Olaf Babinet, Senior Manager, Global Expansion Optimization Group, Deloitte Consulting and Dustin Gellman, Senior Consultant, Global Expansion Optimization Group, Deloitte (Apr/May 10)
Within the United States, green jobs are surprisingly dispersed. Figure 2 provides several insights into the domestic market. Unlike other capital- and skill-intensive industries - such as biotech, semiconductors, or auto manufacturing - the overall cleantech industry is presently not particularly clustered. Medium-sized cities are as successful as the largest metropolitan areas at attracting green jobs. And while some environmentally friendly states such as California and Oregon top the list, other historically industrial cities such as Chicago, Houston, and Greater Detroit are among the ranks.
Government incentives awards provide some insight into local job creation. On a national level, two existing programs will help drive manufacturing expansion: loan guarantees and tax credits, including the Advanced Manufacturing Tax Credit (48C). Following a complex and competitive application process, the U.S. Department of Energy (DOE) recently awarded 137 clean energy companies with investment tax credits ranging from $75,000 to $140 million. The solar industry captured the largest portion of the funds, with over $840 million in tax credits.
The Midwest and so-called Rust Belt states such as Michigan, Ohio, and Indiana landed the largest portion of the 48C program. The ITC (investment tax credit) awards follow large-scale private investments in Tennessee and Michigan, both for solar polysilicon production. Beyond the ITC, if other projects backed by the DOE Loan Guarantee Program proceed as planned, Arkansas, California, New Mexico, and Oregon will also be home to several next-generation solar companies.
Within specific sectors, the distribution of manufacturers is slightly more concentrated. Figure 3 illustrates the geographical dispersion of solar and wind manufacturers. While the solar industry is concentrated on the coasts - with notable companies such as SunPower, Sanyo, and SolarWorld in California and Oregon - the wind industry is anchored in the Midwest.
The data is fairly intuitive. The West and Northeast regions of United States have higher electricity costs, and several areas currently offer aggressive incentives for solar installation projects. Further, the state of California is a magnet for thin-film solar start-ups, with many R&D facilities clustered in Silicon Valley. The wind corridor extends in a V-shape from Texas northward through the Midwest, and manufacturers (OEMs and Tier 1 suppliers) often prefer to locate in proximity to customers (wind farms) to help mitigate logistical constraints and potential bottlenecks related to the wind sector's complex supply chain.
What Location Factors Matter Most?
Companies typically expand for three reasons: to enter new markets, reduce costs, or attract top talent. In most cases, location decisions tilt toward one or two drivers; clean energy companies face the daunting challenge of pursuing all three.
Driven by government investments and incentives, demand for renewable energy has begun to shift from Europe to North America and China, putting growth strategy top of mind for industry executives. Simultaneously, manufacturers are under pressure to vigorously lower cost, improve quality, and innovate to keep pace with peers. Hundreds of solar panel, wind power, and battery manufacturers are racing down their cost curves to build cheaper, more efficient products. Industry analysts predict a shakeout - with a much smaller number of companies achieving significant scale, market share, and profitability.
Fortunately, manufacturers enjoy some temporary reprieve with respect to attracting talent. In the aftermath of the global recession, U.S. unemployment remains high and skilled workers are joined by a generation of younger workers eager to start careers in the clean-energy industry. However, training issues - and more broadly the education system - remain ongoing concerns and bottlenecks. Since clean energy is a new industry, time, money, and public-private collaboration are required in order to develop a qualified work force.
Clean energy is heavily localized and manufacturers are increasingly locating in close proximity to customers. For example, Deloitte Consulting recently worked with Indar - a Spanish-based company, which is part of Ingeteam Corp., that manufactures electric generators for large-scale, multi-megawatt wind turbines - on its U.S. site selection analysis. Indar's CEO Alex Belaustegui always thought that the case for expanding to the United States was strong - not only did the U.S. wind energy market grow at 39 percent in 2009, but the company's products are not well suited for shipping across the Atlantic - especially in high volumes.