Last fall, First Solar, the world’s leading manufacturer of next-generation, “thin-film” solar panels, announced a groundbreaking deal with the Chinese government to build a 2,000 megawatt power plan on the edge of the Gobi Desert. This was both huge and unusual, especially considering that China’s own solar powerhouse, Suntech Power, is now the world’s leading manufacturer of traditional crystalline silicon solar cells. But the Arizona firm had the more advanced technology, and so it won the job: a 10-year project culminating in a solar array that will produce nearly as much power as Hoover Dam.
The setting of world records happens almost daily in the “cleantech” business—costs never lower, outputs ever higher and unmatched efficiencies emerging from production lines moving at unparalleled speed—but even by these standards the First Solar announcement is a landmark. It signals the emergence of China as not just a manufacturer but a major consumer of cleantech products. It demonstrates that American firms still command the cutting edge. And most of all, it’s the product of a clean energy–friendly policy pioneered in Germany known as a feed-in tariff that spread first to China and then to cities in the States.
Taken together, they demonstrate that clean, infinitely renewable energy is clearly no longer alternative. It’s a significant and growing mainstream enterprise.
In the past 50 years, about 10 gigawatts of solar power—roughly the output of 10 standard nuclear reactors—have been installed worldwide. Another 10 gigawatts will be brought online this year alone. The emphasis is on worldwide. Despite their differences, what China, Germany and the United States have in common is the knowledge that green technologies are the keys to their future energy needs—for that matter, the keys to their future, period.
Cleantech must grow at light speed and foster constant innovation if it hopes to succeed at its core task, which is to surmount the largest and most global problem humanity has ever faced: climate change. The race to develop renewable energy isn’t an arms race. Innovations must be given the freedom to cross borders and overstep trade barriers as easily as the weather itself.
Access to Europe’s best practices, America’s know-how and China’s muscle is the essential first step for everyone involved in enticing the kind of capital investment required to fuel the cleantech boom.
What Governments Can Do
“Any time you have a bigger market rather than a smaller market, the promise of the payoff to the innovator is bigger,” notes Dan Esty, a professor of environmental law and policy at Yale University. “And therefore more people come into the space to try and produce innovation, and people are willing to place bigger amounts into their venture investments, because it looks like the market payoff could be even more substantial.” To develop the right kind of market for cleantech, Esty explains, governments must first rethink longstanding assumptions about environmental issues and energy production —and particularly about the relationship between our policies regarding both of them.
“We increasingly need to think of energy and the environment as two sides of the same coin and manage policy in an integrated way,” he says. “We have had in the environment domain historically a red-light approach to regulation. We put up a stop sign—a red light—and tell people things they can’t do. What we really need in order to spur innovation, both in the environmental domain and more broadly in the clean energy world, is to have a green-light approach to regulation that really tries to encourage people to do good things, not just tell them to stop doing bad things.”
In the cleantech sector, the necessary role of the green-light policy is obvious: It must make technologies that reduce greenhouse gas emissions more cost-effective than existing technologies that spew carbon dioxide. Solar power needs to be made a better bargain than burning coal; wind a cheaper fuel to use than natural gas; electric cars more economical to own and operate than gas-burning ones.
There are two main ways to achieve this: Make dirty fuels more expensive to use or make clean fuels more profitable to produce.
The Feed-in Tariff
Making dirty fuels more expensive involves putting a price on carbon. And that has proven to be an elusive goal in much of the world. Hopes of doing just that at December’s Copenhagen climate conference were dashed before the delegates even arrived.
Fortunately, a policy has already emerged to sweeten the profits of clean fuels like solar. Formally, it’s called a feed-in tariff. Esty just calls it “pump priming.” By either name, it has proven jaw-droppingly effective at fueling the first phase of the cleantech boom. It works at the national or even regional level without interfering with the flow of global trade or crippling international competitiveness.
Feed-ins obligate utilities to buy renewable sources of energy at a higher price than what they pay for power from fossil fuels. The result is that everyone is suddenly in the energy business—from well-funded startups to the homeowner with solar panels on the roof. The policy guarantees they’ll make money by selling energy back to the grid.
“If you know a technology has the potential to be cost-effective in the long run,” says Frederick W. Smith, FedEx Corp. chairman, president and CEO, “I think it’s a very good thing for government to give people an incentive to use more of it to get to that sweet spot, where the scale of production allows it to be income-producing rather than income-using.”
Such policies are the reason solar is a $13 billion global industry expected to triple in size by 2012. And they’re the key to the deal that brought a solar company headquartered in the American Sun Belt to the arid steppes of Inner Mongolia.
For that company, First Solar, last year’s mammoth Chinese deal marked the completion of a kind of world tour that began 20 years earlier in the American Rust Belt and crisscrossed the United States and Europe before arriving in the Pacific Rim. The company traces its origins to a laboratory breakthrough at The University of Toledo in Ohio in the late 1980s—the creation of an efficient photovoltaic (PV) cell made from a microscopically thin layer of a metal alloy called cadmium telluride. First Solar acquired the technology in 1999 and set up its headquarters in suburban Phoenix with the goal of bringing the breakthrough to the mass market as soon as possible, and at a manufacturing cost per watt far below its competitors.
First Solar established a small-scale manufacturing facility near its Toledo birthplace in Perrysburg, Ohio, but the company soon realized that unlike most conventional energy companies, it wasn’t limited by the location of its fuel supply.
The sun shone everywhere; it could find the friendliest market and begin industrial-scale manufacturing there. And in 2004, when it conducted its search, the friendliest market, by a wide margin, was eastern Germany. Not only were there huge incentives to set up new businesses in the region, still crippled by the collapse of its Soviet-era industrial base, but the German government had also just unveiled the most generous incentive for solar energy generation the world had ever seen.
Germany’s feed-in tariff, officially the Renewable Energy Sources Act, known by its German-language acronym EEG, was originally passed in 2000. (A simple version was actually put in place in California in the late 1980s to encourage wind energy developments.) All feed-in tariffs are price-setting mechanisms. The rates decline over time but are guaranteed for 20 years. The goal is not only to encourage power generation from renewable sources, but also to provide a huge kick-start to the cleantech industry by guaranteeing the green-power market.
In 2004, the German government significantly increased the feed-in for solar power, and domestic demand for solar panels exploded with such force that it precipitated a global shortage in the raw material: crystalline silicon wafers. It also attracted solar manufacturers from around the world, drawn not only by the explosion in demand but also by the 20-year market guarantee.
“The whole purpose of the EEG really was about creating investment security for a longer time period,” says David Wortmann, vice president of policy and public affairs at First Solar Germany, who guided the development of the company’s first commercial production facility in eastern Germany. “And this was the main reason for First Solar to come to Germany, and to use Germany as a base to grow.”
Pump Priming Spreads
The German policy model has also inspired cleantech growth well beyond its own borders. Its European neighbors from Denmark down to Spain have passed feed-ins of their own, and the basics of the policy have spread as well to jurisdictions worldwide—from the municipality of Gainesville, Fla., to the Canadian province of Ontario. It was China’s copy of the policy that opened access to its vast domestic market, inspiring First Solar’s dramatic eastward expansion. And given the scope of just that one deal, First Solar is already contemplating the construction of a manufacturing facility in China itself—more evidence of the feed-in policy’s ability to attract not just project financing but long-term investment.
Back in Germany, American competition is having its intended effect. There, the focus of the cleantech industry is beginning to shift from present-tense manufacturing to next-generation innovation. Q-Cells, the German solar champion, is racing to catch up to First Solar. Meanwhile, German wind turbine manufacturers have begun looking offshore to integrate their North Sea installations with those of their neighbors in a transnational “supergrid.” And First Solar’s Wortmann believes the sheer number of forward-thinking cleantech companies working in close quarters in Germany might create a center of innovation for clean energy, a sort of solar Silicon Valley.
By way of example, Wortmann points to a recent cooperative innovation: “the combined power plant.” In this groundbreaking experiment, three major German cleantech players—a solar producer (SolarWorld AG), a wind turbine manufacturer (Enercon) and a developer of biogas plants (Schmak Biogas AG)—linked 36 separate electricity generators nationwide in a self-sufficient closed loop consisting entirely of renewable energy. The grid was big enough to power 12,000 homes, but its designers believe that’s only a fraction, literally 1/10,000, of its potential.
“We were able to show that you could run an economy like Germany with technology existing today on 100-percent renewable energy,” Wortmann explains.
The Sun Shines Everywhere
The important thing, for now, is that there are no barriers to Access between pioneering cleantech companies.
The feed-in policy has fully primed the cleantech pump, and innovation has rapidly followed. To travel the length of western Europe today is to move along the rough-sketch contours of a whole new industrial economy.
In the Swedish port city of Helsingborg, stock-model Volvo station wagons come equipped with a second fuel tank for biogas. In Denmark, the German engineering behemoth Siemens has joined the Danish government and a consortium of local companies to design the electricity grid of the future, one capable of drawing fully half its power from intermittent wind by 2020. It will use hundreds of thousands of electric vehicles nationwide as the battery source to store it.
Down in sun-kissed Spain, a subsidiary of the old national utility Abengoa has set up perhaps the world’s most important solar R&D facility, the Solucar Solar Platform, a stretch of arid Andalusian plain west of Seville upon which three varieties of solar thermal technology feed hundreds of megawatts of power to the grid, each technique vying to be the first to gain access to the broader global market. Abengoa Solar’s “parabolic trough concentrators” use curved mirrors to focus the sun’s rays on a mounted tube of liquid, which is superheated to power a turbine. The company recently signed an agreement with the state of Arizona to build a 280-megawatt installation of this sort in the Mojave Desert.
In every case, these companies have their eyes on a global market that grows hungrier by the year for cleantech innovation. And as First Solar demonstrates, technologies can travel far and wide while continuing to reduce emissions, create jobs and spur more innovation at every step on the value chain. The First Solar panels that will soon turn the relentless Mongolian sun into Chinese electricity, after all, were designed by a company based in Tempe, Ariz., and when the company recently expanded its R&D and manufacturing facilities in Perrysburg, Ohio, it added more than 200 new jobs to the region’s ailing industrial sector. What’s more, the solar plants First Solar is supplying across Germany require the continued services of German technicians and installers.
“You have such a decentralized movement,” says Wortmann. “The installers are everywhere throughout the country. You have a lot of little homeowners who have their own little [solar panel] system.”
Thousands of green jobs, a new measure of energy independence, increased access to the rapidly globalizing cleantech marketplace: There are as many potential nodes on this new energy network as there are roofs in the world awaiting their first solar panels.
And at every node, a bright new future of opportunity is ready to unfold.