited supply of energy was our birthright. Today, whether we are motivated by environmental concerns or national security, most of us recognize that we must find new sources of energy.
The energy equation is a simple case of supply and demand. Global demand for energy is expected to increase by nearly 50 percent over the next 25 years. To meet that demand, we must increase our energy supply from all sources. Fossil fuels will remain the primary source of energy for the foreseeable future, but they are finite and are increasingly expensive to exploit. Renewables provide an infinite source of energy and their cost curve is decreasing. As the use of renewables grows, so do economic development opportunities, especially in the South.
I spent many years as a site selector in the auto industry, finding sites for auto assembly and parts plants. Today, I spend much of my time on Clean Tech projects. Over the past two years, I've worked on several projects in the solar, nano-technology and bio-mass fields. Each of these companies, funded by venture capital out of Silicon Valley, chose communities in the South to scale up production. Cumulatively, these projects are projected to create 3,500 jobs with a total investment of over $2.3 billion -- the Clean Tech equivalent of a large auto assembly plant.
One of those projects will convert bio-mass (wood chips) into a bio-crude that can be used as a direct feedstock for oil refineries. The wood chips are obtained from nearby softwood plantations, which are in abundance in the South. As the company scales up, some of the dollars that used to go off-shore for crude oil will now go to wood chippers and loggers in the rural South. This Clean Tech project not only satisfies environmental objectives; it puts renewable domestic energy sources to good use, and creates economic opportunities in regions where such opportunities are dearly needed.
Americans want domestic energy sources that are environmentally sound and cost competitive. Communities seek diversified and sustainable economic development. That's why venture capital firms continue to invest in Clean Tech start-ups, and why communities are redoubling their efforts to attract them, with aggressive incentives and initiatives, ranging from up-front loans to special incubator programs.
To be sure, not every Clean Tech start-up will succeed, as we saw with Solyndra. Simply having a good idea or cutting-edge technology is not enough. Clean Tech companies require substantial up-front capital to build manufacturing facilities. An acid test of the project's viability is the amount of venture capital that it has attracted. A successful Clean Tech project must have the same characteristics as any successful business – savvy and patient investors, a viable business plan, and an experienced management team with the operational ability to scale up the technology in a cost efficient manner. Above all, the project must be economically sustainable long after the government subsidies or mandates expire. As with any business, it must meet consumer demand by providing products that are competitive with existing sources of energy.
Society wants cost competitive, green solutions to our energy needs. Investors are ready to fund projects to meet these needs, and they will be looking for business friendly regions to scale up production. All of this has positive and profound implications for the South. Over the past three decades, high value-added industries such as automotive and aerospace have migrated to the South, providing good paying jobs and bolstering the region's economic base. The next great industrial migration could consist of large scale Clean Tech projects from Silicon Valley.
To go back to my title, Clean Tech projects are green solutions for red states. It is up to the leaders of the region to capitalize on this opportunity.
About the author: Dennis Cuneo is the Managing Partner of the WDC office of Fisher & Phillips LLP. He was formerly Senior Vice President of Toyota Motor North America and has extensive site selection experience. His full bio can be found at www.denniscuneo.com.