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From Site Selection magazine, May 2011

Dawn of an Era

Domestic renewable energy hubs emerge.

Alternative Energy Hubs
Nearly two years after announcing its site choice, Wacker has moved forward with its polysilicon investment near Cleveland, Tenn., raising its capital investment by 50 percent and adding 150 more jobs in the process.
Photo courtesy of Wacker

Don Schjeldahl, vice president for renewable energy strategies, Austin Co.
Don Schjeldahl, vice president for renewable energy strategies, Austin Co.

hen German silicon producer Wacker Chemie AG originally announced the selection of Cleveland, Tenn., as the site of a new US$1-billion, fully integrated polysilicon factory in February 2009, it represented the second solar industry announcement for the state that winter. Hemlock Semiconductor, a Wacker competitor in the polycrystalline silicon space, had said in December 2008 it planned to open a $1.2-billion production facility in the state, near Clarksville.

Twenty-one months after its land deal, Wacker officially went forward with its investment decision in December 2010, and broke ground in early April this year on its project.

"As outlined in our press release from February 2009, purchasing the land has been a preparatory step and an essential prerequisite to quickly build up additional production capacities outside the euro zone in line with the projected market trends and growth in demand," explains Wacker spokesperson Christof Bachmair. "The upswing in demand anticipated at this time has now materialized and this triggered our decision to execute on our intentions to build the plant."

The total investment now is expected to reach $1.5 billion, a 50-percent upswing, and the company anticipates creating 650 jobs instead of the originally promised 500.

"The decision to go straight for a 15,000-tons-per-year facility instead of 10,000-tons-per-year as envisaged earlier has been prompted by both the huge polysilicon demand of our customers and economies of scale," says Bachmair, noting that the original figures were ballpark estimations given at a time when detailed planning of the new site had not yet begun.

In Clarksville, meanwhile, Hemlock’s 500-job plant recently passed the halfway mark in the construction process.

The pair of polysilicon plants are part of an emerging trend toward southern states: Alternative energy equipment producers are finding eager communities with underemployed work forces, few new opportunities in old-line industries and welcoming state and local officials in areas hit hard by steady manufacturing job losses.

They are also finding less expensive electricity, a critical issue for energy-intensive production processes. "Alternative energy equipment companies are going to Tennessee and other locations in the South because there is cheaper electricity and lots of land," says Don Schjeldahl, vice president for renewable energy strategies for the Austin Company.

Wacker’s Bachmair acknowledges these advantages: Tennessee’s electricity prices are much lower than at comparable German sites, he explains. He adds that the company was also concerned about protecting its proprietary technology, which pointed to a U.S. location. "In addition, extension of a natural hedge via production outside the euro zone and minimizing transportation costs and lead times for our U.S. customers were all considerations for us," he says.

Bachmair says that his company conducted an extensive global site search before deciding on Tennessee.

"We checked a dozen or so possible alternatives in Europe, North America and Asia, with an in-depth due diligence process before we decided to buy the land for our new site in Tennessee," he says. Also key to the Tennessee decision: "The excellent support we received for our project from local government, agencies and business partners."

Beyond New Furniture

According to Schjeldahl, the welcome received by Wacker is indicative of the proactive approach by state and local governments across the South. "States are eyeing the renewable energy industry as a way to not just replace, but to surpass, the employment and complementary economic development benefits of older industries: furniture making, textiles, garments," he says.

Mississippi also has worked hard to attract new investment from this emerging industry: Executives with solar industry transplant Stion say that the state’s economic development efforts played a significant role in attracting the venture-capital funded firm, following an extensive site search.

"In a nutshell, there were two big things that made Mississippi stand out," says Frank Yang, Stion’s senior director of business development. "The efficient, user-friendly business process, and incentives that are well-tailored to companies like ours." Ultimately, Yang expects the region to be home to a cluster of renewable energy companies. "We were the fourth venture-capital-backed renewable energy company to site in Mississippi in the past year. We aren’t yet at a size where our suppliers would move here because of us, [but] eventually, this would be part of the intended effect."(For more on Stion’s site selection, visit

Other alternative energy firms clustering in Mississippi include biomass converter KiOR, which received $75 million in state loans in exchange for building five commercial-scale production facilities in the state and creating more than 1,000 direct and indirect jobs. The company will make use of Mississippi’s abundant natural wood resources to produce "Re-Crude," a crude oil that can be refined into gas and diesel. A condition of the loans kicking in was the establishment of an offtake agreement with a major oil refiner, which happened earlier this year with Hunt Refining Co. agreeing to use the product from KiOR’s pilot site in Columbus, Miss.

That site will be followed by sites in Newton and southwest Mississippi by 2015. In connection with its February 2011 receipt of a term sheet, but not the loan guarantee itself, from the U.S. Dept. of Energy in February, the company has cited plans to invest in four facilities in the Southeast, including the post-Columbus investments in Mississippi and two other facilities in Texas and Georgia. Long term, two more of the company’s first eight facilities are slated for Mississippi, confirms Sally Williams, spokesperson for the Mississippi Development Authority. The company, backed by Silicon Valley-based Khosla Ventures, filed an IPO in April as it seeks to raise as much as $100 million.

Semiconductors Blazed Trail

The silicon used in solar energy equipment is like "the poor second cousin to the silicon used in semiconductors," Schjeldahl says.

So it’s no surprise that other clear early winners in the clustering of the renewables industry include regions with expertise in semiconductor fabrication and with the venture capital financing associated with the first wave of chip-based expansion: Silicon Valley; Portland, Ore.; Boston; and Arizona, home to several chip makers, including Intel, which recently announced eye-popping plans for a $5-billion microprocessor fab at its Chandler campus.

"We have shown by our experience with Intel that we know how to build fab plants, and this attracts the solar industry, which requires similar technology," says Barry Broome, president and CEO of the Greater Phoenix Economic Council.

According to Broome, his state is currently home to the largest concentration of solar industry companies in the nation. In the past 18 months, the state has seen an influx of 15 firms, including some of the biggest global names in the solar sector, like SunTech, with $2.9 billion in revenues and 1.57 gigawatts (GW) in annual module shipments. Among the most recent announcements: First Solar’s $323-million thin-film photovoltaic module factory in Mesa, on the site of a former General Motors automotive testing facility. Others include Rio Glass’s $50.6-million, greenfield project, and Gestamp Solar Steel’s $57-million facility, both locating in the city of Surprise.

State and local officials credit aggressive outreach — including policy prescriptions and incentives — for the recent in-gathering of solar firms. The efforts, which Broome describes as "strategic micro-targeting of certain subsectors of the renewable energy industry," were born of significant concern over the state’s challenging economic situation.

"We were an economy badly in need of reinventing ourselves, following the collapse of the housing and construction industry," explains Surprise’s mayor, L.E. "Lyn" Truitt. "We were looking for ways to put people back to work."

State and local officials found a magic bullet in the solar sector and set about crafting a strategy that could attract growing firms. Key to the strategy: incentives legislation that would make a difference. Bill 1403, Arizona’s "Renewable Energy Incentives Bill," took effect in January 2010. The new law created refundable tax credits and property tax reductions for qualifying firms. Coupled with the array of federal grants, loans and credits available, the incentives have attracted the attention of firms seeking ways to reduce their capital outlays.

Also important: financial institutions such as the National Bank of Arizona, which signaled a willingness to finance renewables projects at a time when credit markets remain tight for projects even in tried-and-true industries.

"The bank is helping to create more attractive conditions for renewable energy companies to expand, because financing has been a significant barrier to growth for many firms," says Craig Robb, managing director of the bank’s energy finance portfolio.

Speed to Delivery Critical

Still, ask the companies that are locating in the Phoenix area, and they’ll tell you that while the incentives help, the support of financial institutions is great, and a welcoming attitude makes a difference, what matters most is how fast they can get product out the door once the deal closes.

"Our number one priority was the ability to move quickly," says Richard Thompson, CEO of Power-One, a California-based manufacturer of photovoltaic and wind inverters that harvest energy and deliver it to the grid.

The company undertook an exhaustive search for a new facility, including sites in Texas, New Mexico, California, and the north-central U.S., before deciding on an $11-million retrofit of an abandoned factory in Phoenix. "The incentives were maybe number three or four down the list. They were a factor, but not the only one," Thompson says.

For Power-One, the willingness of local authorities to help move things along as fast as possible was the tipping point. "In Phoenix," says Thompson, "we were able to go from location decision to production in 90 days — it’s almost unheard of." He says that with orders for customers waiting to be filled, the company was so concerned about its timeline that it purchased factory equipment even before settling on a location.

Proximity to customers via truck routes was also important. "Our equipment is very heavy, and we rely on trucking. We needed an easy route to our customers in the PV corridor of the Southwest, as well as to the wind corridor in the north central region." Power-One also trucks components from the Phoenix plant via the NAFTA corridor to customers in Canada for assembly. Future plans might include setting up a dedicated wind inverter plant in the Great Lakes region, closer to its wind customers, Thompson says.

Arizona’s Solar Hub Includes Specialty Glass Maker

Brussels, Belgium–based Rio Glass also was lured by Arizona’s combination of incentives, burgeoning solar presence, ease of doing business, available work force, and proximity to a growing customer base, which meant a need to quickly ramp up operations.

"The nature of our business is that you have to move quickly, or the opportunity is lost," says Jose Villanueva, president of Rio Glass. "Even before we found our site we had delivery deadlines for customers, so we had to act fast." The firm’s corporate real estate team visited sites in Denver, Albuquerque and California before checking out a shovel-ready, greenfield site in Surprise.

"Working through the economic development group within APS [the state’s largest electric utility], a package describing our project was sent to many communities in Arizona requesting proposed incentive offers," explains Rio’s Chief Operating Officer Greg Armstrong. "The City of Surprise presented the best package and their economic team was by far the most aggressive pursuing our project. Geographically, the site was the mid-point of the customers we want to serve."

Incentives (including the new state incentives) and federal Department of Energy loan guarantees played a role. Plus, Armstrong says, "We had great cooperation from all the parties involved to expedite permitting and to bring everyone to the table so that we could move swiftly." A month and a half after breaking ground, the building structure was up, he says.

Looking beyond Surprise, Armstrong describes the lay of the land for his company’s industry sectors:

"Without question, renewable energy policies will determine the future of renewable energy in the U.S.," he says. "Passage of renewable portfolio standards by the states is critical in creating the necessary demand which will facilitate future growth. However, more critical now is support from the federal government through federal loan guarantees and grants, which are necessary for developers to finance these massive projects.

The majority of the large utility-scale projects under development today in the U.S. are dependent on the federal loan guarantees. As a result, the success of our project is also dependent on our legislative leaders’ continued support of these important programs."

The Location Calculus for Wind

The wind sector has different location drivers than the solar sector, in part because the windiest places on earth aren’t necessarily the sunniest places on earth.

It also has to do with the size of the equipment, which is massive. The logistics costs associated with transporting huge wind towers and gigantic blades are leading to a clustering similar to the automotive industry, Schjeldahl says.

For Danish wind energy equipment manufacturer Vestas, the search for a U.S. location was weighted toward sites with logistics advantages. In early 2010, Vestas completed construction of its first U.S. tower manufacturing facility — the world’s largest — in Pueblo, Colo. The factory will have an annual processing capacity of 200,000 metric tons of steel, to produce more than 1,090 towers each year. It’s the fifth facility that Vestas has opened in the state, with investments totaling more than $1 billion.

"Vestas located its factories in Colorado because of the state’s central location; strong transportation infrastructure, including a viable, extensive rail system; favorable business climate; existing manufacturing base; and intellectual capital," says Aili Jokela, Vestas’ vice president for communications. (See the Colorado Spotlight.)

Jokela notes that suppliers are moving closer to Vestas’ facilities, building a domestic supply chain for the 8,000 precision parts needed to build wind turbines — bolts, ball bearings, gears and fiberglass. The company also set up a purchasing office in Chicago, closer to automotive supply chains. "In Chicago we are near the extensive north-central network of suppliers for castings, metal fabrication, composites, gears and all the electro-mechanical components," she says.

Energy Policy, Rising Electricity Costs
Play Roles In Industry Expansion

Vestas also keeps an eye on where future end user demand will be. It’s another reason the firm selected Colorado as the base for its U.S. operations, Jokela says.

The state is one of 29 and counting that has enacted a renewable portfolio standard, requiring that a portion of the state’s power come from renewable sources. Colorado has set the bar high — a goal of 30 percent from renewable sources by 2020. The only state with a more ambitious goal is neighboring California.

According to Schjeldahl, such standards are starting to influence location decisions for renewable energy firms. "You can look at where states are pushing use of diversified energy portfolios, and that’s where some of these firms will go," he says.

Another factor that could influence industry expansion is the rising cost of electricity, even as innovation continues to drive down the cost of renewably generated energy.

"Traditional sources of electricity are getting more costly," notes veteran location consultant Dennis Cuneo. "Meanwhile the cost curve of renewables continues to decrease, so, ultimately, they will be able to compete without subsidies."

According to Stion’s Yang, "We can deliver at a cost of 15 cents per kilowatt-hour in some parts of the country. In California, we are already directly competitive to peak electricity costs."

The domestic renewables industry also could see an uptick in demand because of changing federal energy policy. In March, President Obama signaled his intent to reduce U.S. reliance on oil imports by one-third by the year 2025, and to increase reliance on renewable energy sources. Meanwhile, growing concerns over the safety of nuclear power in the wake of Japan’s nuclear power plant troubles could result in increased interest in other energy sources.

"A move away from nuclear power would likely result in more demand for other alternative sources, especially if there are energy policies requiring a portfolio approach," says Dr. Paul Meier, director of the Energy Institute at the University of Wisconsin-Madison. "Still, any decision not to do nuclear is not easily translated into doing wind or solar. It’s not a simple substitution."

To illustrate, Meier calculates that one 1,350-MW nuclear reactor would generate enough electricity to power 1 million Wisconsin households. The same amount of power from wind would require 2,199 1.5-MW turbines, while the equivalent amount of electricity from solar PV would require 19.5 square miles (50.5 sq. km.) of solar panels.

And cost issues remain, depending on location, reliability of the natural resource and incentives. In Wisconsin, for instance, where the sun is considerably less plentiful than in Arizona or California, Meier estimates that it would cost a utility 51 cents per kilowatt-hour for solar-generated electricity in the first year of operation, compared to 12.2 cents for wind, 11 cents for nuclear and 9.6 cents for coal.

"By year 10, the cost per kilowatt-hour in this scenario drops to about 39 cents," he adds.

Global Focus Is On Emerging Markets

Looking globally, centers of the renewable industry can be found in Europe, where renewable energy standards have been in place for some time. China and other parts of Asia are seeing expansion as well, particularly for commoditized, basic solar cell production.

"The biggest surge in electricity demand will come from emerging-market economies, going forward," notes Cuneo. "And this is where we are likely to see explosive growth in renewable energy companies."

For now, though, many firms are placing bets on the rapid expansion of the U.S. market.

"Estimates are that the U.S. market for renewable energy will grow by 60 to 70 percent annually," Power-One’s Thompson says.

More players are signaling interest in the growing domestic market. Take General Electric. Already dominant in wind turbines, the firm is now positioning itself in the solar sector.

After tests by the National Renewable Energy Lab in Colorado showed GE’s thin-film solar panels to be the most efficient ever publicly recorded (at 13 percent), GE announced plans in April to invest $600 million to set up a 400-MW production facility for the panels at an as-yet-undisclosed U.S. location.

Dennis Cuneo

Story in Pictures

With the help of organizations ranging from utility APS to the National Bank of Arizona, and backed by important new state incentives for renewable energy, Belgian firm Rio Glass will make solar panel glass in Surprise, which also recently welcomed a wind energy investment from Gestamp.
Photo courtesy of Rio Glass
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