A clean power revolution
So urgent. So necessary. So what's Oregon's problem
By Oakley Brooks
Nancy Floyd was in clean energy way before it was cool, before
some of Silicon Valley’s heaviest hitting venture
capitalists jumped in, before it became a key talking point in
several Oregon gubernatorial campaigns this spring and, of
course, well before the Bush Administration’s recent
epiphany that “America is addicted to oil” and that
fossil fuels are indeed responsible for the perils of global
warming, the growing trade deficit and messy foreign
entanglements.
In the early 1980s, Floyd helped build the pioneering Altamont
Pass wind turbine project east of San Francisco. In the
mid-1990s, she co-founded energy-focused venture capital firm
Nth Power in San Francisco, wading through skeptical investors
to scrape together the firm’s first $65 million. The
Oregon-based Floyd now finds herself a guru in the burgeoning
world of clean energy, traveling the globe looking for the next
nonpolluting, efficient or renewable technology.
So hear this from Nancy Floyd, the observer with plenty of
history: Oregon is a weakling on policies to drive clean energy
development. Despite the state’s strong environmental
ethic, a promising collection of companies, and natural
resources, Oregon is rapidly falling behind other states in
supporting the clean-energy sector and tapping an exploding
global market.
The next generation of energy — solar, wind, wave,
biomass, fuel cells, biofuels — has to overcome a deeply
entrenched oil industry resistant to change and utilities that
have long depended on cheap power from dams, coal and, more
recently, natural gas. Federal policy has been backward, with
Congress and the president more concerned about dwindling
sources of fossil fuel than seeding a new generation of
energy.
States across the country have stepped into the void, pushing
forward their regulated utilities and oil companies with
mandates for clean power and automobile fuel. And states are
working hard to promote themselves as well. “It seems
like every day there’s an announcement of another place
calling itself the clean-energy leader,” says Ron Pernick
of Clean Edge, a clean-energy market research firm.
But not Oregon.
As Floyd has been emphasizing at conferences around the state
over the past year, Oregon does not require utilities and oil
companies to provide clean electricity and fuels. And outreach
efforts have been minimal. “I would like to invest in
more companies here, but there’s just been no strong
pro-clean-energy policy,” says Floyd, who has made only
two of 34 company investments in Oregon. “Entrepreneurs
want to locate in a state with policies that embrace what
they’re doing.”
The potential reward in building a local clean-energy sector is
huge. The market for clean-energy products and services is
already at $40 billion worldwide and is expected to top $150
billion in 10 years. Last year, U.S. venture capitalists
invested close to $1 billion in clean energy.
Broader job markets stand to benefit: If just one-fifth of
America’s energy comes from clean sources by 2020,
manufacturing and construction jobs nationwide could increase
by 100,000, according to a 2004 report from University of
California-Berkeley’s Renewable and Appropriate Energy
Lab.
Business owners also benefit: Clean technologies tap renewable
— thus less volatile — local energy sources, which
helps create price stablity.
Oregon has enormous potential to profit from the growing
national and international clean-energy movement. The state has
world-class soils and climate to grow biofuels feedstock,
first-rate wind and wave potential, universities deep in
renewable energy research and utilities invested in
clean-energy projects. There are dozens of companies and
entrepreneurs with promising technologies — from electric
vehicles in Portland to grid-monitoring software in Hillsboro
to home solar power packages at Oregon Institute of Technology
in Klamath Falls. And there is plenty of local angel and
venture capital to support them.
Oregon leaders, including Gov. Ted Kulongoski, have started to
talk more about supporting clean energy in the last few months.
“I think the policy makers, locally and nationally, are
starting to wake up,” says Floyd, referring as well to
scrambling lawmakers on Capitol Hill.
But without strong, tangible policy, Oregon’s culture
and natural potential can only carry it so far. The state gets
less than 4% of its electricity from clean sources,
hydroelectric power aside. And last summer, the state
Legislature failed to pass even the modest beginnings of a
policy, when a biofuels bill was derailed amid the partisanship
plaguing the state.
Unless the political will in Oregon swings firmly behind the
emerging energy sector, it will languish or go elsewhere. With
gas prices spiking, oil production peaking and global warming
making news, that couldn’t come at a worse time.
SEQUENTIAL BIOFUELS managing partner Tomas Endicott knows
firsthand how politics can hold up clean energy’s growth.
With a foothold in the biodiesel market — SeQuential has
a facility in Salem converting used cooking oil into fuel that
was cheaper than conventional diesel this spring —
Endicott has plans for a plant with a capacity of 5 million to
10 million gallons a year that would get its raw oil from seed
farmers in Eastern Oregon. It was contingent on a requirement,
proposed to the Legislature last year, that all diesel at the
pump include 5% biofuels by 2010.
Endicott thought he had a bone for legislators of all stripes:
jobs, rural opportunities, a break from rising gas prices.
The biofuels legislation sponsored by environmental consultant
Rep. Jackie Dingfelder (D-Portland) and grass seed farmer Rep.
Jeff Kropf (R-Sublimity) also included incentives aimed at
building the biofuels supply chain and was backed by colleagues
from both parties. But oil industry lobbyists campaigned
heavily against the bill and, in a move that drew fire from
Democratic legislators, the state’s largest business
group, Associated Oregon Industries (AOI), succeeded in
extending tax credits in the bill intended for farmers to cover
all companies installing pollution control equipment.
But the deal crumbled for good at the last minute when the
auto industry lobby convinced Republican House leaders to
insert language that Kulongoski thought would prevent him from
raising emissions standards on cars sold in the state.
Kulongoski balked and Dingfelder and Kropf couldn’t work
out a compromise.
Endicott was left to continue talking about biofuel’s
potential.
“There’s definitely this opportunity to grow
oilseed crops in Eastern Oregon and bring it west,” says
Endicott. “There is capital there to fund it. The problem
is that the market just isn’t big enough to justify
ramping up production yet.”
The burgeoning wind energy sector may be farther along than
biofuels, but it has also shown the need for stronger state
policy in the face of weak federal support.
PacifiCorp and Portland General Electric, driven by customer
demand, have supported large turbine projects near the blustery
Columbia River Gorge. The upshot in business terms is that
several wind developers and engineering outfits have set up
shop in Portland, including Danish turbine manufacturer Vestas,
which has its Americas headquarters here, and PPM Energy,
PacificCorp’s development arm, which is becoming one of
the biggest wind developers in the country. Wind projects have
pumped millions into Eastern Oregon economies, including an
estimated $15 million at the Stateline wind project, the
region’s largest, for construction and maintenance work.
That’s on top of annual property taxes and royalties to
landowners who host the wind turbines.
But the Vestas turbines at Stateline — which account for
the vast majority of the $300 million project cost —
don’t come from Oregon. They are primarily built in
Denmark.
Vestas was close to setting up a manufacturing facility in
Portland in 2002 before federal energy policy tripped the
company up: It couldn’t justify the investment without a
long-term extension of a federal tax credit that covers wind
production, which has made wind power competitive with new
natural gas plants in the region.
The federal tax credit has been allowed to expire three times
since 1999, and is set for a sunset again next year. Solar
power incentives in last year’s energy bill are set to
run out next year. Long-term incentives work in driving
innovation and cost control — Japan’s 10-year-long
solar incentive helped drive the price of solar power there
from $16 per watt down to $6 — but they’ve rarely
been given a chance to work here. “It’s
pitiful,” Floyd says. “We need stable policy. Every
other traditional energy source has had massive
subsidies.”
With little federal help, states are trying to deliver market
stability themselves. California is attempting to unleash
itself from the soaring cost of natural gas by offering $3.2
billion of new incentives to solar energy over the next 10
years.
Other states and cities, though they may not be able to
replicate a California-sized subsidy, are stepping in with
their own brand of subsidies and startup funding.
Seed money is being used to grab entrepreneurs’
attention and foster companies’ growth. Austin, Texas,
for instance, recently dedicated $500,000 toward a local
clean-energy incubator, which is also backed by state energy
grants. Massachusetts has placed $15 million with a
venture capital fund to invest in emerging local energy
companies and awarded $1.5 million in seed money to startups
this year.
State mandates for utilities to buy renewable electricity
generation — 4% in Massachusetts and 5% in Texas by 2009,
for instance — provide an early market for companies to
deploy technologies and begin driving down cost.
Some agricultural states, including Washington, Idaho and
Montana, have pushed ahead with fuels mandates and incentives.
The Washington Legislature this year passed a 2% biofuels
requirement for all gas sold at the pump by 2008, provided the
state’s own biofuel suppliers can meet the target.
When state mandates, called renewable portfolio standards for
electricity and renewable fuel standards for gasoline, are
knitted together, they begin to form a broad market for clean
energy nationwide.
“With 21 states with renewable portfolio standards, we
may start to fund certain technologies selling in the U.S.
because they now have an overwhelming market here,” Floyd
says.
OREGON HAS SOME OF THE FUNDAMENTALS of good policy. The
state’s decades-old business energy tax credit allows
investors to write off up to 35% or $3.5 million per
clean-energy project. Energy technology companies have also
started to use the tax credit toward research and development
costs. And then there is the utility-funded Oregon Energy
Trust, which subsidizes efficiency efforts and some wind, solar
and other energy installations. The City of Portland’s
Green Investment Fund backs energy innovations in
buildings.
But the state has lacked a real champion or industry movement
in the past few years to push through dynamic policy.
“You look at what happened in California. To a large
extent it was Schwarzenegger who helped push the solar
initiative through,” says Mike Eckhart, at the American
Council on Renewable Energy. “The Legislature
didn’t pass the initiative and he used the utilities
commission to make it happen. When I think of other states with
good plans, the governors are often the ones making it happen
— Rendell in Pennsylvania, Richardson in New
Mexico.”
Gov. Kulongoski has spoken about clean energy’s potential
many times since a Western governors’ gathering on global
warming in 2004, and last year his Department of Energy, led by
Michael Grainey, released a 30-page document full of
recommendations for how state government can boost its own use
of renewables.
But it wasn’t until independent candidate for governor
Ben Westlund tried to corner the clean-energy issue that
Kulongoski’s efforts gained urgency. In January, Westlund
and former Gov. John Kitzhaber co-sponsored a ballot measure
from the nonprofit Oregon Apollo Alliance that pushed biofuels
mandates and funding for energy research centers across the
state. (It was later scuttled after a legal battle with oil
lobbyists and AOI.)
Kulongoski then headed to an energy summit in Bend in March
and laid out an ambitious plan for the 2007 Legislature. He
proposes the state get 25% of its energy from clean sources by
2025, and he will ask the Legislature to pass Oregon’s
first renewable portfolio standard and incentives for biofuels
next year to help the state get there. He also plans to ask for
an expansion of the state tax credit for clean-energy projects
and research, and has moved up the date by which state
government will use only clean energy from 2025 to 2010.
Grainey says the plan would spur huge investment in the state.
“We would basically be getting all of Oregon’s new
electricity load in the future from renewable sources to get to
that 25%,” he says.
However, the potential stumbling block with Kulongoski’s
plan is that it depends on the Legislature. Dingfelder admits
that clean energy advocates have a lot of work to do building
support in Salem before they can hope to get bills through both
houses. Capitol observers say last session’s biofuels
bill suffered because its main sponsor was the Oregon
Environmental Council and it didn’t draw strong support
from industry backers such as the Oregon Farm Bureau.
Kropf is slightly more optimistic about biofuels legislation
next session. He says that by January the Oregon industry will
have grown, with several more biofuels plants in development to
supply other Western states and to back an increase in ethanol
mandated by last summer’s federal energy bill. He also
says there’s still time to form a well-organized lobbying
group to counter oil companies.
Regardless, legislators and Kulongoski’s team have to
overcome long odds in the midst of an election year if they
want to be successful with energy policy starting in
January.
“It’s true that we’re in danger of falling
behind if nothing passes,” says David Van’t Hoff,
the governor’s sustainability adviser. “But if this
package passes I think we’d be in position to be the
national leader.”
Some industry advocates aren’t waiting on the governor
and the Legislature to boost Oregon’s clean energy
stature.
In late April, a group including Floyd asked for funding for a
research center from the state’s innovation council,
Oregon InC. The center would coalesce the extensive
clean-energy work throughout the university system and provide
incubator space to spin out companies.
Floyd sees the successful Oregon Nanotechnology and
Microtechnology Institute (ONAMI) in Corvallis, recently named
a federal research center, as the model for a clean- energy
center. She has promised to have a part-time office there to
boost its stature and help speed ideas to market.
But even if it wins Oregon InC’s approval, the center
would need funding from the Legislature. In theory, a research
center backed by Oregon InC, the private sector and university
leaders would rise above Salem politics as the concept for the
ONAMI did when the Legislature approved its funding in 2003.
But bipartisan support didn’t work on the energy
legislation in the last session.
“It really comes down to what happens in Salem,”
Floyd says. “Can they break the logjam in the next
session?”
A STRONG CLEAN ENERGY SECTOR HERE might deliver more stable
fuel prices for the business community and ease fears about
foreign policy, but it also has the potential to reinvigorate
Silicon Forest.
At ClearEdge Power, a fuel cell company in Hillsboro, the
special sauce is substituting silicon wafers for graphite as
the housing for the cell’s electricity-producing
catalytic reactions. Silicon drops the material cost by more
than half.
With up to 50 kilowatts of power in its fuel cell system and a
fuel processor that turns natural gas or similar fuels into
hydrogen, the company is targeting the $4 billion market in
backup power for United Parcel Services’ computer rooms
and main power for cell phone towers. ClearEdge already has
raised more than $9 million in venture capital and is working
on $15 million more to ramp up.
CEO Gregg Semler thinks an expansion of the energy tax credit
to allow more of ClearEdge’s R&D to be covered and an
inclusion of low-emission fuel cells as part of any state
renewable portfolio standard would give the company a
boost.
ClearEdge’s success in the heart of Silicon Forest could
be infectious.
It’s sourcing its semiconductor grade wafers at
Siltronic in Northwest Portland and it has converted an old
Planar Systems display fab into a research lab, headquarters
office and what it hopes will be its first manufacturing
facility. The venture arm of Applied Materials, the Silicon
Valley stalwart, has funded some of ClearEdge’s
development because the company sees a new market for
manufacturing tools Applied has traditionally sold to the
semiconductor industry. Other companies, such as Shin-Etzu
America, have been consulting with ClearEdge and watching its
growth.
“ClearEdge may be the best bet in the whole state to do
something revolutionary,” says Ted Bernhard, who is the
founder of Stoel Rives' energy venture and finance group and an
adviser to the state.
Already, related companies are starting to cluster here.
WiSPI.net, another Oregon startup, is working to power
wireless devices with tiny fuel cells afixed to chips in the
devices.
“If done right, a company like ClearEdge becomes an
anchor for the whole clean-energy sector,” Bernhard
says.
Oregon has seen the potential in other industries in the past
and successfully supported them with targeted state policies
— notably in the 1990s when it altered corporate tax
structures to draw investment in the semiconductor industry.
The clean-energy industry is potentially as important to the
economy and arguably more so to society.
As Nancy Floyd notes, no state has a significant cluster of
clean-energy companies yet. There is still time to get ahead of
the curve.
The future, and Oregon’s place in it, is still up for
grabs.
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