States Use Incentives to Attract Renewable Energy Business

As the United States gears up to reduce emissions and participate in global carbon reduction initiatives, a new industry sector is growing in the midst of the recession. Though the hydrogen economy is still years off, the renewable energy industry, particularly in solar and wind power, has started to take off with major installations recently announced including:

• Suniva, a solar cell manufacturer, investing $250 million and creating 500 jobs over five years in Michigan;

• Southern Company, building a biomass plant in Texas after acquiring Nacogdoches Power. It will supply power to the Austin area;

• Mitsubishi, wind turbine plant, investing $100 million and creating 400 new jobs in Arkansas.

The renewables industry is one of the bright spots in mobile investment, and it will assist in retooling the country's energy infrastructure and provide jobs to replace those recently lost during the financial crisis.

The federal government has focused considerable resources with the American Recovery and Reinvestment Act (ARRA) on energy reduction and stimulating the renewables industry, particularly where new jobs can be created. Federal programs have been extended, including investment credits for clean energy projects, and the Department of Energy is funding new rounds of technology development. Armed with apportionments stemming from ARRA, states have initiated a variety of programs to weatherize public buildings, reduce and conserve energy demand, and initiate state energy programs (www.areadevelopment.com/renewable-energy). Attracting renewables industry mobile investment has become a priority for many states.

States in Competition For New Business
Coping with job loss and encouraging and seeking to attract new businesses, states have turned up the heat on incentives by strengthening existing programs and by creating new incentives targeting renewable energy companies.

A recent analysis of state programs revealed 19 states that had a total of 26 programs specific to attracting renewable energy companies. Tax credits against corporate income and property levies are the most popular programs, but there are tax exemptions, abatements, and reductions as well. Several states offer grants and loans (including loan guarantees). And the state of Kansas is offering bond financing for solar or wind manufacturing projects.

State Program Highlights
A listing of renewable incentives can be found online at here. The reader can view the 19 states' available programs that are specific to attracting or supporting renewable energy companies. Highlights include:

Michigan - three programs through the Michigan Economic Development Corporation (MEDC) specifically targeted to renewable companies:

• Nonrefundable Business Activity Tax Credit program includes manufacture and R&D for certified activities;

• Refundable Payroll Tax Credit program includes manufacture and R&D for certified activities with portion of the credit exceeding liability refunded;

• Renewable Energy Renaissance Zones - tax abatement of many levels of Michigan state and local taxes for R&D and manufacturing when locating in one of the 15 designated zones.

Pennsylvania - three programs through the Department of Community and Economic Development (DCED):

• Alternative and Clean Energy Program offers grants, loans and loan guarantees for facilities that manufacture alternative energy products and components;

• Solar Energy Incentives Program offers grants, loans, and loan guarantees for facilities that manufacture or assemble solar panels, equipment, and technology;

• Wind and Geothermal Incentives Program offers grants, loans, and loan guarantees for facilities that manufacture wind turbines and components.

Montana - two programs through the Montana Department of Revenue (MDR):

• Alternative Energy Investment Tax Credit for manufacturing facilities producing alternative energy generating equipment;

• Property Tax Abatement for Production and Manufacturing Facilities, which is for renewable energy manufacturing facilities and R&D equipment.

New York - two programs through New York State Energy Research and Development Authority (NYSERDA):

• Renewable, Clean Energy, and Energy Efficient Product Manufacturing Incentive Program provides grants for manufacturers to develop or expand facilities producing eligible products. Programs run through 2011;

• Clean Energy Business Growth and Development has grants for expanding or relocating businesses with operations meeting state's clean energy definition. Five rounds are offered through 2010.

Also of note, Hawaii has a High-Technology Business Tax Credit program for equity investments in qualified high-tech businesses. Miami-Dade County in Florida has a Targeted Jobs Incentive fund offering credits for the creation of at least 10 new jobs in the conurbation. Ohio has its Job Stimulus Plan - Advanced Energy Program that offers grants and loans for new renewable energy investment. Texas, not to be outdone, has its Renewable Energy Development Incentive for solar and wind energy manufacturing with 100 percent tax exemption and no limit. Even Puerto Rico has refocused its popular tax reduction and exemption program for renewables assemblers.

Not all states have specific programs targeted toward renewable companies, but they may leverage existing programs that can benefit the renewables industry. California is one example. The state has one of the most progressive programs for stimulating renewable energy production incentives, system installation and user rebates, feed-in tariffs, and property tax abatements. In addition, many local California governments and utilities have subsidy programs for their areas and customers. The state's policy target of reducing greenhouse gas emissions by 30 percent by year 2020 is one of the first in the nation. The aim is to implement a cap-and-trade system in the region as part of the Western Climate Initiative, which includes several other western states and four Canadian provinces.

Connecticut's Clean Energy Fund (CCEF) is another state program that primarily focuses on implementing clean energy systems for homes, businesses, and communities through rebates and subsidies. It does, however, have its Operational Demonstration Program that supports the demonstration of near-commercial, clean-energy technologies for companies developing new products. As in California, the types of subsidy programs can only stimulate the market for producers of new renewable products.

It is also worth noting that several state programs have ended their offerings for the year but are worth keeping in mind since the states may renew their offerings for 2010 or beyond. They include:

• New Jersey's Edison Innovation Clean Energy Manufacturing Fund, which offers grants and loans;

• Wisconsin's Energy Independence Fund Grant and Loan Program.

Augmenting With Traditional Incentive Programs
Most states, counties, and locales have programs that, though not specifically targeting renewable energy company attraction, can be applied to any incoming mobile investment. Where they exist, renewable energy-specific programs may be combined with and augment traditional incentives including:

• Empowerment Zones

• Work Opportunity Tax Credits

• Community Development Block Grants and loans

• Sales tax abatements

• R&D programs

• Employee search assistance

• Property search assistance

• Infrastructure preparation

These can all be helpful when establishing a new facility, whether it be headquarters, manufacturing plant, or research and development facility in the renewable industry. A careful review of a state's full incentives program mix will uncover the opportunities for programs that can work together.

Incentives in Perspective
Needless to say, companies must put incentives in their proper perspective among other site selection criteria specific to the industry. A company must carefully weigh the incentive opportunity with that of sound business infrastructure that will feed the company's growth over years. Site selection criteria specific to the renewables industry include:

• Market opportunity including cost of electricity and capacity shortfall;

• Infrastructure programs - federal and state governments' commitment to new grid distribution infrastructure;

• Availability of industry-specific work force, e.g., engineers, scientists, system integrators, etc.;

• Job training programs customizable to manufacturing process and management needs;

• Government policy for purchase of renewable energy and conservation programs;

• Presence of competition;

• Presence of system integrators;

• Renewable energy installation and generation incentives, which assist market growth;

• Utility programs for distributing "green" energy.

These criteria are in addition to the usual suspects that should always be a part of a balanced location search and include:

• Demographic growth trends;

• Availability and cost of labor;

• Availability and cost of land and property;

• Supplier logistics;

• Communications infrastructure;

• Quality-of-life issues.

All criteria should be customized to the company and its specific activity, prioritizing appropriately, since one size does not fit all. A variety of techniques including company and investment assessments, comparative location modeling, and cost analyses and cash flows are very useful in narrowing the field and determining the best fit of finalist locations in order to ensure they meet company requirements.

Incentives are part of the mix, and the analyses provide for successful negotiation and application.

Gearing Up for Recovery
With the stock market reviving and an economic recovery under foot, companies are preparing to initiate expansion strategy once again - very welcome news. With government stimulus and growing popular support, the renewables industry will be a bright spot of mobile investment. States will continue to position themselves to capture their fair share of projects and create jobs as they optimize programs and extend expiration dates. The competition can only benefit the industry as well as the served populace.

Richard Greene advises on renewable energy strategy and programs for corporate entities as part of location strategy, and with governments and developers on opportunities for green urban renewal. He has worked domestically and internationally with renewable energy companies on location strategy and funding since 2000.