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.

Governor Deval Patrick of Massachusetts announced September 1st nearly $1 million in  grants for educational programs that will enhance training for the state’s burgeoning clean energy industry. This is good news for climate change, for Massachusetts, and particularly for me, because a group I’m leading at the University of Massachusetts, Boston was awarded $187,000 for a program entitled Business and Professional Education for the Clean Energy Economy. The project will be coordinated through the Center for Sustainable Enterprise and Regional Competitiveness (SERC) in the College of Management at the University. While other grants focus on vocational training and “green and blue” collar jobs, such as installation and maintenance of renewables and efficiency, our program builds higher education capacity for the rapidly expanding “green and white” collar job opportunities in a low-carbon economy.

The transition to a low carbon economy will entail radical technological and market change that promises to transform entire industries. There is an urgent need for a major education initiative to prepare for and manage the impending transition. Clean energy jobs have been growing at a rate of 9.1% in the US over the past decade, compared with only 3.7% for traditional jobs, according to a report issued this June by The Pew Charitable Trusts. Pew identifies five categories of the clean energy economy: (1) Clean Energy; (2) Energy Efficiency; (3) Environmentally Friendly Production; (4) Conservation and Pollution Mitigation; and (5) Training and Support. Although 65 percent of today’s clean energy economy jobs are in the category of Conservation and Pollution Mitigation (mostly recycling and wastewater treatment) but three other categories – Clean Energy, Energy Efficiency and Environmentally Friendly Production – are growing at a much faster pace.

Some of the sectors, such as windows, insulation, and water treatment, are not exactly what comes to mind when we think about clean tech, more old-economy than high-tech solar. But the growth in green job opportunities will extend well beyond renewables into electronics, software, financial services, and education (see this comprehensive list of reports on green jobs in the US.). Organizations of every type will be seeking “green and white” collar professionals with appropriate expertise. In fact, two new studies on the green labor market argue that an important prerequisite for employees in the new economy is general education in sustainability concepts and climate in particular.

My research with Dr. David Terkla revealed that in the Boston region there are large numbers of software and electronics firms capable of providing the sensors and controls for power management and energy efficiency, for smart buildings or connecting renewables to the grid. Most of these companies don’t currently identify themselves with clean tech. A recent Marketwatch story pointed to energy services and controls, often part of much larger companies, as important beneficiaries of the clean energy economy. Honeywell’s Automation and Control Solutions division, for example, which accounts for 38% of revenue and 32% of operating profits, provides environmental controls for buildings.

The clean energy economy will generate a large number of managerial and administrative jobs in non-energy sectors. A majority of large businesses in the US and Europe already produce annual sustainability and social responsibility reports, and are extending this to the climate issue. The proposed EPA guidelines on mandatory carbon reporting in the US, the advent of carbon trading, and voluntary carbon management and disclosure will affect almost every business. The need to track, manage, and report carbon across the value chain will create new demands on corporate management and open up large new markets for service firms, particularly consulting, legal, software, and accounting. eQuilibrium Solutions Inc., a Boston area software firm specializing in carbon and energy efficiency management software was just bought out by EnerNOC, indicating the buzz of activity in this field. Meanwhile, financial firms are becoming more directly engaged in carbon trading, financing clean energy, and assessing the impact of carbon risk on assets and loan portfolios.

Environmental skills and knowledge are increasingly valued in the employment market. In a recent survey titled “The Engaged Organization: Corporate Employee Environmental Education Survey and Case Study Findings” by the National Environmental Education Foundation, 65% of businesses surveyed said they value environmental and sustainability knowledge in job candidates and 78% said that that value will appreciate as a hiring factor in the next five years. Carbon footprinting, emissions reduction, and energy efficiency were key areas identified. Clean energy-related jobs also have better conditions than those in other sectors. A recent survey of 1200 clean energy professionals indicated that they enjoyed higher salaries and more job security than workers in other sectors.

The employment impact of a transition to a low-carbon economy will reach beyond business to affect government and non-profit organizations. Policymakers and planners will increasingly need to be familiar with market-based and regulatory mechanisms for addressing greenhouse gas emissions from transportation, power, industry, and buildings. Demand is growing rapidly for environmental and climate-related education at all levels and for the teachers with the expertise to deliver these programs. Despite the current budgetary environment, this is one area where our university will be looking to hire in the next few years.

The initiative at the University of Massachusetts, Boston, will provide the workforce with the skills and knowledge needed to play more effective roles as professionals, policymakers, and business managers. The College of Management will collaborate with the Department of Environmental, Earth, and Ocean Sciences to develop new interdisciplinary degree and certificate programs at the graduate and undergraduate levels that build on existing campus strengths in the science, business, politics, economics, and policy dimensions of clean energy and climate change. We will also extend and develop existing programs to bring a sharper focus on clean energy and the workforce skills demanded in a low-carbon energy efficient economy. The core programs are being designed for professionals seeking focused, compact, and low-cost career development, and will be valuable for mid-career professionals as well for degree students seeking a unique qualification.

I’m proud to lead this initiative to UMass-Boston, a public university capable of delivering high quality, accessible, and cost effective education to a wide range of traditional and non-traditional students. The university has a strong commitment to diversity, serving disadvantaged communities, and promoting regional economic development. The certificate programs are part of a broader environmental and clean energy education initiative at UMass-Boston, including the development of a Professional Science Masters program, which will support a cluster of clean energy capabilities in the state that will increase the competitiveness of the region, increasing investment and employment with clean energy firms and related service sectors.

This guest contribution is by Daniel Goldman, Executive Vice President & Chief Financial Officer of GreatPoint Energy and co-founder of the early stage investment group, Clean Energy Venture Group. He has managed and invested over $4bn in energy technologies and projects and is a vocal advocate of financial solutions for overcoming technology commercialization challenges.

Commercialization of new low/zero carbon energy technologies is essential to addressing job creation, climate change, energy independence, economic competitiveness and long-term energy affordability. Historically, public sector dollars and venture capital investments have funded promising clean energy technologies from laboratory through demonstration scale deployment (i.e., in commercial-like conditions but not at the size necessary for economic commercial operation). Private equity and project finance debt capital markets have historically funded projects and manufacturing facilities once commercially proven.  However, neither government, venture capital firms nor capital markets have tended to bear the risks associated with providing equity capital, which can amount to hundreds of millions of dollars, for initial deployment of capital intensive new clean energy technologies at commercial scale – described here as “first project commercialization”

Courtesy of Paul Maeder, Highland Capital Management

Consequently, many promising clean energy technologies that have been proven at pilot or demonstration size are unable to secure financing for commercial scale deployment.  Examples include utility-scale concentrated solar projects, geothermal technologies, biomass and fossil advanced gasification with carbon capture and sequestration, cellulosic ethanol, other biofuels and clean energy manufacturing facilities (e.g. new wind turbine blade manufacturing).  Proving out such technologies at commercial scale would enable deployment of multiple, large-scale facilities, financed by existing market participants (equity and debt), leading to hundreds of billions of dollars of investment, a material and more rapid impact on climate change, and ability to address other essential policy goals such as energy security, job creation and global economic competitiveness.  Two examples of “shovel ready” technologies on the cusp of commercialization are shown below:

As one solution to this oft-recognized problem, often termed the “commercialization valley of death,” the federal government should establish a new corporation, proposed here as the “Clean Energy Accelerator Corp.”, or “CEAC”, as an agency of the US government on the model of the Overseas Private Investment Corporation (OPIC).  Just as OPIC successfully provides support for the creation of privately-owned and managed investment funds in response to the critical shortfall of private equity capital in developing countries, CEAC would support the creation of domestically-oriented, privately-owned and managed investment funds focused on providing critical equity capital that is otherwise unavailable for first project commercialization. Just as the impact of OPIC’s support of funds that invest in emerging market companies has a multiplier effect (attracting additional investment and financing in companies), so too would the CEAC’s support have a multiplier effect in the following ways:

• Attracting additional private capital to commercialization of clean energy technologies;
• Accelerating the deployment of clean energy technologies and promoting a large market opportunity for follow-on funding; and
• Addressing policy objectives, such as job creation, global economic competitiveness, climate change, economic development, re-tooling of the supply chain infrastructure and energy affordability.

CEAC would provide support for privately-managed funds in a manner similar to the approach of OPIC, which typically provides debt (10-12 year maturities) to funds and also earns a profit participation component; these low-cost loans provided by CEAC, which are backed by the full faith and credit of the US Government, are sold to US eligible institutional investors.  CEAC’s participation in multiple private sector funds, where a minimum of $5 billion could be deployed, would rapidly catalyze private sector investment.  Moreover, like OPIC, the CEAC would establish pre-defined “scoring criteria” for each fund so that Office of Management and Budget could readily ensure that appropriate reserves are maintained based on the risk profile inherent in the portfolio of projects.  Characteristics of the CEAC should include:

• Transparent investment criteria and an independent board that would include appropriate agency secretaries and other senior government officials as well as representatives from the private financial, technology and energy policy communities;
• Management stability, flexibility, agility and experience overcoming traditional federal agency obstacles and enabling effective fund management of complex financial transactions leading to rapid deployment and commercialization;
• Financially self-sustaining as returns on investments revolve to allow for continuing re-investment;
• Ability to accelerate and scale capital formation by mitigating risks facing investors in the deployment of clean energy technologies and increasing the amount and rate of private capital deployed in a time frame that is consequential;
• Use of a proven fund model with funds managed by highly qualified investment managers having a proven track record in equity investing and possessing deep sector expertise, private sector institutional/corporate investors providing equity, and governance over project investments enabling rational exit and liquidation strategies to be implemented; and
• Leverage historical precedent which indicates that the United States has customarily availed its balance sheet for long-term multi-generational national priorities.

A significant number of projects have been identified which would be appropriate for investment by privately managed funds leading to commitments of several billion dollars in a short time frame and providing an immediate springboard for implementation. The CEAC would address a distinct problem within the DOE loan guarantee program (Section 1703), which attempts to ensure pre-commercial projects with innovative technologies have access to private sector debt but leaves the challenge of attracting equity capital unresolved.

With the nation hungry for clean energy solutions and a large number of VC-funded technologies needing help to get through the commercialization bottleneck, the time is now for bold, intelligent and targeted government action to spur the private capital sector to invest in first commercial projects using the existing and successful OPIC model.  While the OPIC model appears to offer the best analogy, other options, such as the Small Business Administration’s SBIC loan structure could also be considered.

The CEAC concept, which has been widely vetted within the investment community and clean energy industry, has received strong support and will naturally attract a broad coalition of interested constituencies including venture capital funds, private equity/project finance market participants, environmental advocates, economic policy makers, industrial, commercial and retail consumers and national security policy makers.  Prominent members of the finance and clean energy technology community are committed to supporting policy makers to make this idea a reality through existing mandates or in new legislation as energy and climate change bills are introduced.

This summer the Union of Concerned Scientists published Climate 2030: A Blueprint for a Clean Energy Economy. The UCS plan is designed to reduce US greenhouse gas (GHG) emissions by 26% below 2005 levels by 2020, and 56% by 2030, putting the country on target for an 80% reduction by 2050. These are the kind of aggressive targets that are needed from industrialized countries if global warming is to be held roughly at the 2 degrees Celsius ceiling.

UCS clearly understands that the political economy of climate is more important than the science in spurring action. Businesspeople, policymakers, and consumers need to be convinced that they can prosper in a low-carbon future. This report certainly makes that case. It states that:

The nation achieves these deep cuts in carbon emissions while saving consumers and businesses $465 billion annually by 2030. The Blueprint also builds $1.7 trillion in net cumulative savings between 2010 and 2030. Blueprint policies stimulate significant consumer, business, and government investment in new technologies and measures by 2030. The resulting savings on energy bills from reductions in electricity and fuel use more than offset the costs of these additional investments. The result is net annual savings for households, vehicle owners, businesses, and industries of $255 billion by 2030. Under the Blueprint, every region of the country stands to save billions. Households and businesses—even in coal-dependent regions—will share in these savings.

The report uses a version of the Department of Energy’s National Energy Modeling system to project changes in energy use, emissions, and energy costs. The model was used to forecast the impact of a cap-and-trade system combined with regulatory mechanisms and R&D funding to promote efficiency, renewables, low-carbon transportation, and green growth. The model shows higher carbon prices than envisioned in W-M, due to the tighter cap and fewer offsets: $18 per ton of CO2 in 2011, rising to $34 in 2020, and to $70 in 2030 (in 2006 dollars). Most of the GHG reductions come from the power sector, though the report does not say how much comes from the carbon price and how much from other measures.

The UCS Blueprint is based on commercially available, rather than breakthrough technologies. It’s meant to be realistic and conservative, so that it can withstand critique. They even included $8 billion in government-related costs to administer and implement policies. The demonstration of savings is quite compelling – by 2030, for example, the model shows consumers saving about $900 annually per household in energy and transportation costs. Although most of the emission reductions come from the power sector, nearly half of the financial savings come from transportation – more efficient cars and more public transportation:

The targets are substantially tougher than Waxman-Markey, which aims for 17% GHG reduction by 2020. The UCS model still shows the economy growing by 81% between 2005 and 2030, only slightly less than the 84% it would grow in the baseline case without new climate policies (a number that does not take into account the negative economic impacts of climate change on agriculture, tourism, etc.). There is little overall impact on employment. It should be stressed that by construction, these models always show a hit to GDP from raising the price of fuels, because they assume – as economists love to do – that we are already in a blissful state of perfect allocation of resources, so any disturbance must hurt GDP. The model also does not fully account for growth and productivity stimulated by new investments in clean energy.

Despite the limitations of economic modeling, this is a carefully crafted and well executed study – and it has some great graphics and charts. Importantly, it knows what is a cost and what is a benefit, which is surprisingly muddled in many reports. Although the report touts new clean energy investment as a ‘good thing’, generating jobs and reducing emissions, it does recognize that investment is a cost to society, channeling resources that could have been put to another use (I made this point regarding employment in another study – see: Clean Energy – How Many Clean Jobs?).  Energy savings translate into lower costs for consumers and businesses, and do reflect a real economic benefit to society. Of course, they also reduce revenues for companies selling fossil fuels and carbon intense products, from power to conventional cars. What these economic models cannot tell us is which companies and countries will be the long-term winners and losers from a carbon constrained economy.

Advocates of strong action on climate change have long argued that large-scale investments in clean energy will revitalize the economy and generate substantial employment, investment, and business opportunities. Last month my colleagues at PERI, University of Massachusetts, Amherst, Robert Pollin, James Heintz, and Heidi Garrett-Peltier, published a report (download pdf) titled The Economic Benefits of Investing in Clean Energy: How the Economic Stimulus Program and New Legislation Can Boost U.S. Economic Growth and Employment.

The headline findings of the report are that the clean-energy provisions incorporated within the American Recovery and Reinvestment Act, combined with the measures in the proposed American Clean Energy and Security Act currently before Congress, could together generate “roughly $150 billion per year in new clean-energy investments in the United States over the next decade”. They estimate that this level of investment, if sustained over time, will create and maintain a net increase about 1.7 million jobs – enough to reduce the unemployment rate by about one full percentage point. They observe that “These investments could, therefore, not only guide us out of our fossil-fuel dependent crisis, but serve as a powerful engine of economic recovery and long-term economic vigor in the U.S.”

It’s worth exploring their methodology and analysis in some detail, as the debates over climate change are almost entirely about the costs and benefits to various parties. The political economy of climate change will determine whether or not we can effectively address the risks of climate change. Carbon-intense industrial sectors such as oil, coal, autos, and chemicals have traditionally felt most exposed on the issue and led the charge against climate science and made the case that emission caps would create serious economic dislocation. Politicians increasingly act like businesspeople, concerned with the impact of policy on employment, investment, and tax revenues; political scientists term this phenomenon the “competition state”. Politicians from states most dependent on coal and oil, from Australia to Wyoming, are the least likely to support carbon control measures. Developing countries planning their industrial development based on cheap fossil fuels similarly oppose mandatory carbon controls. The key hurdle to vigorous, global action on climate change is not convincing people of the science; it’s convincing them that they won’t suffer economically, and might even benefit. Indeed, it’s surprising how companies shift their position on the science, once they realize that they can survive and even thrive in a low-carbon future.

To arrive at the 1.5 million employment figure, the report estimates that investing $150 billion a year on clean energy investments would yield 2.5 million new jobs, but it deducts 800,000 jobs lost if conventional fossil fuel spending were to decline by an equivalent amount. Essentially, clean energy is much more labor intense than fossil fuel energy, particularly on the installation and maintenance of wind turbines, solar panels, and efficiency measures. The report notes that it’s not likely that all $150 billion in new clean-energy investment spending would come at the expense of reductions in the fossil fuel industry, but the report leans to the conservative side. Still, reading the details of the methodology makes it clear that coming up with the investment and employment numbers involves a lot of heroic assumptions and extrapolations (for which economists are notoriously infamous). The report estimates, for example, the amount of private capital mobilized by federal funds, the amount of clean energy investment triggered by a future cap-and-trade system, and so on. The report gives the following breakdown of the projected $150 billion annual investment in clean energy:

The report then uses standard input-output analysis to estimate the employment impact of this incremental $150 billion annual spending. The new employment has three components: Direct, meaning the jobs involved in actually building and installing clean energy and efficiency products; Indirect, referring to jobs in industries that supply goods and services to clean energy, such as steel and electronics; and induced employment, meaning the multiplier effect by which the increased income from direct and indirect employment is spent in other sectors, raising employment more broadly. The table below shows the estimated employment impact in the various clean energy sectors, per million dollars of increased spending:

The authors estimate that, on average, $1 million of investment in clean energy generates about 16.7 jobs, compared with 5.3 in fossil fuels. They give three reasons for this: clean energy is more labor intensive, more of the value chain is domestically sourced, and more entry level (as well as highly skilled) jobs are needed in clean energy. They estimate the sectoral breakdown of jobs created below:

Overall, this is one of the most detailed and meticulous studies of the employment impacts of clean energy, and Bob Pollin and the UMass team deserve credit for that. Reports like this provide crucial ammunition for advocates of a robust clean energy policy. It’s important to understand, however, what this study does and does not demonstrate (and I’ll confess that I’ve worked on a report that looked at clean energy in Massachusetts using a similar, if simpler, approach). The report provides a good estimate of the employment created by new spending on clean energy under the current recessionary conditions of high unemployment. In that sense, it’s really an assessment of the proposed clean energy investment (via the ARRA stimulus funds and forthcoming energy bill) as a Keynesian demand stimulus. As such, it should really project the full 2.5 million jobs associated with the $150 billion of clean energy investment, and not worry too much about any decline in fossil fuels. While demand for coal is stagnating, oil and gas markets are likely to recover sharply in the next few years.

A very different, and much more complex, question to ask is: What is the employment and income impact of a long-term shift to clean energy? In the long run, as Keynes famously quipped, we are all dead, but before that fate arrives, we hope that this recession will end and we might even get back to conditions that pass for “full employment”.  Here, the report’s comparison of the labor intensity of fossil fuels and clean energy is highly relevant; X gigawatts (GW) of clean energy will displace the equivalent amount of fossil fuel-based energy (and the analysis should probably be done in GW rather than dollars of investment). If clean energy needs more labor per GW, then these workers are going to be drawn out of other economic sectors. Now, one of the first lessons of economics is that there is no such thing as a free lunch. Labor has an opportunity cost – people who get jobs in clean energy could have been doing something productive elsewhere (and it would be tough to fully staff the sector with unproductive investment bankers). So under more “normal” economic conditions, the “employment created” by clean energy is not a benefit, but part of the resource cost.

It may well be true that clean energy provides substantial employment to relatively unskilled workers, who have been decimated by the decline of traditional manufacturing in the US and find it hard to secure full-time, well-paid work even in good economic times. A switch to clean energy would then increase demand for this type of work, raising wages amongst these workers and helping to reduce some pockets of unemployment. Pollin and his colleagues very persuasively make this case regarding the impact of clean energy on poverty and living standards in this report, also released in June 2009. This focus on the distributional impact of investing in clean energy should be an important part of the debate on climate policy.

Estimating the overall impact of a switch to clean energy on employment, incomes, and growth is a far more complex affair, as Pollin’s study acknowledges. The partial and general equilibrium economic models generally used to examine this question are in many respects far more primitive than the climate models used to analyze the impact of rising atmospheric levels of greenhouse gases. It’s ironic that many of the climate skeptics who criticize climate modeling for its assumptions and uncertainties put so much faith in crude economic models.

A transition to a low-carbon economy will entail major structural shifts, driving the demise of some industries and the birth of others. A key question for the US, and for other countries and regions, is whether they are strategically positioned for this transition: do they have the labor skills, the technologies, the corporate capabilities, the university expertise, the planning capacity, and supportive public policies to grow and sustain the new business sectors? New England and California are probably quite well positioned, but as we academics like to say, further research is required.