By David L. Levy

The Massachusetts Clean Energy Center released the 2011 Massachusetts Clean Energy Industry Report this month, just a few weeks after the failures of solar firms Solyndra and Evergreen triggered a fierce debate about the prospects for green jobs in the US and the wisdom of government investment in clean energy. The answer to this $64,000 question is 64,000 clean energy jobs in Massachusetts in 4,909 clean energy companies. While the precise jobs number depends on assumptions about definitions and the methodology used, this figure represents a 6.7% increase from July 2010 to July 2011, a period of stagnancy in the national employment situation (and employment growth in Massachusetts was a meager 1%). Moreover, respondents to the survey used for this study were optimistic about future growth, expecting employment to grow by 15.2% by July 2012. About 40% of employers expect to take on more clean energy workers in the coming year, while only 2% expect fewer.

One way to put these numbers in perspective is to compare them to the first effort to measure the clean energy sector in Massachusetts, in which I was a participant. Back in 2004, we arrived at the figure of 11,000 people in approximately 400 firms, and predicted that the sector could reach 20,000 employees by 2010 “if Massachusetts remains at the forefront in terms of both policy and technology in clean energy development”. Despite the deep recession, the clean energy sector has far exceeded these expectations. One thing that has not changed, however, is the political sensitivity of these numbers. Just last week, former Massachusetts governor and presidential candidate Mitt Romney called the promise of green jobs “illusory”. Back in 2004, our report was not published for several years, apparently because of pressure from local business associations who were worried that the numbers might lead to carbon regulation.

In 2004, we identified an incipient clean energy cluster in the state, comprising not just clean energy firms, but geographically concentrated networks of related businesses, such as specialized suppliers, consulting and professional services, and venture capital firms, and other organizations, including industry associations, universities, research centers and supportive government agencies. Clusters are characterized by a concentration of sector-specific skills and a rich network of connections among people and organizations. In the case of Massachusetts, these skills draw from the advanced electronics, IT, and specialized manufacturing sectors in the region. We observed, for example, that a significant number of ex-employees of Polaroid had brought their thin-film engineering expertise to bear in solar and fuel cell technologies. We also noted that the state has substantial expertise in power electronics, which comprises at least 25% of the renewable energy value chains. A hidden asset in the state is a strong network of clean energy enthusiasts spanning business, government and academia that lends coherence and a sense of mission to the cluster.

Aside from the headline numbers, the report highlights the diversity of sectors, activities, and skill levels associated with clean energy. This makes an accurate count difficult, but highlights the many ways that clean energy is affecting the economy and the  broad range of job market opportunities being created. Relatively few of these jobs are in manufacturing, while the vast majority are in sales, distribution, and installation, positions which are location-specific and immune to outsourcing. A substantial number are in highly skilled research and development, which are also likely to be geographically “sticky”.

The 2011 study defined a clean energy firm “as an employer engaged in whole, or in part, in providing goods and services related to renewable energy, energy efficiency, alternative transportation, and carbon management.” Similarly, clean energy workers are defined as “employees which spend at least a portion of their time supporting the clean energy aspects of their businesses”. The study burrowed deep into organizations to reveal clean energy-related activities that earlier reports have missed. While more than half the firms in the study derive at least 50% of their revenues from clean energy products and services, more than one-third of the organizations got less than 25% of their revenues from clean energy. About half the organizations contacted had 5 or fewer clean energy employees. This reflects a large number of small companies in the region, but also a lot of businesses and organizations that would not usually identify themselves with the clean energy sector, but have a few employees working on, for example, energy efficiency or clean energy research.

While solar is by far the largest technology focus of the renewable energy companies, there is a broad range of other technologies in the cluster. Since 2004, biofuels, geothermal, and hydropower have become more prominent, while fuel cell activity has declined, in relative terms. Among energy efficiency firms, the largest number are in HVAC and building controls, but smart grid and demand response have been growing recently.

Back in 2004, we noted that Massachusetts had great potential in power electronics, the hardware and software needed for energy measurement, management, storage, connection, control, and conversion. Aside from a few pure plays, like Beacon Power, it’s still unclear from this report how many companies are active in this part of the clean energy value chain. Some are probably captured in the energy storage, smart grid, and demand response categories under energy efficiency, but there could be more activity here as well as unrecognized potential. The report does mention some of the university community – it reports 326 researchers in the University of Massachusetts system (not including Dartmouth), and even 37 on my own campus, UMass-Boston.

The regional cluster contains a growing number of professional service firms, such as law, accountancy, finance, and consulting companies with staff devoted to clean energy related issues. The region is also home to a large environmental NGO community as well as numerous government agency employees working in the field. The report does not explicitly discuss these workers or organizations. Yet, combined with the administrative, professional, and managerial employees at the firms included in the report, this is an important group of jobs that many surveys have neglected.

The study notes that the clean energy sector demands advanced expertise and education, and that about 60% of firms report great or some difficulty in recruiting workers with adequate experience and technical skills. But employers are not necessarily looking for clean energy experts. Echoing what I’ve been hearing elsewhere, they want people who are highly skilled in their primary field, whether that’s sales, installation, engineering, or accounting, and with some knowledge of (and passion for!) clean energy. Which brings me to a shameless plug – our clean energy education programs at UMass-Boston, including certificates in Clean Energy and Sustainability and an MBA track in Environmental Management, are designed specifically to serve professionals who are strong in their primary field, and want to deepen their clean energy expertise.

Economic development and workforce development must be done together.  That was the primary recommendation of two research reports released last month.  It’s a common sense conclusion that has important implications for the clean energy industry and the education and training community in Massachusetts.

The first report, from the Aspen Institute’s Workforce Strategies Initiative, examined efforts to align economic and workforce development programs in Louisville, Kentucky; Cleveland, Ohio; and Southwestern Pennsylvania.   The resulting report (Where Labor Supply Meets Labor Demand: Connecting Workforce Development to Economic Development in Local Labor Markets) identifies four critical capacities that development programs need to align themselves with the changing requirements of local employers, including:

1. Industry expertise and credibility
2. Deep knowledge about the local labor pool
3. Ability to conduct local labor market research that is informed by both data and industry intelligence
4. Relationship building and maintenance

Although it might seem obvious that employers, economic development professionals and the workforce community would travel in close alignment with one another, the Aspen Institute report suggests that this is often not the case.  In fact, it’s quite common for the three groups to work parallel to, or even at odds with, the goals of those they are trying to support.   By developing and sharing the four capacities Aspen identified, workforce and economic development groups can better serve job-seekers, career changers, students, employers, tax payers and training institutions.

The need for close collaboration between economic and workforce development has been evident to leaders in the Massachusetts clean energy industry for a long time.  To assure continued alignment, a coalition of organizations sponsored a series of leadership “summit” meetings in 2010 and early 2011.  The summits were held at UMass Lowell, in New Bedford, and at UMass Amherst.

The Summit organizers included Massachusetts Clean Energy Center, New England Clean Energy Council, Skillworks, Garfield Foundation, and the UMass campuses in Lowell, Dartmouth, Amherst and Boston.   In addition to dozens of clean energy company executives, the events attracted representatives from local and state government agencies, colleges and universities, vocational training schools, apprenticeship programs, social justice advocacy groups, workforce investment boards, and labor unions.  Over 300 leaders registered for the summit meetings.

A summary of conclusions from the three Massachusetts summits was released last month under the title Supporting and Growing the Clean Energy Sector in Massachusetts: Clean Energy Industry Economic and Workforce Development Leadership Summits.

The comments and suggestions from the Bay State summit meetings clustered around seven common themes, including:

1. Growing the Demand
2. Policy and Vision
3. Education
4. Training and Workforce Development
5. Research and Development Support
6. Innovation and Finance: Building Businesses
7. Social Justice

Within each of these themes, the detailed recommendations mirrored the central conclusions of the Aspen Institute report.  The Summit participants zeroed in on the need for shared, accurate, and detailed labor market information focused on clearly defined clean energy industry sectors so that workforce programs closely match employer needs at the local level.

The Aspen Institute study and the Massachusetts clean energy summit report were also closely aligned in calling for strong, sustained, personal relationships between employers and the economic and workforce professionals charged with growing the economy and training people to land jobs in a difficult employment market.

The 4^th Clean Energy Connections Conference in Springfield, Mass. on Nov. 2 will give the state’s clean energy economic and workforce development community a chance to review the comments and suggestions made at the original summit meetings, assess progress and pitfalls over the last few months, and discuss plans for staying aligned in 2012 and beyond.

As the Aspen Institute report notes, the recent recession has resulted in austerity policies that will strike hard at public and private budgets.  This harsher environment is reducing the margin of error for economic and workforce development programs. Taxpayers, employers and government officials are shining a bright spotlight on expenditures aimed at job creation and job placement.  They are demanding clear and measurable results.

To produce these results, employers, economic development professionals, and the workforce development community will need to support each other, produce and share high quality information, and work together toward closely aligned goals and objectives.  Working on separate, uncoordinated tracks, is simply not an option.

While public policy and the media tend to focus on technological innovation as the key to addressing climate change and boosting clean energy, business model innovation (BMI) offers a path to rapid deployment of existing technologies. The concept was popularized and given its current acronym by Mark Johnson, Clayton Christensen, and Henning Kagermann in their Dec. 2008 Harvard Business Review article “Reinventing Your Business Model.” They point out that “Low-cost U.S. airlines grew from a blip on the radar screen to 55% of the market value of all carriers. Fully 11 of the 27 companies born in the last quarter century that grew their way into the Fortune 500 in the past 10 years did so through business model innovation.”

The potential for BMI in the development of the cleantech sector is only just beginning to be appreciated. Rob Day, a partner with Black Coral Capital in Boston, recently wrote about a new wave of startups that run lean and require less capital to scale up, so are less likely to founder in the infamous Valley of Death: “Some of this next wave of startups will be hardware, but many will be software and/or services…  Business model innovation will often be stressed over technological innovation.  They will sometimes marry energy-related market opportunities with Web2.0 and social media business models and platforms.”

A closer look reveals that BMI holds particular promise for unlocking the potential of clean energy and promoting economic competitiveness, investment and employment in high-cost regions. In addition to helping keep startups lean and capital efficient, BMI can develop systemic solutions that overcome some of the many market failures and institutional barriers to energy efficiency and clean energy. McKinsey’s famous Marginal Abatement Curve heralds the good news that about one-third of needed emissions reductions appear to have positive ROI with current technologies. The bad news is that about one-third of needed emissions reductions appear to have positive ROI – yet the necessary investments are not happening, due to these many hurdles. As with Zipcar, BMI provides ways to monetize the ancillary benefits of cutting emissions, and create business models that focus on features that people are willing to pay for.

BMI-based cleantech businesses are also more likely to keep jobs in high wage regions such as the US Northeast and California. Clean energy manufacturing jobs have been moving astonishingly quickly to China, even while there is still rapid technological evolution. Evergreen Solar and A123 Batteries, both based here in Massachusetts, are cases in point. Business model innovation often focuses on software and services, developing strong relationships with customers and building on existing capabilities in the region, so jobs are more likely to stay local. These factors also help to create barriers to entry, protecting the business model. Zipcar’s network of parking spots, for example, negotiated over several years with hundreds of companies and local authorities, would not be easy to replicate.   

Better Place is a powerful example of how BMI can overcome systemic barriers to technology deployment. The company is developing a national replaceable battery infrastructure for pure electric vehicles in Israel, Denmark, and elsewhere that transforms the business model for car ownership and fuel supply. Consumers buy a car without the expensive batteries, then contract with Better Place for battery replacement as a service, which is done in just a few minutes at a network of service stations. This model overcomes the physical limitations of batteries, in terms of range and charging time, and dramatically reduces the cost of new cars for consumers. As with Zipcar, governments are willing to subsidize the operation because it contributes toward reducing congestion and greenhouse gas emissions – again, monetizing ancillary benefits.

Energy efficiency and smart grid provide many opportunities for BMI. EnerNOC’s core business model, for example, is demand response and energy management, using sophisticated software and remote monitoring and control. Enernoc links the utilities, who are willing to pay for energy efficiency and for peak-period demand reduction, to a network of customers. Energy service companies like Ameresco are increasingly offering turnkey projects and performance contracts that reduce risks, capital requirements, and uncertainty for customers. Similarly, companies like Nexamp, Tioga Energy and Borrego offer renewable power purchase agreements based on DBOOM services – a complete package where the company designs, builds, owns, operates and manages the renewable energy installation, while the customer only pays for power.

Not surprisingly, then, these BMI-based companies are among the fastest growing businesses in the cleantech sector. Kevin Doyle, a Principal of Green Economy and Co-Chair of the New England Clean Energy Council’s Workforce Development Group, has pointed to the large number employment opportunities at a range of cleantech companies, a number of which are in energy services and software. As a result, they are not just looking for engineers, but also for a range of business and professional skills and expertise – which highlights the purpose of our new clean energy programs at the University of Massachusetts, Boston!

Dan Reicher, until last week Google’s Director of Climate Change & Energy Initiatives, told a UMass-Boston audience of several hundred people that the US needs to do much more to “invent the future of clean energy”, using a combination of smart policy, technology, and finance.  Reicher told the Wednesday night gathering, “We’re not going to get to where we want to go without taking a more integrated view.  Otherwise we’ll miss the biggest economic opportunity of the 21^st century.” In an interview with the Boston Business Journal at the event, he noted that “even when there are good technological advances, there aren’t policy signals or adequate capital to make changes.”

Reicher’s appearance celebrated the launch of UMass-Boston’s new interdisciplinary  professional education programs in clean energy and sustainability, which include an MBA track, a graduate certificate, a Professional Science Masters, and an undergraduate certificate and minor. These programs have been developed by the Center for Sustainable Enterprise and Regional Competitiveness (SERC) with funding from the Massachusetts Clean Energy Center, and represent a collaboration between the College of Management and the Department of Environmental, Earth, and Ocean Sciences (EEOS). These programs will equip “green and white collar” professionals, policymakers, and business managers with the skills and knowledge needed for the transition to a clean energy economy.

Reicher’s presentation emphasized the need to address systemically and comprehensively the global energy and climate challenge—which means advancing energy efficiency, developing and deploying renewable energy, addressing economic and financial barriers, aligning policy goals, and preparing a highly skilled workforce. “We welcome Dan Reicher to UMass Boston because he understands deeply the interrelated dimensions of the transition to a vibrant clean energy, low-carbon economy,” said Prof. David Levy, Chair of the Department of Management and Marketing and SERC director.  “Success depends on developing partnerships among government, business, policymakers, and universities in promoting the clean energy economy.”

Reicher is now leaving Google to become Executive Director of Stanford’s new $7 million Steyer-Taylor Center for Energy Policy and Finance, a collaboration of Stanford Law School and the Graduate School of Business. Reicher plans to continue his life’s mission from this new position. “U.S. and global energy systems are plagued by serious economic, environmental and national security problems”, said Dan Reicher. “In their resolution lie vast opportunities for job creation, pollution control, and reduced international tensions. The successful integration of policy and finance is key to addressing these problems and seizing the unprecedented opportunities. We need smart policy to set the stage for fundamental change in our energy systems and innovative finance to make things happen – from early stage innovation to the broad-scale deployment of clean energy technologies.”

by Joshua Rinaldi and David Levy

Joshua Rinaldi is a first year doctoral student in the McCormack School of Public Policy and Global Studies at the University of Massachusetts, Boston.

A recent Clean Tech Jobs Outlook Report estimated that in 2009 there were more than 3 million jobs in the renewable energy field globally. The report indicates, however, that the US is falling further behind in this field; the bulk of these jobs are now in China and Brazil.

The CleanEdge report points to several trends that suggest that, while the world is moving toward a green economy, the United States may be lagging. Solar panel production is expanding in Mexico where some U.S. companies have outsourced manufacturing for the lower wages. In the automobile and other sectors, Mexico has been a very attractive destination for outsourcing because its proximity to the U.S. enables logistical integration of supply chains, and because of the NAFTA free trade area.

About 70 percent of hardware and technology used in U.S. clean-energy installations are constructed overseas, according to the report. “Essentially, clean-tech manufacturing has run up against the same economic realities as countless industries that came before, from clothing to computer chips to cell phones: it’s very hard for the U.S. to compete with overseas labor costs, particularly in the developing world.” For example, BP Solar closed its Frederick, Maryland, PV plant in March 2010 and moved most of the 320 jobs abroad. This is also a sign of the surprisingly rapid maturation of the industry, as solar panels rapidly become low-value added commodities.

If this trend holds true, then the main non-exportable jobs in renewables will be related to project  planning, finance, permitting, installation and the maintenance of solar panels and wind turbines. While that is encouraging, the report cites the Renewable Energy Project, a think tank in Washington D.C., as saying that maintenance and installation makes up only 30 percent of the total labor involved with these projects. Of course, numerous early-stage clean tech firms are conducting their R&D and initial manufacturing in the U.S., but many of these look to manufacture overseas as soon as products enter large-scale commercial production.

Based on the report, China is the most likely destination for the roughly 60 percent of jobs related to manufacturing in clean tech supply chain: “No other country comes close to matching the active role being taken by China to supercharge its clean-tech initiatives.” China, the world’s second largest economy behind the United States, now outspends both the U.S. and the European Union in terms of clean tech research dollars. Its $34.6 billion in clean energy investment in 2009 was just shy of double the $18.6 billion in investments in the United States.  

China also topped the U.S. in presence on the global top 10 publicly traded pure-play clean tech companies list, which represent just short of 100,000 employees. China has six of the top 10 (when the Hong Kong facility is included) and the United States has only two.

A comparison with the 2009 Clean Edge report shows the growth of China in the field. China’s presence on the list doubled in one year while the U.S. actually has one less company listed in 2010. (The 2009 report quoted a Pew Charitable Trust report that gave an estimate of 770,000 clean tech jobs in the United States, but the 2010 report did not cite a comparable figure for 2010).

The report does offer a few nuggets of hope for particular regions in the United States, as some cities are developing thriving clean tech clusters. The good news is mostly local. The Boston metropolitan area is ranked as the best place for clean tech jobs east of California based on job presence, job postings, investment activity and patent activity.

The report ranks the Boston metropolitan area third for clean tech job activity, behind only San Francisco and Los Angeles. Boston moved up one spot from its 2009 ranking to overtake New York City in the standings. In addition to the top spots, California claims two other cities in the top 15 metro areas for green job growth. A good portion of California’s job growth stems from aggressive smart grid expansion from high-powered companies like Google, Cisco and Intel. This is testament to the fact that clean tech jobs are not limited to traditional renewables, but are  increasingly at the intersection of  IT, telecoms, and energy efficiency.

About 6 percent of the federal stimulus money, around $50 billion, is aimed at green jobs. This amount includes loans and grants for direct investment in manufacturing, electric grid improvements and public transportation as well as loans for green improvements. Substantial U.S. Department of Energy (DOE) loan guarantees encouraged Spanish wind-turbine generator company Ingeteam to employ about 270 workers at a new plant announced in March outside Milwaukee, while Spain-based Talgo plans to hire 125 employees to build high-speed rail cars at a former auto parts factory in North Milwaukee,” according to the report.

If the United States is to conquer large sections of this market, the report recommends the country continues to invest in green infrastructure, raise fuel efficiency standards and make its renewable portfolio standards (RPS) stronger. The Obama administration has made a very targeted commitment of around $2.4 billion for alternative fuel vehicles, electric drive chains, and high-density batteries, with Michigan receiving the lion’s share. For instance, the report indicates the Department of Energy made a $465 million loan to electric-car maker Tesla Motors in April. Nine advanced electric-vehicle battery plants have opened in the U.S., with support from these funds. Yet these highly automated new plants employ far fewer people than the old auto factories they replace. Moreover, this is a very risky bet, because it could be many years before a mass market emerges for purely electric vehicles. Not only do they still face substantial hurdles relating to cost, range, and recharging infrastructure, but pure electrics can have very poor carbon emissions profiles if they rely on a coal-intense grid for recharging.

While some parts of global green value chains are highly mobile, some manufacturing is always attracted to locations close to large markets. Labor is an increasingly small proportion of manufacturing costs in highly-automated production systems, and large multinational corporations prefer some operations close to markets to reduce supply disruptions and to learn about consumer demand. They also prefer to spread operations around major regions in order to diversify political and economic risks, and reduce protectionist pressures. Even the Chinese are now playing this game. As the report notes, “In August, Chinese wind-turbine maker A-Power Energy Generation Systems and wind developer partner Shenyang Power Group said they will work with the United Steelworkers, America’s largest industrial union, to supply the steel for components at a 615 MW Shenyang wind farm in west Texas.”

The overall trend is not positive, however, for the U.S.  According to the report, “The U.S. trade deficit in renewable-energy products soared 1,400 percent to almost $5.7 billion between 2004 and 2009, according to a January 2010 report from the office of U.S. Sen. Ron Wyden (D-Oregon).” Trade and employment go hand in hand, so this points to a major challenge if the U.S. is to secure its position in this sector.

The SJF Institute, the not-for-profit arm of SJF Ventures, released the annual Clean Tech Job Trends in October.

Yet I was skeptical regarding the business model. I know that intense competition and large scale production have been driving down solar prices in the last couple of years, but I’ve still been reading total installation costs of about $6-8 per peak watt (pW). Yet it seems that prices are now even lower than that. Solarbuzz, a solar consultancy, reports that average retail module prices in May 2010 have fallen to around $4/pW, but that the lowest cost multi-crystalline modules are now $1.74/pW retail, while mono-crystalline is $2.07/pW. Inverters, balance of system, and installation add another $2.50 to $3/pW. Installation on parking canopies rather than rooftops adds another $1/pW or so.

Even with total installed costs as low as $4.50 to $5, and a 30% credit on capital costs thanks to the generosity of US taxpayers, the numbers still didn’t add up. What makes Apogee’s business model possible is the value of solar renewable energy credits (SRECs). US states that enact renewable portfolio standards (RPS) have created local markets for renewable energy credits, allowing utilities to meet their requirements by buying RECs. In order to stimulate solar, a number of states have created “solar carve outs”, i.e. a separate standard for solar energy with its own SRECs, which have initial market prices in the 30-60c/kWh range – Massachusetts has set a floor price of 30c/kWh (astute readers will observe that SREC is an anagram of SERC, our very own center for Center for Sustainable Enterprise and Regional Competitiveness here at UMass-Boston).  

This is a massive subsidy indeed, and raises significant policy issues. Even for those who are fervent advocates of renewable energy, does it make sense to provide such huge subsidies to solar, when modest subsidies for land-based wind power of around 2-3c/kWh serve to make it grid competitive in many regions? Would the money be better spent on research and development, and the development of local workforce skills and business clusters? Subsidizing installation at the retail level will generate a few local jobs for developers, electricians and installers, but the panels will mostly be imported. There is a serious risk of consumer backlash when people realize the extent of the subsidies and the impact on their utility bills – just as the proposed cost of offshore wind power from Cape Wind has shocked even some of its supporters. Perhaps these subsidies are needed to jump start commercial scale installations and overcome industry inertia and perceived risks, but in themselves they also constitute a barrier to scaling up new renewables beyond a few percent of grid supply.

In return for discussing the business and economics of SRECs, I promised to give David Weinberg a chance to explain Apogee’s business pitch, so here it is:

Imagine that you’re a business owner or a University president in the Northeastern United States.  Over the past 10 years you’ve watched your cost of electricity soar 69%, and it could double in the next ten years.  Compete with China?  You can’t even compete with most states here at home.  Those high prices will crimp your growth and extinguish your profits.  In fact, if you stay in the northeast, you probably won’t survive another 10 years.

What if you could use solar energy to cut your energy bill 30-40%?  “No way”, you’d respond.  “Not enough sun” or “too expensive to install upfront”. New England averages 4.3 hours of sun per day, almost double that of Germany, the world leader in solar power. As to the upfront cost, what if it didn’t exist? If there is no upfront cost and the solar power costs 30-40% less than what you are currently paying, would that be attractive?

Apogee Solar is a solar energy developer in New Jersey, Massachusetts or Pennsylvania, who harnesses the power of Solar Renewable Energy Credits (SRECs) to lower your energy bill. An SREC is an energy tariff that is amortized over everyone’s bill, so it is a tiny part of the rate base.  Every megawatt of energy that your installed system produces earns me one credit.  I can then take that credit and sell it into the marketplace.  The sale of the credit is what allows me to finance your system with no upfront costs.

How much are SRECs worth?  That depends on where you are located.  New Jersey has a current price of around $650 per credit.  Massachusetts has set a yearly floor of $300 per credit.  Energy systems are designed so the credits depreciate over time.  A system that is 10 years old will generate SRECs that are less valuable than a system that is two years old.  What does that mean to energy prices?  In Massachusetts and New Jersey I can negotiate a starting electricity price of 9 cents/kWh, and in 15 years your price will still be below 13c/kWh. At the end of 15 years you own the system, so for the next 15 years your cost of power is free.

Solar installations are financed with what are called ‘Power Purchase Agreements’ (PPAs).  I like to call them solar mortgages, except that your property and assets remain free and clear.  The collateral for the financing are the generated SRECS.  Like any mortgage, only businesses or universities that are in good health will qualify. You might be wondering if you can finance an installation on your own to save even more money.  That depends on how much time and effort you want to spend.  Because of the variability of SREC prices, most commercial banks won’t finance them. Assuming that you could find financing, you would then have to identify the right solar modules, the right inverters, hire the right design firm, hire a really good union electrical installation firm, and then take your system through the local planning and zoning board for approval. After you have your system installed, you’d have to maintain it. Apogee brings together the whole package: finance, design, installation and maintenance. We save you money and help the planet.

On Saturday night, May 1^st, UMass-Boston celebrated the launch of our new Center for Sustainable Enterprise and Regional Competitiveness (disclosure – I’m the director) and other sustainability initiatives on campus with a gala dinner featuring keynote speaker Gina McCarthy, a graduate of UMass-Boston and currently the EPA’s Assistant Administrator for Air and Radiation. In this capacity, she directs EPA’s policy on climate change.

Gina McCarthy gave a powerful and passionate talk, highlighting the EPA’s achievements on clean air, energy efficiency, and climate change, while pointing to the challenges ahead. She also discussed the important role played by UMass-Boston in her own education and now in training the next generation of environmental leaders. Ms. McCarthy put climate policy in the context of the huge oil spill near New Orleans and federal approval last week for the Cape Wind project. More than two hundred people attended the event in the new Campus Center, which offers stunning views over the Boston harbor.

In order to promote “Green Education for the Next Generation,” UMass Boston also hosted a panel discussion on Friday April 30^th focusing on the prospects for “green jobs,” clean-tech regional competitiveness, the role of “green education” and the value of collaborations among universities, business, and government agencies.

Giving presentations were:

David Cash, Assistant Secretary for Policy in the Massachusetts Executive Office of Energy and Environmental Affairs

Daniel Moon, President and Executive Director of the Environmental Business Council of New England

Kathleen J. Freeman, Director Environmental Affairs, NSTAR Corporation

Robbin Peach, Executive Director of the Collaborative Institute for Oceans, Climate and Security

R. J. Lyman, partner at Goodwin Procter

The event was moderated by Dr. Robert Massie, former director of Ceres and founder of the Global Reporting Initiative. Robbin Peach showed a video about the climate-security connection.

And while we are into shameless self-promotion, here I am on New England Cable News last week for Earth Day, talking about green jobs and green education!

by David L. Levy

When most people think about clean energy, solar and wind are the first things that spring to mind. Markets for these renewable energy sources have exhibited rapid growth of about 25-30% annually, and these sectors have attracted the lion’s share of venture capital funding and investor interest. They also tend to dominate the various Exchange Traded Funds (ETFs) that track clean energy. Yet the clean energy economy extends far beyond renewable energy technologies, including everything from power controls and storage, carbon software and trading, and energy efficiency. In transportation, while auto companies chase expensive dreams of electric cars, more economically viable opportunities lie in mass transit, bicycles, and innovative car rental services such as Zipcar. Clean energy is also generating a vast range of engineering, professional, and financial services. The transition to a clean energy economy will therefore change the employment landscape (see Green Jobs Booming and Training the “Green and White” Collar Workforce). At the same time, it’s creating new investment opportunities to rival electronics and biotech. The best investment opportunities are the unsung heroes that lie in the more cloistered parts of the evolving cleantech economy.

There are two core principles involved in understanding which green sectors have the most potential and which are overhyped. The first is that successful investing requires better insights than the average market investor. Share prices for many cleantech companies already reflect the expectation of rapid growth – companies (or sectors) have to outperform these expectations to generate significant returns. Second, the market is not rational – the efficient market thesis does not hold. This means that share prices do not accurately reflect all the information out there. To complicate matters, these two principles are somewhat contradictory: What is the point of better knowledge, if the market is arbitrary?

Well, the market is not completely arbitrary – to some degree, it’s Predictably Irrational, to use the title of Dan Ariely’s book. Investors exhibit herd behavior, leading to macro market distortions – share prices (and P/E ratios) can expand in frothy bubbles or become mired in gloom, with prices detached from underlying profits and cash flows. There are similar distortions at the sector and individual company level. When a new sector is fashionable, investors pile in, the media provides glossy rationalizations, and even policymakers can jump to support the ‘next big thing’. Many investors don’t care about underlying value and try to ride these waves of momentum, but this market-timing strategy requires nerves of steel and considerable luck.

Eventually, reality catches up and capital move on. Interest in fuel cell powered vehicles, for example, has collapsed while biofuels are on the wane. But distinguishing ‘reality’ from conventional wisdom is a considerable challenge, even within the expert community. Ford and GM’s disastrous experiments with electric vehicles in the 1980s and 1990s created a firm belief in the US auto industry there was no future for electric vehicles of any kind, even hybrids. The institutionalization of this view led US car manufacturers to scoff at the prospect of Toyota and Honda introducing hybrids (HEVs) in the late 1990s, and now the hobbled US companies trail far behind (see my 2002 paper on the auto industry and climate change). Similarly, the failure of concentrating solar thermal pioneer Luz in 1991 put the sector in the freezer for over a decade. For HEVs,  the technologies were premature for commercialization, but CST suffered from capricious public policy and the association with low-tech solar hot water (hard to patent the technology) in comparison with high-tech solar PV.   

Tom Konrad, of AltEnergyStocks.com fame, recently presented a model clean energy investment portfolio that tries to identify undervalued sectors with the best prospects. It is notable for the absence of solar, and the dominance of efficiency, transportation, and electric grid.

In fact, the portfolio substantially diverges from the current market cap of various clean tech sectors given in a BofA Merrill Lynch Global Research report. Solar and wind dominate the pie chart, with each having about one-third of the total market cap. Popular clean energy ETFs are similarly overweighted  in solar and wind.

Konrad assesses each sector in terms of several criteria:
1. How big a role will this sector play in our energy future?
2. How large is the market cap of current firms in the sector?
3. Is the industry likely to be disrupted by new entrants and technologies?
4. Are there underlying enabling technologies that will benefit from the sector’s growth, or constraints that will hold it back?

By these criteria, wind and solar PV are poor investments because although they can play major roles in our clean energy future, they already have large market caps – the growth expectations are already “baked in”. Wind at larger scale is constrained by the lack (and cost and planning issues) of long distance transmission. Even worse for solar PV, the sector is at risk from technological disruption and new entrants, particularly from concentrating solar thermal (CST) or new variants of solar PV.

Konrad identifies transmission, smart grid, and storage as the key enabling technologies for the clean energy infrastructure, which have been somewhat overlooked but now seem ready to catch a wave of investor attention. Despite the recent success of lithium ion battery producer A123’s IPO, Konrad is pessimistic about plug-in vehicles due to their cost and inherent limitations of the technology, leaving automotive batteries highly vulnerable to disruptive innovation (also see John Petersen on this).

Konrad’s basic approach is very sound, especially for those who prefer a sectoral approach to the risks of individual stocks. It provides a useful framework for discussing particular technologies. For example, I would favor CST as a sub-sector because of its prospects to scale up at reasonable cost, the lower technological risk compared with PV, and the prospects for integrating thermal storage (also see this on SolarReserve). The offshore wind sector could also benefit from the $125 billion plan to build up to 25 GW of capacity, for which initial contracts were announced in early January.

I’m less sanguine than Konrad about the prospects for mass transit and high-speed rail, at least in the US, as it requires a level of governmental investment and coordination that seems unlikely in the current financial and political context. I fully concur regarding the outlook for efficiency. A McKinsey report points to the economic attractiveness of efficiency investments and a vast market potential of over $500 billion in the US over the next decade. Pike Research recently issued a report supporting a positive outlook, projecting that the Energy Service Company (ESCO) business in the US would increase from $5.6 billion in 2009 to nearly $20 billion by 2020. Utility demand side management programs are a major stimulus for this growth. The Pike Research report also noted opportunities at the intersection of energy efficiency and information/communications technology.

Although this is not the place for a discussion of particular stocks and mutual funds, it’s worth noting that investing in efficiency tends to be tougher than other sectors, because there are few public pure-play companies or dedicated ETFs. On the one hand, there are many small privately held companies, and on the other, some very large industrial companies for whom energy control systems and services are a relatively minor part of their business, such as Honeywell International and Siemens. The situation is similar with clean energy related professional services and software. Pike Research estimates that the market for carbon software management and services was a modest $380 million global market in 2009, but is poised for growth of more than 40% a year. This neglected part of the clean energy market has a few small players, but is increasingly dominated by the large accounting, management consulting, and enterprise software companies.

Concerns about the future of the US clean energy sector were heightened last week when John Rudolf ran a New York Times article describing plans for a 600-megawatt $1.5 billion wind farm in West Texas. With construction set to begin in March 2010, the wind farm will use 240 2.5MW turbines manufactured by A-Power Energy Generation Systems in Shenyang, China, and the capital cost is mostly financed by Chinese banks. Though pitched as a “joint venture” among a consortium of Chinese and American companies, the US contribution is mostly limited to federal loan guarantees and cash subsidies from stimulus funds for about one-third of the total cost. The utility-scale wind farm will be operated by a Texan company, Cielo Wind Power, and the financing was arranged, in part, by the U.S. Renewable Energy Group, an American private equity company (see this Jan 2010 NYT update on China’s clean energy industry).

Clean energy has been pushed as a “win-win” solution to reduce greenhouse gas emissions while simultaneously stimulating a high-growth technology-based sector with a broad range of employment opportunities. Yet while the proposed wind farm will generate plenty of clean power, it is expected to create only about 300 temporary and 30 permanent jobs. Reaction to the proposal has been harsh, judging by the comments mentioned in a follow up piece. One captured the mood saying: “Why are U.S. stimulus funds being used to subsidize manufacturing jobs in China?”

It’s important to disentangle the issues here, as government subsidies have at least three goals: short term demand stimulus, emissions reductions, and longer-term creation of a competitive clean energy cluster. As a short term Keynsian economic stimulus for the US economy, this is clearly not a good use of funds, considering how much of the spending is “leaking” internationally. On the other hand, US firms are in line to benefit from stimulus spending in other countries, so we need to be wary of protectionist “Buy American” constraints to stimulus spending. As a mechanism for reducing carbon emissions, wind farms are a relatively effective way to spend money, in terms of cost per ton of carbon, certainly more so than the “cash for clunkers” program, which has been estimated to cost more than $200 per ton. If we take a view as global citizens concerned about the climate, then the location of jobs does not matter. Indeed, finding the lowest cost source for blades ensures the maximum carbon reduction per dollar expenditure.  

The creation of a competitive clean energy cluster in the US is an important longer-term policy goal. Clusters such as life-sciences in the Boston area and electronics/software in the San Jose/Silicon Valley region provide high-income employment opportunities and a strong tax-base. Clusters, by their nature, are enduring and “sticky” – businesses are willing to locate in high-cost regions to be close to customers, suppliers, specialized services, competitors, skilled labor, university research centers, and sector specific sources of capital. Clusters become self-sustaining economic ecosystems that stimulate innovation and enhance specialized skills and corporate capabilities. They are geographically bound not so much by the physical flows of components but by the dense human networks that enable rich information flows.

Once technologies stabilize to some degree, manufacturing becomes less “sticky” and easier to relocate to low-cost offshore sites in Asia (I did my PhD thesis on this topic, you can download my articles on international sourcing here and here). In the computer industry, the US has retained plenty of high-paying jobs in product management, design, software, finance, and marketing. In clean energy, however, production is moving astonishingly quickly to China even while there is still rapid technological evolution. This week, Evergreen Solar of Massachusetts announced that it would shift panel assembly to China, with the loss of about half of the 800 jobs at a new factory opened last year with $58 million of state aid. Of even more concern, the technological center of gravity might also be shifting. First Solar’s deal last month to build a 2 GW solar farm in Inner Mongolia is reported to include the construction of a manufacturing plant in China and the transfer of expertise, including First Solar’s unique cadmium/tellurium technology. China is perhaps intent on replicating in clean energy Japan’s earlier success in consumer electronics, which was built on the transfer of Western technologies during the 1960s and 1970s.

Intense price competition is part of the reason for the rapid move offshore. Product cycles are speeding up for clean energy, as for other sectors, resulting in a rapid commoditization and falling prices. This trend is reinforced by the recession and overcapacity. But China is also putting into place massive subsidies, in the form of feed-in tariffs for renewable power combined with grants and cheap finance for construction of projects and factories. In a reversal of tradition, the path for foreign companies is being smoothed with the elimination of bureaucratic red tape.

In this context, a new report from Deutsche Bank published October 2009 and reported in the Wall Street Journal makes for interesting reading. The report assesses country-level risk from the perspective of clean energy investors. The key conclusion is that:

Investors want TLC— transparency, longevity, and certainty –  in government energy policies. Countries that offer that—Australia, Brazil, China, France, Germany, and Japan—will attract capital. Countries that don’t—including the U.S. and the U.K.—will struggle….Investors will become increasingly concerned about regulatory risk and thus countries that deploy a transparent, long-lived, comprehensive and consistent set of policies will attract global capital.

The report analyzes more than 270 climate policies in more than 100 countries, and provides an aggregate risk rating of countries based on the strength of policies. The implication is that investors are looking to commit capital in countries with a strong commitment to addressing climate change. Echoing my own sentiments (see: Carbon Markets to Serve the Planet), the report favors clear mandates over weak and volatile price signals:

While emissions targets express an intention and carbon markets might deliver a price signal in the long-term, governments must strengthen underlying mandates and incentives immediately if capital is to be deployed to cover the gap, creating more investment and jobs.

Specifically, the report suggests that, to be effective, policies must:

• Be Transparent, Long-term and exhibit Certainty through consistent, secure and predictable, payment mechanisms

• Introduce incentives that decrease over time as technologies move towards market competitiveness;

• Eliminate non-economic barriers (grid access, administrative obstacles, lack of information, social acceptance)

• Provide fair and open access to distribution channels (e.g. transmission grid);

• Be enforceable.

The Deutsche Bank report’s focus on mandates and subsidies misses other important aspects of competitiveness suggested by the cluster approach, such as labor force skills, infrastructure, and research and development activity. Not surprisingly, the US, UK and Canada do not fare well on the report’s risk rating, but have nevertheless attracted significant clean energy capital. The report attributes this to the large size of their capital and energy markets overall, and the existence of state level incentives in the US and Canada. To this list should be added the high technological sophistication of these countries in clean energy and related sectors, both in the university and corporate sectors.

It’s ironic that the Deutsche Bank report recommends stronger climate policies to attract investment capital at the same time as some are raising concerns that putting a price on carbon in the US will drive jobs overseas (see this recent WRI report). Yet building a dynamic regional clean energy cluster requires more than subsidizing power generation or putting a price on carbon. Denmark was able to build a wind industry by being a first-mover in creating large scale demand that stimulated the emergence of a local industry with strong research, design and production capabilities. But countries that only subsidize demand, now that clean energy is more mature and global, might find that the money only sucks in imports and perhaps some final assembly from firms headquartered elsewhere.

by David L. Levy

Last week a student at our university sheepishly poked his head into my office and asked if I knew where the Center for Sustainable Enterprise and Regional Competitiveness (SERC) was located, as he was interested in the new University of Massachusetts clean energy programs he had heard about. Perhaps he  expected to find the SERC Global Headquarters in a shiny new steel and glass building, but for now my rather grungy office serves the purpose. The student, an African-American business major who grew up in the Roxbury area of Boston, is already interning at an energy efficiency organization serving the inner city. His enthusiasm for our plans for Clean Energy Workforce Training programs was palpable and infectious – he wanted to sign up right away. He didn’t just want a credential – he really understood how clean energy programs, by imparting relevant expertise and skills and connecting with regional businesses, will contribute to employment, economic development, and improved housing. We have the chance to create communities that are sustainable environmentally, economically, and socially. (For Earthday 2010, David was interviewed about green jobs and business opportunities on New England Cable News.)

I’ve spent months of reading about green jobs, building the new center, coordinating meetings, and writing grant proposals, but this was the moment that made it real. I had my first tangible sense of the people we could serve and the potential for our vision to connect with the needs of the community. Later the same day, I was at an event organized by the Energy Interest group of the MIT Enterprise Forum. Aside from the usual ensemble of clean energy businesspeople, venture capitalists, academics, graduate students, and assorted groupies, I was struck by how many people I met who were looking for a career transition into clean energy – accountants, salespeople,  engineers, product managers, lawyers, and others. Some had been laid off during the recession, but some were attracted by the prospect of greener pastures, greater professional opportunities, and aligning their personal values with their work in a fast growing sector. This helped to confirm the market logic behind our plans to offer shorter certificate programs for professionals.

Evidence for the boom in clean tech employment is more than anecdotal. This month Clean Edge launched a new report that provides detailed analysis of employment trends in the sector. They define clean-tech jobs as “those that are a direct result of the development, production, and/or deployment of technologies that harness renewable materials and energy sources; reduce the use of natural resources by using them more efficiently and productively; and cut or eliminate pollution and toxic wastes.” The CleanEdge report notes that the 770,000 clean tech jobs in the US in 2007 (per the June 2009 Pew report) is comparable with more mature US industries such as biotech at 200,000, telecommunications at 989,000, and traditional energy including utilities, coal mining and oil and gas extraction 1.3 million. The Pew report also found that clean-energy jobs are growing fast, increasing by 9.1% annually from 1998 to 2007 compared to 3.7% for all U.S. jobs over the same period.

Neglected in this and other “green jobs” reports is the rapid growth in the clean-tech related service sector. While the numbers are hard to estimate, I keep running into evidence of expansion in several areas. This year has seen an explosion of interest in carbon accounting and management software, with a number of independent firms being bought out by larger integrated corporate software providers such as CA and SAP. Many financial, legal, accounting, and consulting firms are building their capacity in the environmental area. One local consultancy, The Brattle Group, now lists 14 staff with expertise related to policy, economics, regulation, and planning.   

Source: Clean Edge: Clean Tech Job Trends © 2009

The Clean Edge report lists energy, transportation, materials, and water as the four major sectors, but the most activity, in terms of jobs and investment, is in the energy sector: solar, biofuels, efficiency, smart grid, and wind. Efficiency-related employment in utilities represents the largest single employment sector. Perhaps most useful, the last section of the report provides a reasonably comprehensive guide to clean tech employment resources.

A salary survey demonstrates the wide variety of jobs being created by clean tech, from renewable energy project developers with graduate degrees earning more than $100,000 to insulation installers earning $36,000. Technicians, welders, and sheet metal workers without university education are earning around $50,000, while engineers, accountants and business analysts with degrees are earning from $60,000 to $80,000.

The report provides information on the regional distribution of jobs, and points to several large clusters. The largest is in California, followed by the East Coast Washington DC to Boston corridor. But the report stresses that “No one place or region will control any one clean-tech sector. Clusters of clean-tech activity, supported by local technology development, capital flows, and supportive public policies, are springing up across the U.S. and around the world.”

Source: Clean Edge: Clean Tech Job Trends © 2009

One surprise is the table of the global top 10 publicly traded pure-play clean tech companies, which together employ about 100,000 people. Three of the companies are Chinese, and the sectors include energy storage, smart grid, and electric motors. The report also notes that large, diversified multinational companies are also major employers. “Siemens currently has 5,500 employees working for its wind business, BP has more than 2,200 solar employees, and GE Energy, with a diverse portfolio of both conventional and rapidly expanding clean-energy activities, employs 40,000. Other multinationals with significant clean-tech workforces… include Sharp, Toyota, and ABB.”

Source: Clean Edge: Clean Tech Job Trends © 2009

A section titled US Manufacturing Jobs in Transition tries to put a positive spin on the replacement of traditional industrial jobs with clean tech employment. The numbers, however, don’t paint an optimistic picture. Maytag, for example, closed down a home appliance manufacturing facility in Newton, Iowa, in 2007, laying off 1800 people, while TPI Composites, a wind turbine blade manufacturer, has now opened a plant employing 325 people. The truth is that aside from turbine blades, which are hard to ship over large distances, clean energy manufacturing is quickly shifting to low cost countries. It used to be the case that emerging industries enjoyed premium pricing for a number of years before the products became low-cost commodities, and intense competition would drive production offshore. Recently I’ve been hearing that manufacturing of solar, advanced batteries, and other clean energy components is shifting offshore almost as soon as it’s out of the lab and into commercial production. I’ve written academic articles about the offshoring phenomenon (download pdf) and understand how communication technologies and management techniques facilitate the process, but it’s still a shock to see how quickly this is happening in a sector held out to be the great new hope for regions ravaged by de-industrialization. Look out for a future posting on this question of competitiveness and the likely regional distribution of clean tech value added.