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Agenda - 05-05-2009 - 3b
ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: May 5, 2009 Action Agenda Item No. ~-..~j SUBJECT: Presentation by EDC Chair Anita Badrock on the Economic Development Commission's White Paper on Developing a Solar Cluster in Orange County DEPARTMENT: Economic Development PUBLIC HEARING: (Y/N) no ATTACHMENT(S): A. Letter of Recommendation from EDC B. "Development of a Solar Cluster in Orange County" White Paper INFORMATION CONTACT: Brad Broadwell, 245-2326 Yvonne Scarlett, 245-2325 PURPOSE: To present information and solicit support from the Board of County Commissioners on the development of a solar cluster in Orange County in preparation for moving ahead with investigating the need for incentives and appropriate infrastructure build out in the Mebane (Buckhorn Village) economic development district (EDD). BACKGROUND: Anita Badrock, Chair of the Economic Development Commission, will be presenting a white paper which has been developed and is supported by the Economic Development Commission. Although much effort and activity has begun on developing a solar cluster in Orange County the EDC would like to formalize it as an objective of the program. This objective fits within the strategy to satisfy the general economic development goal as provided in the Orange County 2030 Comprehensive Plan to create "viable and sustainable economic development that contributes to both property and sales tax revenues, and .enhances high- quality employment opportunities for County residents". FINANCIAL IMPACT: There will be a significant financial impact. It will need to be determined after proposing and gaining support of efforts to utilize tax incentives and realize costs associated by the required infrastructure development in the EDD. RECOMMENDATION(S): The Manager recommends to the Board that this become a serviceable objective of the Economic Development Department resulting in measured outcomes to enhance our County's commercial tax base. 2 QRANGE CQUNTY Economic Development Commission Esteemed members of the Orange County Board of County Commissioners: April 30, 2009 The Orange County Economic Development Commission would like to present to the Board of County Commissioners a white paper entitled "Development of a Solar Cluster in Orange County'. The Economic Development Commission (EDC) formally requests the Board's support in the advancement of a renewable energy solar cluster in the county. The EDC fully supports this proposed initiative for the following reasons: • The proposed strategy is in compliance with the Economic Development Element of the 2030 Orange County Comprehensive Plan, which calls for `Viable and sustainable economic development that contributes to both property and sales tax revenues, and enhances high-quality employment opportunities for County residents." (Section 3.5 of Comprehensive Plan); • Just this week, UNC-Chapel Hill announced that it received a 17.5 million dollar grant to develop solar fuels from next-generation photovoltaic technology, which would provide a foundation for the development of this solar cluster; • Renewable energy has significant economic growth potential and is consistent with the values and goals of Orange County residents for sustainable, green initiatives; • Data support future job growth of up to 440,000 jobs by 2016 in this sector nationwide; • To develop the workforce needed for this sector, asolar-focused curriculum is already planned for the Fall Semester of 2009 at the Orange County Campus of Durham Technical Community College (DTCC); • Jobs created in the energy sector tend to be higher paying than retail, and provide stable jobs for people throughout a range of educational attainment; • The transportation location of Orange County (at the intersection of both a major east-west and a north-south highway) is ideal to attract and facilitate growth in this sector. The potential supply chain to support this industry is already fairly well developed along the I-85 corridor; • Development of this industry would allow us to reap the benefits of our proximate intellectual environment, such as research universities and Research Triangle Park; • The current federal stimulus funding supports significant growth in the solar industry; • State legislation requires that energy companies in North Carolina obtain 12.5 % of their energy portfolio from renewable energy production (Renewable Energy and Energy Efficiency Portfolio Standard or RPS); and PO Box 1177 • Hillsborough, NC 27278 (919) 245-2325 • FAX: (919) 644-3008 EMAIL: edcmailC~co.oranae.nc.us • WEB ADDRESS: www.co.orange.nc.us/ecodev 3 • A growing energy demand suggests that additional sources of energy will be required in the future; given the regulatory hurdles of traditional energy sources (coal and nuclear, specifically), renewable energy supply will need to meet this demand. A recent article in the Triangle Business Journal has already brought several inquiries to Economic Development staff about Orange County's solar focus. The current impediment to moving ahead in talking with interested parties remains the short comings in assets available to market Orange County as an expansion venue to manufacturing and research and development operations. We, as the advisory board to the EDC, enthusiastically support an effort to position Orange County as a leading hub for solar growth in North Carolina, the Southeast, and the United States. However, we must move in a timely manner to leverage the assets already available, such as the DTCC curriculum and the UNC grant, and to effectively compete in the marketplace for this type of industry. We recommend that appropriate action be taken now to develop the tools necessary to make Orange County the preferred location for this sector's development. These steps may include: • Decide if incentives will be utilized to recruit potential solar businesses, and if so, what type, and take immediate action to assure their availability; • Ensure the Economic Development District (EDD) infrastructure is in place to support growth of this sector; • Continue supporting DTCC in development of asolar-focused curriculum based on the Orange County DTCC campus; • Ensure that government officials publicly communicate their support for development of a solar cluster; and • Support solar businesses located in Orange County by utilizing their services as possible in government operations. Thank you for your consideration. Sincerely, Anita 8adrock Chair, Economic Development Commission PO Box 1177 • Hillsborough, NC 27278 (919) 245-2325 . FAX: (919) 644-3008 EMAIL: edcmail(a~co.oranae.nc.us • WEB ADDRESS: www.co.orange.nc.us/ecodev DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY Photovoltaic 'tree' in Stvria, Austria (from the Wikimedia Commons. Commons is a freely licensed media file repository) Prepared by Orange County Economic Development April 13, 2009 5 TABLE OF CONTENTS Introduction ......................................................................................................................... 1 Current State of the County ................................................................................................ 1 Identification of Industry Sector ......................................................................................... 3 Energy Demand .............................................................................................................. 4 Solar Focus ...................................................................................................................... 5 The Present and Future of Solar ...................................................................................... 7 The Cluster Approach ..................................................................................................... 9 Regulatory Support/Policy Changes ............................................................................. 11 Financial Climate .......................................................................................................... 12 Solar Demand ...............................:...............................................................•-•---=--........ 13 Small Business Impact .................................................................................................. 16 Job Growth .................................................................................................................... 16 Challenges .......................................................................:....... ---................................... 17 Strategy ............................................................................................................................. 19 Workforce Training ...............................................................•--.................................... 20 Siting ............................................................................................................................. 21 Communication ...............................................................................................•--........... 21 Supply Chain ....................................•---......................................................................... 21 Additional Incentives ...............:.................................................................................... 22 Conclusion .................................................................................................•-•--•--•--............ 22 References ......................................................................................................................... 24 ii 6 FIGURES Figure 1-General Fund Revenues by Category (FY2007-2008) (From Orange County 2030 Comprehensive Plan, November 18, 2008) ................................................... 2 Figure 2-Source: SEIA 2008 Year in Review ..................................................................... 7 Figure 3-Global PV Installation Forecast (from Solar America Initiative, 2007) .............. 8 Figure 4 -Source: "Renewable Energy in North Carolina: The Potential Supply Chain", Debbage, 2008............ ............................... 9 Figure 5-Global PV Market Share by Country (from Solar America Initiative, 2007).... 14 Figure 6 -Source: Larry Sherwood (IREC), SEIA. [p=preliminary] ............................. 15 iii 7 Introduction One of the core strategies of Orange County Economic Development is to "...encourage strategically targeted economic development opportunities" (Comprehensive Plan); this document proposes a strategy to achieve this goal. The recent heightened awareness of the need for diversification of our local tax base, combined with current economic and environmental news, have provided, a unique opportunity to develop a focused strategy to address these concerns in Orange County. The overriding objective for the proposed strategy is to satisfy the. general economic development goal as provided in the Orange County 2030 Comprehensive Plan (Comprehensive Plan) (Orange, County 2008), to create "viable and sustainable economic development that contributes to both property and sales tax revenues, and enhances high-quality employment opportunities for County residents". A variety of factors are included in this strategy, including ensuring adequate representation of the entrepreneurs from the small business sector, ensuring that any targeted sector meets the diverse written and unwritten guidelines for doing business in Orange County, identification of an industry with positive growth potential, the ability to utilize a properly trained local workforce, have minimal impact to natural surroundings, and utilize an inventory of available facilities to support the newly targeted industry. Current State of the County Currently, Orange County relies on property taxes for too great a portion of the County's budget. Further reliance on residential property taxes alone will not enable us to build a sustainable economy. As provided in the Comprehensive Plan (Orange County, 2008) Section 3.2 - "[d]emands for services outpaces revenue sources, which are 8 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission overly dependent on residential property taxes. The need is to encourage strategically targeted economic development ideas." As noted in the Comprehensive Plan, 86% of the 2005 tax base was from residential property. As presented in Figure 1, property taxes in Orange County make up a large percentage of the Counry's revenue. To achieve a more equitable distribution of the County's tax burden, it is vital to cultivate and expand the business community in Orange County. Misc~taneo 429°ln Investment E~nings 4.s~~ Licenses ~ Permits 4.17% S~ 11! utsfers from fherFunds 1.95°!a Property Taxes 59.48% Figure 1-General Fund Revenues by Category (FY2007-2008) (From Orange County 2030 Comprehensive Plan, November 18, 2008) However, due to relatively high land costs, the perception of Orange County as a difficult place to do business, a vocal community that desires to preserve the County's rural character, and a general lack of readily available business properties and buildable sites, it has been challenging to develop a healthy and diverse business economy. These challenges will need to be addressed in a successful strategy to attract new businesses. For EDC use only 2 Ch~aes far Intergovernmental 9 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission While Orange County has several challenges for business recruitment, it also has numerous features that make it a desirable business location. The County's location with respect to major transportation is exceptional -there is neaz immediate access to both a north-south interstate highway (I-85) and an east-west interstate highway (I-40). The outstanding quality of life of the region is well-known and includes a superior public school system, low crime rate, desirable climate, and skilled work force. Orange County has the good fortune to be able to reap the benefits of both a highly regarded community college presence and numerous research universities. Additionally, our location puts us in close proximity to the resources available from the Reseazch Triangle Park. While the recent nationwide economic downturn has provided unexpected roadblocks for economic development, there is also great opportunity to utilize the windfalls provided by the economic downturn. The economic crisis has produced several one time-only funding opportunities. The proposed strategy minimizes the risk of business development to the extent practicable, encourages growth in new industries, and takes advantage of the unique government recovery funding opportunities. Within these parameters, a plan to identify an industry sector that would be acceptable to the community, provide local job opportunities, and have the potential for growth given the current economic and regulatory environment, has been drafted, and is presented here. Identification of Industry Sector Development of the proposed strategy has focused on an industry that will satisfy Orange County's need for business expansion, local citizenry concerns and meeting additional For EDC use only ~~I'd put my money on the sun and solar energy. What a source of power! I hope we don't have to wait till [sic] oil and coal run out before we tackle that." Thomas Edison. 10 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission County requirements. The industry sector that can meet these requirements was identified as the renewable energy market, with a specific emphasis on solar energy. This industry sector meets the County requirements of a sustainable business that fits with the character of our area and has a potential for high job growth as the Department of Energy estimates 440,000 permanent jobs in the solar field by 2016. The ever increasing demand for energy combined with recent regulatory developments in support of the renewable energy sector, makes this a unique opportunity to foster development of a solar energy cluster in Orange County. Energy Demand Rising energy costs combined with increased awareness and understanding of the true costs of traditional energy sources -particularly the environmental costs -will require utilization of renewable energy sources as part of a regional energy strategy. After years of comfortably relying on fossil fuels, we are facing a new reality. The `easy' (i.e. cheap and simple to obtain) energy sources have been tapped; what remains will likely be more expensive to retrieve in both monetary and environmental COStS. ~~North Carolina can expect energy demand to begin to outpace energy supply (assuming that no efficiency measures are successful) by about 201 rJ:' From `Renewable Energy in North Carolina', Diane Cherry and Shubhayau Saha, Spring Summer 2008). Assuming future energy demand reflects past energy demand, additional energy sources will be needed. In the past 30 years typical household energy consumption has increased from 9,700 kilowatt hours (KWh) per year to greater than 14,200 KWh hours per year, an increase of 46% (Hughes, 2008). To more clearly illustrate just how great For EDC use only 4 11 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission this energy use is, consider the following illustration provided by James Udall (Udall, 1995): One KWh can power ten 100 watt light bulbs for one hour It takes on KWh of work to carry one 90 pound pack from sea level to the top of Mount Everest (29,000 feet) Each cycle of an automatic dishwasher uses more than 1 KWh of energy To answer this growing appetite for energy, we must develop a more diversified energy supply. Increasing the energy efficiency of houses and appliances will address a portion of this demand; another important part of the strategy is development of additional energy sources. Because North Carolina has historically offered inexpensive energy, energy savings and efficiency measures have not been as fully developed as in state where energy costs are higher. North Carolina ranks 34`~ in energy intensity -only 17 states have more energy intensive economies (Cherry and Saha, 2008). In addition to a large appetite for energy, North Carolina is one of the fastest growing states -North Carolina can expect nearly 4 million additional residents by 2030 (Cherry and Saha, 2008) -this additional energy will have to come from somewhere. Our area's rapid growth and limited energy alternatives make balancing the energy equation even more of a challenge. However, as summarized by the Institute for Emerging Issues (IEn progress report on North Carolina's energy economy (IEI, 2008) "...these changes also present important opportunities, especially for states and regions that move early and aggressively. North Carolina must be one of these leaders." Solar Focus Although there are several options in renewable energy, solar energy was identified as the most appropriate for the current focus in Orange County. Although wind For EDC use only 5 12 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission power is currently the most cost competitive with traditional energy sources (Cherry and Saha, 2008) production of wind energy is more feasible on the coast or in the mountain region than in the Piedmont. Biomass fuels, particularly those developed from agricultural and wood wastes have great potential energy; however, there is not a large source of raw materials in Orange County (Cherry and Saha, 2008). Additionally, the emissions from burning some of the biomass fuels may have an environmental impact that needs to be considered. The decision to focus on the solar industry is supported on multiple levels. North Carolina is a net energy importer (Debbage), and the need to find alternative, more local sources to augment traditional energy sources is imperative in an age of increasing energy costs. Energy is becoming more expensive to obtain and transport into our state. Solar energy is a stable business with a bright future. Although energy from the sun has been used in various capacities for many years, the first photovoltaic cell was made in 1954 by Bell Labs. The oil embargo of the 1970's solidified the marketability of solar energy. Continued investment in research and development of solar technologies has allowed the solar market to become increasing efficient and affordable. While we traditionally think of sunny California when we think of solar applications and the solar market, in fact, some of the more progressive areas of the country are those areas that are have similar if not less sunlight than North Carolina. New Jersey has less significant solar resources than North Carolina, but its solar-friendly policies and incentives has resulted in New Jersey having the third largest solar market in the United States, with California and Nevada at numbers one and two. As shown in Figure 2, North Carolina has greater resource potential than many of the northeastern and For EDC use only 6 13 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission northwestern states which have had great success with solar installations. According to an article by Solar Energy Industries Association (SETA, February 2009), the Southeastern states have solar resources 60% better than Germany, and Germany is the current world leader for installed solar energy Solar Resources :United States and German t •~~'tt ~ z:. =ti '~r' ~' • ~' .~° F ~ ~ y, ,a ~~,. ti ~ofrk .~ ~ c _ ` 7"----r^ ~ .,tom Y~ wf~ i . t~. ~p~~ , 7 J ~, 1 _~_ 'xl ~ 3 ~1 l _ ~1 i~ f..: ~ ~ ~; ^-F I a 'ajN r ~ . ; ,. . ,. 1 x.Wr.maw,~.otl...a~.w.dw~+.e»~e~arr.aw~'r~ei.~~~~i>~s~m~~.e~°°°`w r.«.a.3...a~:.~,~aa..~v.easu~~ru~enr~:+~car v+~~x rna.rvo+~e~..~..m~.eav.w .r/ -: MWlaM1>191e~wI11PG~6~V11wtlvl yyys.~.p,~gy tq[6.S,yi .+tOMwia~QNSd PeE: mia~~@~i~aN~lel~'Y~di~+~b?mr+w~!~+F"~~+++•uYS4CyP~y16t•fBW. )N~gure 2-Source: SETA 20118 Year u1 xeview. The Present and Future of Solar The global market for solar PV is expected to continue its recent rapid growth, primarily through increased PV grid-tied installations, both commercial and residential (Solar America Initiative, 2007). Figure 3 is forecast of solar PV installations. For EDC use only 7 14 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY Orange County Economic Development Commission s,o~ ~ 5,000 e 4,000 ~ 3,000 c ~ 2,000 1,000 April 13, 2009 0. 1995 t997 t999 zoos 2003 Zoos 2007 2009 YEAR Figure 3-Global PV Installation Forecast (from Solar America Initiative, 20(17) There aze currently not a huge volume of solar manufacturing facilities in the area, which provides a unique opportunity tb carve out a niche in this mazket for Orange County. According to a recent study produced by the North Carolina Energy Office in 2008 there were only 13 solaz manufacturing companies in North Cazolina. Although the manufacturing mazket is immature, the base to build a solar manufacturing sector is akeady in place. The potential supply chain for solar utilizes the capacity and product output of existing manufacturers. Specifically for the solar industry, a variety of existing manufacturers can be utilized, with the leading supply chain manufacturers for the solaz industry including semiconductors, plastic and resin manufacturing and sheet metal work manufacturing (Debbage, 2008). Figure 4 presents the potential supply chain for the solar industry in 2008. A study completed in 2008 identified 296 potential supply (inns, with existing employment of over 32,000 included in North Cazolina's potential supply chain to support solaz industry (Debbage, "The geography of the new energy supply chain is tightly concentrated along the I-85 corridor between Charlotte, the Triad and the Research Triangle region...." From "Renewable Energy In North Carolina: The Potential Supply Chain. Dr. Keith G. Debbage, GSK Faculty Fellow, Institute for Emerging Issues and Professor of Urban Geography, University of North Carolina at Greensboro. For EDC use only 8 15 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission 2008). An important task in the successful build-out of clusters will be to ensure that the clusters integrate the existing supply chain network. The cluster approach is discussed in more detail in the following section. Solar Power: The Potential Supply Chain, 2008 296 Firms in North Carolina Potentl al Solar Power Firms by NAICS • 315211-PlsYim MalvlelBReyrve2 • ]z5n]-un.mn~.ePMmaFUnasers(xegPMeyllyy7s • 321217-FMt OIMa-9 6 932322-Sheet Malel Wbk-01 ! 99ee1]-SentlevNClvsflReiebtl DeMOe HS ® 33/StS-InlnmerretrMeaaainpd Te>lip EIOMWyG i 335]13-SNtdgwdSW~bwNPppre4u-10 • 335911-SbryeBRisbs-2 • 93931-Cvrtnt;eeyyy yyidnyDMms-B 939-9-EbOfIXee Equlpnretil entl Camponmis, MbC.E1 NC Depl o(Cammaru FoonoMC Dw. Raebnfl ~. cn.rbn. L- ~.... NeMUSt .emw7fibe ~: ce ~~. Yd u! Q Ceu~wr mena.ees - Mest.ls ?I 5K~ F ~~s • ©© ~x~~. QttIDeellW[!~/~YM Figure 4 -Source: "Renewable Energy in North Carolina: The Potential Supply Chain", Debbage, 2008. The Cluster Approach As presented in the Comprehensive Plan (Orange County, 2008), in 2004 a group of Orange County businesses and IJNC-CH representatives developed a blueprint for an economic strategy under the guidance of Dr. Michael Porter, a Harvazd regional competitiveness expert. One of the goals form this task force was to "diversify the economy by recruiting a wider array of clusters and focusing on opportunities at the intersection of our strongest clusters." As defined by Jonathon Q. Morgan in a recent article for UNC-CH's Populaz Government magazine, clusters area `...geographically concentrated group of interdependent firms and supporting institutions' (Morgan, 2004). Morgan has identified For EDC use only 9 16 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission four factors that increase the success of a cluster: identify what makes the region distinctive, being able to move the industry cluster beyond critical mass to develop the synergy critical for cluster, encouraging the cluster's shazed needs, and solidifying the collaboration between cluster members. Focusing on these factors will be key in development of the proposed solar cluster. The interdependence of clusters is the basic part of what makes this concept successful. The firms that make up the cluster may not make exactly the same product ...[when] institutions that constitute a cluster systematically work together toward shared goals, they create a kind of sy n e rg y... ~~ From "Clusters and Competitive Advantage: Finding a Niche in the new Economy, Jonathon Q. Morgan, 2004. but they share similar industry components, including labor, infrastructure and services (Morgan, 2004). A cluster development can be viewed as a type of industry incentive by highlighting the cost savings resulting from the economies of scale by offering the cluster companies access to suppliers, customers, workforce, technology, financing and a variety of support services (Morgan, 2004). A cluster is more than just a collection of related firms - a cluster of firms requires interaction and collaboration among firms (Morgan, 2004). Although it is thought that often cluster development is unplanned and develop where the product market is located, development of a cluster can be guided by a local government by targeting a specific industry, recruiting firms within this industry, and providing the resources to support the growth of the targeted industry. Clusters are an economic way to utilize economic development resources by allowing a local government to focus their resources on a larger group of businesses, and tailor their For EDC use only 10 17 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission training to a specific industry group (Morgan, 2004). There are other benefits from cluster development besides those economic benefits directly attributable to the companies that make up the cluster -the competitive advantage resulting from a successful cluster can give the overall region a competitive advantage for continued growth (Morgan, 2004). To successfully foster growth of a solar cluster, the right support pieces must be in place -appropriate regulations, a workforce with the correct skills, the right business environment, and adequate financial support. Regulatory Support/Policy Changes Not only do we have the raw material (sunlight), a growing energy demand, and the potential supply chain to support a growing solar industry, we "...By requiring a solar set-aside [REPS], it was our hope that we would create a domestic market for solar power in North Carolina." state representative Pricey Harrison, D-Guilford in reference to potentia121.5 MW solaz fazm in Davidson County. also have the investor owned utility companies on board, by virtue of North Carolina's passage of the Renewable Energy and Energy Efficiency Portfolio Standard (REPS), which is a regulatory standard that requires utilities to produce a specific percentage of their electricity from renewable sources. North Carolina was the first southeastern state to pass a REPS; the North Carolina REPS requires investor owned utilities to obtain 12.5% of their energy from renewable sources by the end of 2020; the requirement for municipal and co-op utilities is 10% by 2010. Although states are implementing their individual REPS, there is the potential for a federally mandated REPS in the future -President Obama has advocated that 25 percent of our nation's electricity be generated from renewable sources by 2025. For EDC use only 11 18 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission Passage of the NC REPS has given rise to opportunities for industries to supply the energy options to meet the standards. The utilities are akeady at work identifying their sources to meet the REPS. The renewable energy to meet the REPS can be obtained from renewable energy produced by residential customers, business customer or larger commercial installations of renewable energy. As one of the first local responses to this encouraging climate, SunEdison LLC, a solar company based in Maryland, has proposed a 21.5 megawatt (MW) solaz farm in Davidson County. When completed, this could be the largest of its type in the United States. The project was enhanced with approximately $2M in incentives from Davidson County, including $1.8M for grading, and cash grants of approximately $250,000 (from Winston Salem Journal, May 15, 2008). A recent study by the Institute for Emerging Issues (IEI) "Solar energy is not feasible in states that don't provide incentives." Moray Diggins, state director of N.C. Sierra Club in reference to potential 21.5 MW solaz farm in Davidson County. proposed that the recent regulatory reforms will have a positive effect on the future of renewable energy -passing the REPS will provide an-incentive to both increase the renewable energy mazket and solidify the Renewable Energy Certificate (REC) mazket. An REC is earned by the generation of renewable energy and provides a revenue stream to the generator. Having an REC market encourages investment in the renewable energy market. Financial Climate Even in these uncertain times, the current financial climate is uniquely positioned to support growth of the solar energy market. The Emergency Economic Stabilization Act of 2008 extended the 30°Io personal and corporate investment federal tax credit for For EDC use only 12 19 DEVELOPMENT OF A SOLAR CLUSTER IN GRAN Orange County Economic Development Commissior solaz installations an additional 8 years, through 2016. Additionally, North Carolina also has a 35% state tax credit that can be taken in addition to the federal tax credit, resulting in a 65% credit on installation of a solar system on either a home or a business. Along with the tax credits, the maturation of the solaz mazket is resulting in more affordability - solaz module prices have "...the U.S. solar marketplace grew substantially in 2008 and is posed for continued advancements in 2009. With the easing of supply bottlenecks and the aggressive alternative-energy investments provided by 2008's EESA [Emergency Economic Stabilization Act] and 2009's American Recovery and Reinvestment Act, going solar will be increasingly attractive and affordable for families, businesses and utilities across the country." From "US Solar Industry Year in Review: 2008", published by Solaz Energy Industries Association ®. decreased 25% since the third quarter of 2008 (SETA, 2008). Other components of the Stimulus Act include funding opportunities for the installation of renewable energy technologies on municipal buildings and commercial businesses. These one-time only funding opportunities provide a unique opportunity to for azeas that aze prepared to support this growing industry. Solar Demand With the regulatory support of REPS, a general understanding of the importance of alternative energy sources, greater affordability and the increased demand from Stimulus Act opportunities, the estimated growth potential for the solar industry will likely result in unprecedented growth in demand for solaz technologies. Demand for solar is on the increase; during the period of 1994 to 2005, grid connected PV installations on residential and commercial buildings were the fastest growing segment of the PV mazket (Solar America Initiative, 2007). For EDC use only 13 20 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission As Figure 5 shows, global demand for PV has skyrocketed, although the United States mazket shaze of the PV manufacturing industry has stayed fairly constant for the past several years. Recent regulatory changes may address this issue. „oo 1700' 1005 '9500 60Ti. '1300, II00 asx rioa ia7t ~~ asx sb0 c ROW uq ~ ~~ ; 700 sex ~ ~ am sax. ~ ux.: ~~ ~ ua.w~tiwt~iw ..~. ® ~: wx' ' p mo iw .~. ~,. ~ soa _ ,._. ~« ~"° o ox gg Figure 5-Global PV Market Share by Country (from Solar America Initiative, 200'n According to a study completed by Greentech Media Reseazch/Prometheus Institute in 2008, United states production of PV cells increased from 271 MW to 414 MW, a difference of 53%; additionally, the United States capacity for PV cell manufacturing increased by 65%, from 415 MW to 685 MW (SETA, 2008). According to market projections provided in a study sponsored by the North Cazolina Energy Office, nationwide solar energy market is expected to grow from $15.6 billion in 2008 to $69.3 billion in 2016 (Appalachian, 2008). These estimates do not take into account potential changes in the energy market, which could include everything from future incentives, to additional regulatory limits, and everything in between. For EDC use only 14 21 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission As presented in Figure 6, the majority of the recent steep increase in PV additions have bee in grid-tied PV systems, suggesting that as REPS become more inclusive of renewable energy, this market share will continue to increase. 4C)~1 ~~} 1~4 St3 ~ Grid-7~e~ ~'otal ~ P1C off-,glr"td Figure 6 -Source: Larry Sherwood (11tEC), SEIA. [p=preliminary] For EDC use only 15 zo~a a~o~ ~c~Q~ ~~a~ ~~~~ zoa~ ~~ ~~a~ zags 22 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission Small Business Impact A survey conducted by IEI showed that the new and upcoming energy economy is comprised of young business employing less than 10 employees (IEI, 2008). Like larger fums, these small businesses will be looking for suppliers, customers and a community educated in the clean energy business. Approximately 80% of the projected employment growth in the renewable energy and energy efficiency industry is reported to occur in firms that employ less than 100 people (NCSEA, 2008). The small business component will be crucial in devising a strategy to grow this market. Job Growth Renewable energy sources tend to be more labor intensive than traditional energy sources they replace (Cherry and Saha, 2008). Additionally, supporting industries that will support the solar/renewable energy cluster growth includes industries such as research, finance, and legal -the jobs created from the renewable energy industry will ripple through traditional industries. "The largest number of jobs will be in the growing solar industry, particularly in the construction field." From `North Carolina's Energy Futures: Realizing a State of Opportunity'; a progress report on NC's new energy economy, by Institute for Emerging Issues, The positive aspect of the anticipated growth in the renewable industry is that the jobs created cannot be outsourced -the work is local. A survey conducted in February 2009 by the North Carolina Sustainable Energy Association (NCSEA) showed that if select state and federal legislative activities are completed by July 2009 (including the federal stimulus package) North Carolina could see over 7,500 new jobs in sustainable energy businesses over the next two years. Based on this survey, the greatest percentage of future projects (45%) were planned to be located in central North Carolina. For EDC use only 16 23 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission Another survey indicated that in response to passage of the REPS, it is estimated that 90 gigawatts (GW) of renewable energy will need to be generated by 2025; this will require 12,000 new manufacturing jobs in North Cazolina just to maintain the current mazket share (Appalachian, 2008). Challenges While the building blocks are in place for the rapid growth in the solaz mazket, several obstacles should be considered when developing a strategy. One of the largest challenges will be in integrating a new energy source into the existing utility regulatory framework. Although the REPS have been instituted by the North Cazolina Utility Commission (NCUC), the effect will not be immediate -the utilities have no set aside funds to support renewable energy and there are no enforcement mechanisms for REPS (Cherry and Saha, 2008). Solutions to these regulatory challenges with regards to REPS may be gleaned from other states that implemented REPS prior to North Carolina. Those states that were more successful in achieving their goals had funds available to help renewable energy on a larger scale -typically with a small surchazge on kWh used to support renewable energy. North Cazolina does not currently have a similar program in place. Another regulatory challenge is with enforcement of the REPS -currently the regulation does not have monetazy penalties if the renewable energy goal is not met (Cherry and Saha, 2008). The regulatory structure that makes renewable energy attractive to the renewable energy generator in terms of utility savings has been developed on a state by state basis, resulting in a wide range of regulations that govern the transfer of energy from the renewable energy back to the utility. The two primary components of the regulatory For EDC use only 17 24 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission structure aze net metering and interconnection. Net metering determines how a generator deals with excess energy. Interconnection is how the generator is able to connect to the existing utility grid. Several renewable energy trade groups develop an annual `report card' on each of the 50 states' net metering and interconnection status. In the 2008 report, North Carolina received an `F' in net metering, and a `B' in interconnection (`Freeing the Grid', published October 2008 by NNEC, Vote Solar, Interstate Renewable Energy Council and The Solar Alliance). The roadblocks in net metering that resulted in a failing grade include a low system size limit (20kW limit for residential, 100kW for non-residential), a limit of overall program size (limited to 0.2% of the utility's peak load from the previous year), treatment of excess energy produced by the generator (the excess is credited to the next bill but at a time of us rate or less; any excess credits are granted to the utility on an annual basis), and ownership of the Renewable Energy Credits (RECs) that are produced by the generator -the RECs are considered the property of the utility, rather than the generator. The NCSEA has recently petitioned the NCUC for changes to North Carolina's net metering regulations; a decision is expected soon. Additional challenges stem from the fact that the existing energy infrastructure system is not conducive to handle `distributed generation (energy created close to the point of generation), and the existing transmission lines are owned by the lazge utilities (Cherry and Saha, 2008). Conversely, another benefit of renewable energy on our energy supply is the increased reliability of the `aging electric grid by reducing the demand placed on it' (Solar American Initiative, 2007). In comparison to traditional electricity generation For EDC use only 18 25 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission using natural gas or coal combustion technologies, solar energy production reduces both criteria pollutant and greenhouse gas emissions, as well as reducing the volume of cooling water required. (Solaz American Initiative, 2007). The Department of Energy estimates that every 100MW of solaz energy that is produced would result in an annual reduction of 191,000 tons of C02i 7.4 tons of NOx and 4.5 tons of CO (Solar American Initiative, 2007). Another common challenge cited for solar energy as a mainstream source of energy is that the sun is not a continuous source of energy. The sun only provides raw energy for approximately 6 to 7 hours per day; however, the peak sunlight production typically lines up with peak energy usage times, allowing high utilization of the solaz generated energy. Although solaz equipment prices have decreased over time, the capital costs for solar installations aze still out of range for many homeowners. The recent tax credits for solaz installations address this challenge. But the main relief for the perceived high cost will be that as more solaz products are available and economies of scale take effect, the costs of solaz technologies will decrease. Strategy The demand for additional energy sources is real. Development of a renewable energy business segment in Orange County makes sense. Now that the case for a new solar cluster has been presented, a strategy must be developed to achieve this objective. Development of the base of the solaz cluster has "North Carolina has the ability to lead if it capitalizes on the opportunities before it.° From discussions on states that have successfully implemented a renewable energy program. From `Renewable Eneigy in North Carolina', Diane Cherry and Shubhayau Saha, Spring Summer 2008. For EDC use only 19 26 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission already begun two retail facilities are currently located in Orange County, and several additional inquiries have been made more as the result from recent news articles. To maintain this momentum, Orange County must offer the components that a facility requires to locate in a particular region. A survey conducted by IEI (2008) stated that the three most important criteria for success of energy businesses are the regulatory structure, accessible capital, and adequately trained and available workforce (IEI, 2008). The strategy must focus on incentivizing the targeted solar cluster to locate in Orange County by providing the resources needed by a solar manufacturing or retail entity. There are a wide variety of incentives that can be utilized to attract a cluster development, ranging from job creation payments streamlining the permitting process. These targeted businesses will require a skilled workforce, sites and facilities that meet their requirements, and a hospitable locality. Each of these items are discussed below. Workforce Training A skilled workforce is a key component to attracting the renewable energy market. A study completed by IEI (2008) suggested that a large number of jobs will be created in the solar industry - to fully support these firms, we need to provide workers with the appropriate training. The preferred strategy is to embed the desired skills into an existing curriculum. This strategic component is already under development. The Orange County campus of Durham Technical Community College (DTCC) has drafted a curriculum that will focus on the development of skills needed for potential employment opportunities in the solar industries. The curriculum is based on an existing green building curriculum, and integrated feedback from existing solar companies, DTCC curriculum specialists, and For EDC use only 20 27 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission the economic development department. Having an available workforce, with a specialized training program in place, is a great incentive for an interested company. Siting It is imperative to have an adequate supply of appropriate locations, with particular emphasis on accessibility to transportation corridors, applicable zoning, required infrastructures, and reasonable cost. Successful development of a cluster requires a central location to support the interactions necessary for cluster development. A cluster development will require foresight to locate the early facilities in an area that can grow the cluster as more firms locate to the area. Identification of appropriate locations and ensuring that the proper infrastructure is in place is vital for development of the cluster Communication Community acceptance is a key component - a business will not locate in a place they are not wanted. The message that Orange County is a key player in the solar industry needs to be relayed to key stakeholders, including the public, government officials, educators, and potential manufacturers and retailers. Supply Chain A more complete understanding of the solar energy supply chain is needed for cluster development -including identification of existing supply chain firms (manufacturing, construction, installation, research, finance, legal, REC brokering) to be able to market these resources to future solar companies. Cultivating inter-industry linkages between existing manufacturers and fledgling new businesses will further ensure success of a cluster. For EDC use only 21 28 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission Additional Incentives A survey was conducted by IEI (2008) to determine what renewable energy companies needed to be successful. The survey reported that 86% of the renewable energy companies felt that state economic development incentives aze key to the success of their industry (IEI, 2008). In addition to the incentives discussed above, no-interest or low-interest loans for small businesses, tax breaks and/or free trade zones for manufacturers of renewable energy products, site prepazation allowances, and infrastructure development allowances can be used to incentivize businesses to locate in Orange County. Conclusion The demand for additional energy sources is real. Development of a renewable energy business segment in Orange County makes sense. A survey conducted by IEI (2008) stated that the three most important criteria for success of energy businesses are the regulatory structure, accessible capital, and adequately trained and available workforce (IEI, 2008). Development of a hospitable business climate by ensuring that zoning and permitting regulations aze as streamlined and Enough sunlight falls on the earth's surface each minute to meet world energy demand for an entire year. American Solaz Energy Society applicable as possible and ensuring the local workforce skilled in the needed azeas, and training programs are in place to meet the needs of the industry. The perfect storm of events is here -the need to diversify our tax base is cleazer than ever before, the economic and environmental cost of traditional energy will continue to rise, the regulatory network azound energy is becoming more accepting of renewable sources, the costs of renewable energies are reflecting the economies of scale and aze For EDC use only 22 29 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission becoming more affordable. While the building blocks are in place, we need to continue the development of a solar cluster to create the economy that will sustain Orange County by the following actions: • Decide if incentives will be utilized to recruit potential solar businesses; • Ensure the Economic Development District (EDD) infrastructure is in place to support growth ; • Continue supporting DTCC in development of asolar-focused curriculum on the Orange County DTCC campus; • Ensure that government officials publicly communicate their support for development of a solar cluster; and • Support solar businesses located in Orange County by utilizing their services as possible in government operations. For EDC use only 23 30 DEVELOPMENT OF A SOLAR CLUSTER IN ORANGE COUNTY April 13, 2009 Orange County Economic Development Commission References Appalachian State University Energy Center, State Energy Office, N.C. Department of Administration, "North Carolina Economic Developer's Guide to the Renewable Energy Industries". Volume 2, Winter 2008. Cherry, Diane and Shubhayau Saha, "Renewable Energy in North Cazolina". Populaz Government, Spring/Summer 2008. Debbage, Dr. Keith G., "Renewable Energy in North Cazolina: The Potential Supply Chain". Prepared for the Institute for Emerging Issues, August 2008. Hughes, Mike, "A Balanced Strategy for Meeting North Carolina's Growing Energy Needs". Populaz Government, Spring/Summer 2008. Institute for Emerging Issues, "North Cazolina's Energy Futures: Realizing a State of Opportunity. A Progress Report on North Carolina's New Energy Economy". October 2008. Morgan, Jonathon Q., "Clusters and Competitive Advantage: Finding a Niche in the New Economy, Populaz Government, 2004. Orange County Government, "Orange County, North Cazolina 2030 Comprehensive Plan". November 18, 2008. Solar Energy Industries Association® (SETA), "US Solaz Industry Year in Review, 2008" Solaz Energy Industries Association® (SETA), "The United States Has Some of the Best Untapped Solaz Resources in the World." Februazy 10, 2009. Udall, James R, "Stud Muffins & Kilowatt-Hours -They Ought to Call Them Sherpa Weeks." Home Power #45, February/Mazch 1995. U.S Department of Energy, "Solar America Initiative". SETP-2006-0010 February 5, 2007. For EDC use only 24