Area Development
Alternative energy - we've heard a lot about it over the years. Now, with the Obama Administration and its focus on renewable energy sources, we will be hearing a lot more. Stimulus dollars are starting to flow and billions of dollars will be targeting the alternative energy sector. Being a consumer of alternative energy has always been an effective way to show good corporate citizenship, but most companies cannot function on alternative energy alone. Plus, at least for now, alternative energy can cost up to 25 percent more than natural gas and fossil fuel-generated electricity.

To discuss the importance of alternative energy in the site-selection process - both for today and in the future - Area Development asked four very experienced site selection consultants to share their insights on this evolving topic: Bob Hess (NKF Consulting), Dean Uminski (Crowe Horwath LLP), Mark Sweeney (McCallum Sweeney Consulting), and Jim Colson (AngelouEconomics).

AD: What are the biggest overall energy-related concerns regarding site location and facility planning today?  
Colson: The availability of a reliable source of energy. This often entails ensuring a redundant source of supply and measuring reliability metrics. The cost of energy is a factor in every location decision, but much more so based on the consumption profile of the company.
Uminski: I agree. Cost reduction is a big concern with many of my clients. Cost measures can include pollution-control investments, energy conservation, operational efficiencies for all types of buildings, environmental laws, and reduced waste.
Hess: The fundamentals of site selection remain intact when it comes to energy, regardless of the energy source or use - capacity, reliability, redundancy, and of course cost. Layered on top of these fundamental variables are new and emerging issues around carbon emission standards, energy efficiency, LEED rating and processes, and the ability to achieve long-term cost savings with "greening" of the assets - all under the business imperative of sustainability and doing more with less.
Sweeney: As Hess said, reliability is important, generally because of the sensitivity of equipment in virtually any operation, including manufacturing (especially process), distribution (advanced material handling equipment), and even office (critical for reliable communication equipment).
But reliability has taken on new depths for some clients, with greater interest in the source/type of their generation (for example, percent coal, percent nuclear, percent hydro, percent alternative, etc). This has been primarily for contributing to assessment of short- and mid-term reliability, and for mid- to long-term pricing.

AD: What are the pros and cons of going with alternative energy, or having a high percentage of alternative energy in your energy consumption portfolio?

Colson: Being viewed as a good corporate citizen by going "green" is important to the board of directors and to the customer and, more often than not, is a stated corporate value. Additionally, while the capital investments associated with installing alternative energy devices and conservation equipment is often higher than traditional sources, the savings ultimately offset the up-front costs. It is often assumed that the amortization for these types of projects is 15-20 years, but the availability of tax credits and other offsets can significantly accelerate this schedule.
Uminski: From an environmental standpoint, the largest benefit I see is that solar-, wind-, and water-related power does not produce any emissions, and no valuable resources are used up with renewable resources power generation. However, Colson mentioned cost, and federal and state reporting regulations can be time-consuming and costly.
Colson: While the costs can be offset by rebates and credits, a sufficient grid system needs to exist to provide a reliable source of power. This challenge is being addressed, but still can place limitations on the applicability of renewable energy sources for some companies.
Sweeney: I believe the positives are primarily in public relations, which include general public image building, customer positioning, supplier positioning/qualifying, political capital, employee motivation/satisfaction, etc. Of course, as an entity on the planet, there is the expected long-term benefit of better planet stewardship. The primary negative is cost - it is generally understood that most alternative energy sources cost more than fossil or nuclear, although long term they should tend to grow closer. In addition, some prospects will still have some concerns about maintaining the high reliability they have grown to expect from current supplies.
Hess: There is also the recruitment factor. Some executives are concerned that they will not be able to recruit young talent because these prospects ask leadership what the company is doing to be green. I heard this perspective at the World Economic Forum in Tianjin, China last September.

AD: Which cities/MSAs do you believe are greenest when it comes to using alternative energy?

Colson: Cities that get the most mention in pursuing the implementation of an alternative energy policy are Portland, San Francisco, Boston, Seattle, Austin, and Minneapolis. Each of these cities, and certainly many more, have established programs that focus on the use of alternative energy sources, transportation policy supporting mass transit, conservation programs, and "green sensitive" design policies.  
Hess: Seattle and San Francisco are also among the cities with the most "Energy Star" buildings.  Also included are Los Angeles; Houston; Washington, D.C.; Dallas-Fort Worth; Chicago; Denver; Minneapolis-St Paul; and Atlanta. Iowa has a very strong program with respect to incentives for wind and solar as does Texas. Several states make sense for clean coal and coal-to-liquid including Illinois, Wyoming, and West Virginia. I am very impressed with Portland's initiatives in this area.
Uminski: A number of states have initiated policies in the last nine months regarding alternative energy activity. There are also regions that have specific initiatives such as the Midwest Greenhouse Gas Reduction Accord. Nine Midwest governors and two Canadian premiers have signed this agreement, with the goal of reducing the amount of greenhouse gas emissions coming from this region. They have a working group that discusses such issues as CO2 management, a smart power grid, and low-carbon corridors.
Sweeney: An emerging concern is the presence/extent of alternative energy sources.  Some firms are not satisfied with a company adopting renewable portfolio standards (where x percent of their sourcing is alternative energy) because people know that firms are meeting this by investing in midwestern wind farms or western solar farms, but not actually getting any of that electricity back to their home areas. This is good from a national energy perspective, but clients - for a variety of public relations and concerned stockholder relations - are very recently showing more interest in using electrons that are generated with alternative energy. This may not always be practical or sustainable, because some areas of the country are not well-suited for generating alternative-based energy.

AD: Which states do you feel are in the worst shape as far as the capacity and reliability of their energy grids are concerned?

The perception is the western states are in worst condition, due to usage and lack of redundancy in the network; however, the western grid is integrated with the Canadian grid, which has a surplus of hydropower, most of it coming from the Canadian Rockies. The western sector is huge geographically but can mitigate that risk through better power sharing with Canada and Mexico. The year 2000 power shortage in California was caused by reduction of power generation in the Pacific Northwest. The western grid certainly needs more improvement, but is also better positioned because there is the political will and public consent to bring about change, especially in California, Oregon, and Washington.

Recently I spent almost 12 months scouring over 20 states in the Midwest, Northeast, South, and Southeast regions for a client that required short circuit capacity for its manufacturing facility. We evaluated all the grids, discussed detailed capacity and reliability plans with FERC and regional utilities like Duke and Southern Companies, along with regional grid groups like ERCOT (Electric Reliability Council of Texas). The bottom line is that our electric grid is stressed, and we need these renewable sources to supplement and diversify our energy supply - but the time required to develop new power plants or sources, or to do basic reconfiguration of infrastructure (i.e., move a major 220 KV line or secure a right of way with appropriate EIS efforts), is prohibitive and creates uncertainty with investors, especially foreign entities with large requirements. 

And now we're also competing with countries whose renewable energy development efforts and infrastructure enable distribution to customers that is as good if not better than ours - at a lower operating cost (for example, coal-to-liquid initiatives in China and the Middle East versus their infancy here in United States, with carbon sequestration being the big constraint). We need to get some of these projects up and running - all forms including solar, wind, clean coal, nuclear - with "can do" attitudes and compete for precious jobs that continue to look for the best locations to enhance competitive advantage.

AD: How much of a facility's energy can be realistically provided by solar, wind, geothermal?

Hess: Companies cannot go "at risk" just to say they utilize alternative sources of energy - they must still go back to the basics I mentioned before: accessibility, reliability, redundancy, and cost-efficiency.
Sweeney: I think this depends very much on the type of operation, and also where it is located. We are just starting to hear from a few select clients the idea that direct access to green or alternative energy is a site selection criterion, so they will look for a 100 percent ideal. In most areas of the country, you will be subject to the RPS commitment level (renewable portfolio standard, the amount of overall generation in a utilities portfolio coming from renewable), so maybe 20 percent. But again, this does not mean 20 percent of the electrons entering your facility were generated with alternative - the grid constraints and loss of energy over distance movement prevents wind farm energy in North Dakota from being burned at a pharma plant in North Carolina.
Hess: When the question come up about what percentage of power would likely be generated from alternatives, we usually tell clients that still comprises less than 1 percent of the candidate state's electric power portfolio - we obviously still have a ways to go.

That being said, however, there are some great examples of alternative energy being used in the workplace, especially in Europe. Since 2006 all new buildings in the EU, especially Spain, must have solar panels for water heating.  Wind power is growing at the rate of 30 percent annually, with a worldwide installed capacity of over 100 GW and is widely used in several European countries and the United States. Photovoltaic (PV) power stations are particularly popular in Germany and Spain. Solar thermal power stations operate in the United States and Spain, and the largest of these is the 354 MW SEGS power plant in the Mojave Desert. And Brazil has one of the largest renewable energy programs in the world, involving production of ethanol fuel from sugar cane; ethanol now provides 18 percent of the country's automotive fuel. 

AD: What about going off-grid and doing co-generation or geothermal?

Sweeney: This is not a new idea; it was very popular during past energy price crunches. It is really dependent on the particular project and its size and mode of operation. The using company does not have to operate it themselves - there are still a number of firms who will finance and/or build and/or operate as a third party. This alternative is best for fairly large users with a very consistent load (24/7 operations). I have not seen a groundswell of these like we did 15 or so years ago, but it is a realistic option for some firms/projects.
Hess: Co-generation activities have been successful in many clusters of industry on a local level like petrochemical in Louisiana or facilities in industrial parks next to large industrial complexes with excess power - they create their own distribution power grids. Projects I have worked on have seen as much as 20 percent power from co-generation in these isolated situations. We have much to learn and leverage from these "localized" best practices.

Geothermal, I think, is too risky. It would need highly reliable backup sources, and accessing geothermal for larger projects is probably pretty tough relative to location needs and overall infrastructure development. I'm sure there are best practices, but this source is not on the radar screen with traditional clients.

AD: Are there business tax credits for using alternative energy? 

Uminski: There are a variety of tax credits and financial incentives available, including corporate tax incentives, bond programs, grant programs, green building incentives, loan programs, and sales and property tax incentives.
Sweeney: More are emerging at both the federal and state level. Some federal benefits have been in place for a couple of years and were renewed this year.
Hess: The West and Midwest states are ahead of the game on this versus the Southeast and Northeast. Activity right now is all about how state and regions can benefit from the federal stimulus package and funnel those funds into projects in the renewables sector, including Treasury assistance grants for what is reported to be up to 20 or 30 percent of capital expenditure for qualified projects.

How will the Obama administration's position on green energy and green technology affect future location planning? 

Sweeney: Many firms are asking that very question - how will electric suppliers react? Can we get direct subsidies for being a green energy user? What kind of penalties will be placed on carbon emissions and how will that affect costs? In general, this is increasing the sensitivity toward the criteria of "electric generation sources of utilities" by companies seeking sites.
Hess: That's true, but in site selection, it is all about risk-adjusted location decision making and going back to the basics of margin and unit costs: Where should I be and how quickly can I get into production or service mode to be competitive and profitable? Nonetheless, any proposal that demonstrates how alternative energy can improve a company's performance and overall metrics will no doubt be considered. Solar energy, wind energy, hydroelectric energy, tidal energy, biomass, nuclear power - these alternative forms of energy are all great and necessary to reduce our dependence on foreign oil and need to be environmentally conscious.