HOW TO BE A NEW ENERGY ECONOMY POWERHOUSE

A Future of Innovation and Growth: Advancing Massachusetts' Clean-Energy Leadership
April 22, 2010 (Clean Edge)

THE POINT
Take a state, any state. What would transform that state into a New Energy economy powerhouse?

Great sun? Nevada has awesome sun but doesn’t place among the top fifteen in the rankings in Clean Edge’s A Future of Innovation and Growth. Great wind? The Dakotas and most of the Midwest didn’t make the list and Texas came in fifteenth. California is at the top of the list but Massachusetts, Oregon, Colorado and New Jersey round out the top five on a Leadership Scorecard that compared the 50 states in 56 categories from regulatory and financial incentives to knowledge capital and the available workforce.

The obvious answer is that resources are good but developing them is even better. Developing them requires the right regulations, incentives and infrastructure. The right regulations, incentives and infrastructure depend on the state's resources. The Clean Edge paper says there are, however, growth-driving principles that will apply everywhere.

The first principle: Make New Energy (NE) a high priority. The entrenched political power of the Old Energies closely protect the subsidies and incentives long provided to the traditional sources of power generation. Without a slate of compensating subsidies and incentives for New Energy, setting a new agenda is pointless. If NE gets the legislative and economic emphasis that gives it a level playing field, it can thrive.

With and without the blessings of New Energy assets, the states that Clean Edge calls the leaders have three things in common beyond simply giving New Energy high priority: (1) Strong commitments to Energy Efficiency (EE), (2) a range of policies that require and drive the growth of NE and EE, and (3) university, research and development institutions committed to innovation.

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After establishing a framework for what will effectively grow a state’s New Energy economy, Clean Edge took a detailed look at Massachusetts. It is a state with modest sun, wind mainly only off its coast and undistinguished geothermal and hydrokinetic resources. Clean Edge identified Massachusetts’ strengths and weaknesses and formulated a list of nine key actions. They were sculpted to Massachusetts' unique characteristics but will, in a more generalized way, turn any state into that New Energy economy powerhouse:

(1) Establish a center that focuses on research, development and deployment of EE and get a Department of Energy (DOE) laboratory for the state.
(2) Create aggressive NE and EE financial incentives.
(3) Establish a Green Bank-like institution to make financing of NE and EE projects more readily accessible.
(4) Create routes for NE and EE R&D to be deployed and get commercialized.
(5) Make it possible for EE improvements to be reimbursed through utility bill credits.
(6) Make EE building standards and regulations more demanding.
(7) Get the permitting of NE and EE projects done more quickly and easily.
(8) Push for a national policy to cut greenhouse gas emissions (GhGs).
(9) Design all policies to enhance the state's resource strengths.

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THE DETAILS
The Top 15 New Energy economy states in the Clean Edge ranking were California (CA), Massachusetts (MA), Oregon (OR), Colorado (CO), New Jersey (NJ), Connecticut (CT), New York (NY), Maryland (MD), Washington (WA), Minnesota (MN), Arizona (AZ), Illinois (IL), Florida (FL), Pennsylvania (PA) and Texas (TX).

Despite its relatively modest New Energy (NE) assets, Massachusetts has made itself the second-ranked state.

After making NE a high priority, the state moved quickly to build Energy Efficiency (EE). It also made a serious evaluation of its strengths and weaknesses.

Massachusetts’ strengths and assets:
(1) Led by the Massachusetts Institute of Technology (MIT) and Harvard, it has academic, R&D and innovation resources second to none.
(2) It has policies that reflect a serious commitment to EE.
(3) It has a state government and state policies that are committed to NE and EE.
(4) A rich state, it has significant capabilities to make venture funding available for worthy projects.
(5) Because NE and EE have high upfront costs, they are able to compete more quickly in states like Massachusetts where high energy demand makes marginal supplies more valuable and high energy costs make the initial NE and EE costs less significant.
(6) The state’s academic institutions give it a highly educated workforce.
(7) The highly educated workforce tends to be inclined toward NE and EE.

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Massachusetts’ Weaknesses and Barriers:
(1) The state is an expensive place to live and start a business.
(2) There are gaps between innovation and commercialization in Massachusetts.
(3) Massachusetts has limited NE assets.
(4) The tradition of local administration magnifies delays in permitting and Not-In-My-BackYard (NIMBY)-ism.
(5) The financial community is especially old, established and risk-averse.
(6) There is no national energy laboratory like Colorado’s National Renewable Energy Laboratory (NREL) or Washington’s Pacific Northwest National Laboratory (PNNL).
(7) Long a post-industrial state economy, Massachusetts lacks NE and EE manufacturing infrastructure.

Innovative NE and EE businesses spawned by Massachusetts’ strong research sector: A123 Systems (advanced electric vehicle batteries), EnerNOC (EE/demand-side management), Konarka (organic PV), Beacon Power (flywheels), and General Compression (large-scale compressed air energy storage, CAES)

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Clean Edge concluded that Massachusetts’ advantages are best suited to a focus on EE, solar and energy storage.

Its advantage in EE comes from the demand for it. The state has (1) an extreme climate, (2) high energy costs, and (3) lots of old, inefficient buildings. It therefore generates lots of megawatts in its buildings sector and can generate lots of negawatts there. State policies show that Massachusetts’ insightful leaders have already been convinced of what its smart populace will quickly see: Investment in EE pays off at the rate of $2-to-$3 dollars returned for every dollar spent.

That the state should concentrate on solar is not so obvious but it is the most abundant New Energy resource and the one most ripe for lucrative innovation. Many important solar efficiency advances have alread been pioneered by Massachusetts’ high tech sector. Moreover, it only takes sunlight, not heat, to make solar PV viable. In fact, PV is more efficient in sunny but cooler weather. Finally, the population’s quick subscription to the state’s previous solar incentives demonstrates its progressive thinkers want more solar.

Advanced energy storage is sometimes referred to as a New Energy “holy grail.” There is no doubt the sector craves a major breakthrough that will make it possible to store the abundance of the sun for when it is not shining and the power of the wind for when it is not blowing. Among the most important energy storage breakthroughs to date have been made by Massachusetts companies like A123 Systems, Boston-Power, Evercel, General Compression, Premium Power, and others that evolved from academic research into business ventures. These companies form a Silicon Valley-like innovation “cluster” for storage on which Massachusetts can build.

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More on the 9 recommendations:

(1) Establish a center that focuses on research, development and deployment of EE and get a Department of Energy (DOE) laboratory for the state: Massachusetts wants one of the three Energy Efficient Building Systems Design Energy Innovation Hubs DOE announced in December 2009 it would create as the core of a $129.7 million federal Energy Regional Innovation Cluster. Such a facility dovetails perfectly with the state’s EE and braintrust strengths.

(2) Create aggressive NE and EE financial incentives: The state already added a solar carve-out to its Renewable Electricity Standard (RES) so that a specific portion of its New Energy requirement must come from solar. This also builds on a Massachusetts strength. In addition, Massachusetts could consider a smartly designed feed-in tariff and increased tax credits.

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(3) Establish a Green Bank-like institution to make financing of NE and EE projects more readily accessible. It should be modeled on the proposed Clean Energy Deployment Administration (CEDA). Such a lending mechanism is estimated to provide 10- or 20-to-1 leverage so that $10 million of Massachusetts taxpayers’ money could bring in $100 million-to-$200 million in private sector investment.

(4) Create routes for NE and EE R&D to be deployed and get commercialized: Massachusetts has so much innovation that there is difficulty getting it into the marketplace. The state has already instituted measures to streamline the process and should consider a fulltime technology transfer position to focus entirely on NE and EE innovation deployment.

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(5) Make it possible for EE improvements to be reimbursed through utility bill credits: This would make it possible for residential and business ratepayers to afford the high upfront costs for EE improvements by essentially reverse-financing them with their utility bills.

(6) Make EE building standards and regulations more demanding: California is instituting statewide energy performance scoring (EPS) that would rate buildings as they are marketed and emphasize the value of buildings with better EE. This puts teeth in more demanding EE standards and regulations. Contractors, NE and EE installers could be certified and certified work made mandatory to increase the quality of work done.

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(7) Get the permitting of NE and EE projects done more quickly and easily: This is a particularly crucial issue for wind developers. Massachusetts has already moved forward with offshore wind regulations and has onshore wind legislation pending. Utility-scale wind projects must be given the go-ahead without a degree of scrutiny, paperwork and hoop-jumping that sends developers elsewhere.

(8) Push for a national policy to cut greenhouse gas emissions (GhGs): Massachusetts is already a player in the 10-state Regional Greenhouse Gas Initiative (RGGI) that caps its voluntary members’ GhG emissions and aims to cut their emissions 10% by 2018 through an emissions trading scheme. This kind of initiative is exciting but cannot achieve the highest levels of effectiveness until the entire country participates on a mandatory basis.

(9) Design all policies to enhance the state's strengths: There is no point fighting for policies that will do no good. For Massachusetts, it’s EE, solar PV and energy storage. For Midwestern states, it’s wind. For Southwestern states, it’s utility-scale solar power plants. For Southeastern states, it’s EE.

The Clean Edge report was prepared for the Massachusetts Clean Energy Center (MassCEC).

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QUOTES
- Authority on Massachusetts to Clean Edge, describing a significant state NE and EE advantage: “We have a lot of smart people.”

- From the Clean Edge report: “…innovation doesn't only occur in university research labs or corporate conference rooms. Governments can also innovate, especially regarding relatively new sectors like clean energy, and Massachusetts' public leaders and policymakers have done that. Governor Deval Patrick, Secretary of Energy and Environmental Affairs Ian Bowles, and Department of Energy Resources Commissioner Philip Giudice all earn generally high marks for leadership…The Global Warming Solutions Act, the Green Communities Act, and the Green Jobs Act (creating the MassCEC) lead a healthy list of leading-edge, aggressive policy initiatives. The state's leadership in the Northeast states' Regional Greenhouse Gas Initiative (RGGI), arguably the most successful cap-and-trade systems for carbon emissions in the U.S., has also been exemplary…”

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- From the Clean Edge report: “Clean energy is a highly diverse industry and no one state or region can lead in all of its sectors. The best strategy is to pick your strengths and focus policies and resources on those. Massachusetts’ three key areas of focus should be energy efficiency, solar PV including thin-film, and advanced batteries/energy storage. Although the state should seek to attract and retain manufacturing where possible, it should mainly focus on extending its leadership as a hub of research breakthroughs and innovation excellence in clean-energy technologies and business models. This globally influential, innovation-centric approach will continue to create high-level scientific, technical, and business management jobs, as well as thousands of green collar jobs in installing, operating, and maintaining these technologies.”