Alternative Energy Industry Update

March 2007

By Justin Sabrsula, Junior Project Manager

AngelouEconomics

INDUSTRY DEFINITION

Alternative energy, in the tradition of electronics, biotechnology, and other technology waves, has become the newest industry to attract the attention of investors and economic developers worldwide. The alternative energy industry is broadly defined by technologies that reduce or eliminate the environmental impact of primary energy production, energy consumption and electricity generation. Production of alternative energy equipment, their operation and use in creating electricity or clean fuels, and research and development leading to breakthroughs in alternative energy comprise the bulk of the industry. Solar power, geothermal, wind, clean coal, biomass, and fuel cells are the primary technologies comprising the clean energy industry. The industry is also driven by advances in green building and energy and water conservation, ocean and wave power, superconducting electrical transmission lines, battery and energy storage, and a wide variety of electronic, mechanical, and industrial processes and services.

NATIONAL GROWTH TRENDS

Alternative energy is a long-term growth industry. As the American economy continues to grow, energy consumption will rise, although recent trends indicate that U.S. energy consumption has temporarily stopped growing as higher oil prices have fostered growing concerns for energy conservation. The U.S. growth in high-tech equipment and personal electronics is contributing to increased energy use as well; energy consumption per capita is expected to rise 17 percent through 2025. The United States lacks the domestic fossil fuel resources to meet projected demand, and alternative energy sources are being developed rapidly to step into the breach. Renewable or alternative energy sources have risen as a solution for many of our energy related problems. True to its name, alternative energy has become a commercially viable alternative to traditional energy sources, and an alternative to polluting energy sources such as coal and other fossil fuels. Alternative energy is widely available domestically, and falling costs for alternative energy technologies combined with rising prices for conventional fuels have made many of these technologies feasible today.

In addition, the energy and utility industries are undergoing a series of transformations as geopolitical, environmental, and regulatory trends affect the way in which energy and utility companies operate and what core competencies they will choose to build their companies on. These companies face many uncertainties and challenges, including responding to higher energy prices, competition for customers in a traditionally regulated market, meeting state and national government mandates for renewable electricity production, and reducing risk in the face of anticipated restrictions on emissions of global warming gases. In addition, as oil and natural gas prices have risen, excess capital available to traditional energy companies is being poured into company-level venture capital funds which are investing in a variety of traditional and alternative energy technologies. The entire U.S. economy, and indeed the world economy, depends on having reliable, affordable energy. Alternative energy generation can help meet both foreign and domestic needs in a responsible manner.

ALTERNATIVE ENERGY TECHNOLOGIES

Wind Energy
Wind energy is rapidly rising as a commercially viable source of electricity. Driven by a federal production tax credit and renewable portfolio standards (RPS) requiring utilities in many states to produce a certain amount of electricity from renewable sources, wind energy has grown dramatically over the last 7 years, with Texas now leading the nation in wind energy production. Wind power provides predictable electricity costs for utilities, and long-term contracts lock in prices to reduce uncertainty in decision-making for utilities. Unfortunately, much of the wind power potential in the United States is located far from major urban areas of power consumption, and only new electrical transmission lines will alleviate the problem.

• Global capacity of 75,000 megawatts, with 15,000 megawatts added in 2006
• U.S. capacity of 11,600 megawatts, with 2,500 megawatts added in 2006
• Top U.S. states for wind energy include Texas, California, Iowa, Minnesota, and Washington
• 30 U.S. states have utility-scale turbines in operation

Because wind farms require permanent employees to operate them, wind energy produces jobs at different levels – in operation as well as in wind turbine component manufacturing and construction. These jobs, unlike other high-paying jobs in technology-based industries are widely available in rural areas where wind farms are located, and manufacturing plants are likely to be located in areas near wind farms because turbine blades are difficult to transport over long distances due to their size.

Biofuels and Biomass
Biofuels provides another success story driven by regulatory changes. Biofuels, including ethanol and biodiesel, are the fastest growing portions of the energy industry, with ethanol production capacity expected to double by 2010 to over 10 billion gallons of production per year. In 2005, methyl tertiary butyl ether (MTBE), a gas additive was phased out of use in the United States due to leakage problems from underground storage tanks and its tendency to contaminate large underground water sources and replaced with corn-based ethanol. Ethanol in America is made primarily from corn, converting the corn sugars into ethanol, though ethanol production is rapidly bumping up against corn needed for animal feed, driving increases in the price of corn. Ethanol enjoys protectionist tariffs penalizing cheaper sugar cane-based ethanol from Brazil from being imported to supply U.S. fuels. Ongoing research promises breakthroughs in converting cellulose, or woody biomass, including the stems and branches of brush and agricultural byproducts into ethanol.

Ethanol’s cousin “biodiesel” is derived from leftover cooking oils, vegetable oils, and other cooking byproducts, and burned in regular diesel trucks. In addition, growth of soybean production could expand availability of biodiesel as another alternative transportation fuel. Interestingly, some ethanol plants are being fueled by solid biomass, burning manure from dairies to power the ethanol and biodiesel manufacturing processes.

As Midwestern farmers realized the available gains to be had from producing ethanol, many new establishments creating ethanol have arisen in the corn-producing Midwest. These establishments provide growth opportunity for job creation and alternative jobs to traditional farming activities. As cellulosic ethanol becomes commercially available, the economic development potential for this segment of the alternative energy industry promises to become more dispersed and available to small communities nationwide as a primary job driver.

Solar Power
Solar power, though not currently cost competitive for most industrial applications, continues to advance in technical and cost terms, with renewable portfolio standards, innovative new solar technologies, and growing power demand in the sun-blessed Southwest driving demand for solar power. New breakthroughs in nanotechnology and plastics could substantially reduce the cost of solar power and provide mechanisms for placing solar power on nearly any surface without specialized solar cells. Indeed, some of these startup companies have recently entered wide scale production, introducing plastic solar strips to the market.

Solar power provides excellent potential for creating jobs, with a recent UC Berkeley study showing that every megawatt of solar capacity installed creates 20 manufacturing and 13 installation and maintenance job-years. Manufacturing solar cells requires similar technologies to the first process in manufacturing computer chips, so many of these manufacturing jobs will be located in high-tech communities.

Cleaner Coal Technologies
Coal power plants provide a majority of America’s power, producing large amounts of pollution, including greenhouse gases, toxic mercury, and ozone-forming chemicals. However, as America currently has a more than 200 year supply of domestic coal, clean coal technologies will be an essential and growing segment of the alternative energy industry. Two types of clean coal technologies are emerging to provide coal power without the pollution – integrated gasification combined cycle (IGCC) power plants and coal-to-liquids (CTL) technology. IGCC power plants take pulverized coal and transform it into a synthetic natural gas, removing nearly all of the mercury and ozone-forming chemicals typically produced, and providing a pathway for future CO2 capture before combustion, substantially lowering the costs of capture. CTL technology transforms coal into liquid transportation fuels, with a byproduct of synthetic natural gas, also removing the most environmentally polluting portions of the coal. Both of these technologies will provide significant portions of an alternative energy future.

ALTERNATIVE ENERGY EMPLOYMENT
While traditional debate on alternative energy has focused on applying new technology to offset traditional energy sources, alternative energy today is more than a source of fuel. It is a source of jobs. Employment growth for the alternative energy industry varies for each segment of the industry, but new breakthroughs in alternative energy technologies will come from the growing sectors of the industry, including architectural and engineering services and scientific research & development. In addition, utilities are an area for pioneering a number of alternative energy technologies, from superconducting power lines which reduce the 20 percent loss of electricity due to transmission, to clean coal technologies, to distributed power technologies which will reduce the losses from transmission and supply more reliable localized power and enable power production all across the electrical grid. Increasingly, however, energy conservation technologies and new alternative energy advances will come from all areas of the economy, and may not necessarily be captured by traditional industry sources of energy technologies.

Occupational data also demonstrates that the alternative energy industry creates a variety of high-paying jobs, many of which take advantage of manufacturing skills currently going unused as manufacturing continues to undergo restructuring in the U.S. Regions with traditional manufacturing economies would do well to recruit alternative energy companies to take advantage of their highly skilled workforces, as wind turbine manufacturing and biofuels production require plant operators and machine operators.

Annual wages in all sectors of the alternative energy industry are significantly higher than U.S. average wages. Though many high-tech industries almost exclusively require highly educated workers with masters or doctoral degrees, the alternative energy industry requires a healthy mix of occupations. Top occupations in the alternative energy industry include many jobs which require associate’s degrees, long-term on-the-job training, or trade certifications, including electrical grid repairers, power plant operators and power dispatchers, chemical technicians, mechanical engineering technicians, and environmental science technicians, all of which pay higher than U.S. average wages.

TARGET MARKETS

Unlike other high-tech industries, alternative energy is a realistic target industry for job creation across the country. With a wide variety of traditional manufacturing skills as well as ongoing research into alternative energy technologies, communities can choose to build clusters around different segments of the alternative energy industry. Communities around the U.S. compete for alternative energy investment with traditional university-centered research areas, including San Jose (Stanford University), Ann Arbor (University of Michigan), Boulder (University of Colorado), Trenton (Princeton University), and Albany (SUNY-Albany). In addition, communities must compete for alternative energy jobs with traditional high-tech metropolitan areas like San Jose, Colorado Springs, and Washington DC, along with metropolitan areas traditionally associated with manufacturing, like Dothan, AL. The wide variety of entrance points to the alternative energy industry makes this market easier to penetrate if a community can market its strengths in manufacturing, research, or construction and operation to create not only cleaner energy but high-paying jobs.