DESERT LAW BLOG

CHANDLER BIOSCIENCE AND TECH INCUBATOR IN THE WORKS

I attended the US-Asia Expo this week and one of the main themes of the business leaders speaking there was that Arizona needs more public support to both attract new companies and to organically grow new companies here in Arizona - particularly in the technology, biosciences and renewable energy fields.  Most there seemed to agree on the need for economic incentives from the state and municipalities in some form or another.

ASU has been leading this effort through their establishment of Skysong last year in south Scottsdale.  Skysong is envisioned as a live-work tech incubator where start-up companies can interact with academics and area business leaders to organically grow Arizona-based tech businesses.  It has unfortunately struggled to get out of the gate due to the economic downturn and big spending cuts by the Arizona legislature in their efforts to balance Arizona's budget (particularly the cuts to the Arizona Science Foundation budget).  Nevertheless, the business leaders at the Expo seemed optimistic Skysong will prove to be an important resource in the coming years in growing the local tech community and creating new knowledge-based companies and jobs here.

Yesterday, Chandler also took a pretty big step forward in adding to the local resources meant to organically grow new tech, bioscience and renewable energy companies here in Arizona with the announcement that they are finalizing funding for a new multi-million dollar tech incubation center.  The center is meant to provide the necessary facilities for start-up companies here in the Valley at a much lower cost than market rates.  It will be located in a building originally build by Intel that will be leased and remodeled by the City of Chandler and then leased at low rates to start-up companies.  In particular, it will have advanced wet-lab facilities that are necessary for (but often unavailable to) bioscience start-up companies.

Chandler is home to Intel, which attracts many highly skilled professionals in engineering, math and science.  Having resources like this new incubator available may help retain some of that talent in the Valley when they decide to branch off on their own as entrepreneurs - instead of moving away to other cities more known as tech and bioscience centers. 

This new incubator and Skysong combined with the many knowledge-based workers brought to the Valley by the chip industry will hopefully kick-start the growth of new tech, bioscience and renewable energy start-up companies to the point where a critical mass exists and the Valley becomes better known as a destination for these types of companies.

ARIZONA SOLAR INCENTIVES SIGNED INTO LAW

Closely watched SB 1403 was signed into Arizona law by Governor Jan Brewer over the weekend.  The bill has been pushed by GPEC and local business leaders who feel the state needs to provide incentives to solar companies to attract them (and their jobs) to the valley.  As I have written in the past, Arizona often loses out to states like Oregon and New Mexico when competing for solar companies looking to set up operations.  So this is a good first step that will hopefully help Arizona establish itself as the place to be for solar companies.

Brewer also signed several accompanying solar bills today.

ARTICLE ON I/O DATA CENTERS

Earlier this year, I wrote about Sterling Partners' investment in I/O Data Centers, with which they leased the former Le Nature's headquarters by I-17.  The Business Journal has a nice write-up today of their progress in retrofitting the building for their data storage and "colocation" technology center.  Particularly interesting to me is their effort to reduce their power consumption through use of alternative energies, such as 4 megawatts of solar generation that will be installed on the roof of the building and a chilled water cooling system.

APS ANNOUNCES ANOTHER LARGE SOLAR POWER PLANT IN ARIZONA

APS announced today plans by Lockheed Martin and private equity firm Starwood Energy Group to build another solar power generating plant in the west valley, this one just slightly larger than the Abengoa "Solana" power plant that is planned near Gila Bend.  If both power plants are successfully built, APS will have more than doubled the timeline required for purchasing solar power imposed by the Arizona Corporation Commission - getting approximately 9% of its energy from solar.

The Solana plant (which has received ACC approval) is currently stalled while the developers seek financing.  Starwood indicates that financing will not be a problem for them (no word on where it is all coming from).  The "Starwood Solar I" plant will be built on 3 square miles of land about 75 miles west of Phoenix and still needs to be approved by the Arizona Corporation Commission.

Full details from the Republic are here.

MASSIVE SOLAR PLANT SLATED FOR KINGMAN, ARIZONA

Those if you who drive from Phoenix to Las Vegas have been through Kingman, Arizona.  It's a growing town in northwest Arizona that is expected to continue its population growth due to its proximity to the Las Vegas area and its location at the intersection of several major land shipping routes.   Now Kingman is vying to build something the Phoenix area has still not been able to - a large scale solar power plant. 

The Business Journal reports today that another Spanish solar power company - Albiasa Corp. - has proposed building a $1 billion, 200-megawatt solar power plant in Kingman on 1,400 acres of private land.  This comes on the heels of a proposed 280-megawatt plant near Gila Bend - 45 minutes southwest of Phoenix - that is to be buit by Spanish company Abengoa.  That plant has regulatory approval, but is stalled amidst a search for financing.   The question of course is whether Albiasa will run into the same financing problems that Abengoa is and how quickly they will be able to get a plant up and operational.

Both solar plants plan to use solar thermal technology where parabolic mirrors track the sun and heat up molten salt in tubes.  The heat from the molten salt turns steam turbines, creating electricity.

According to the article, Albiasa has not yet signed a power purchase agreement with a utility company to sell the electricity generated.  So it remains to be seen whether one of the Arizona utilities will be able to use this electricity toward meeting its renewable energy requirements set by the Arizona Corporation Commission.  According to the article, there is a fairly strong chance that the power will instead go to California due to the lack of high tension power lines needed to route it to downstate Arizona.

The benefit to Arizona of these new solar power plants, besides cleaner air through renewable energy, is jobs.  Both plants expect to create several thousand construction jobs initially, then several hundred ongoing jobs.  Of course, much of the profit will be going to foreign owners (Spain in this case).  It would be nice if a portion of those profits can somehow be earmarked for reinvestment in more solar development here in Arizona.

I have previously written about the Abengoa plant, named Solana, here if you are interested.

ARIZONA SOLAR FALLING BEHIND

A very well written article in the Republic today highlights Arizona's continuing inability to attract solar manufacturing operations to the state.  The primary reason for this is that Arizona provides few, if any, incentives to manufacturing businesses to locate new plants here.  From the article:

But most solar panels, mirrors, frames and other equipment are made elsewhere. In case after case, the state has fallen short of the competition. At least 10 companies have looked at Arizona in the past two years but decided to move their factories and about 4,500 workers to other Western states.

Business experts say the state needs to use some of the tax credits and other tools used by those other states to diversify its housing-dependent economy and deliver the state high-paying manufacturing jobs.

Other, much less sunny states provide strong tax incentives and have been successful in growing a critical mass of solar manufacturing operations.

Oregon, for instance, offers a 50 percent tax credit to pay construction costs for renewable-energy equipment manufacturers. Development officials say it has helped them land seven international solar manufacturers in two years. Most of those companies had considered coming to Arizona.

And the fear is that once other cities get that critical mass, like Silicon Valley with tech, the momentum will build in those areas and new solar companies will generally locate in those hubs in order to take advantage of laborers and professionals there who are skilled in catering to the solar industry.

Economic development officials say the solar industry isn't likely to spread evenly over the country but grow around those cities established as hubs.

They say Arizona still has a narrowing chance at being one of those hubs.

"Right now, there are 11 companies looking to decide (on factory sites) this year," said Barry Broome, president of the Greater Phoenix Economic Council, a proponent of the incentive bill. "We may be in or out (of the industry) after two quarters."

So until the Arizona legislature gets its act together and realizes the opportunity they are missing to grow our economy, the following will continue to be the reality and we continue to rely more and more on construction and services here instead of well paying manufacturing jobs.

Arizona has strong selling points, such as its weather and a workforce with manufacturing skills. But factories require expensive buildings, lots of energy and hundreds of employees, making the economics much more important than, say, a corporate headquarters that simply needs office space for a few dozen employees.

"If you're comparing Portland, Albuquerque and Phoenix, I know I can get real estate, labor, transportation, they're all within one or two points of each other," Colson said. "Then I overlay the incentives on top of that. Albuquerque jumps up, Portland jumps up and Phoenix actually goes down.

"That's why the Greater Phoenix region is not winning these projects."

I encourage everyone to read the whole article as it does a good job laying out how a state that has 320 days of sunshine a year can have an almost non-existent solar manufacturing industry.

VENTURE INVESTMENT IN GREEN TECHNOLOGY START-UPS RISES IN 2008

The NYTimes parses the 2008 venture capital numbers from the NVCA and finds that while fundraising and investment were down significantly in 2008 (particularly in the 4th quarter), green technology start-ups continued to fair well in attracting venture capital investment - raising 52% more in 2008 than 2007.  According to their data, this amounted to $4.1 billion invested into 277 "clean tech" start-ups in 2008.  Solar/photovoltaic technology start-ups accounted for nearly half of that money - a good sign for Arizona solar companies looking to grow.

ARIZONA SOLAR TAX INCENTIVES AGAIN ON THE TABLE IN UPCOMING LEGISLATIVE SESSION

For all of Arizona's sun, there is a relatively small solar industry here.  First Solar, Inc.(NasdaqGS: FSLR) is headquartered in Tempe, AZ, but most of its manufacturing facilities are in Germany and Malaysia.  Spanish firm Abengoa is partnering with APS on a massive solar power plant in Gila Bend, AZ named Solana.  It will produce up to 280 MW, but has run into financing problems in the current difficult credit markets and questions remain when/if it will be built. 

For a state lacking much in the way of manufacturing jobs and with a major slowdown in construction, Arizona surprisingly doesn't seem exactly eager to try to boost its solar industry.  And it's not like Arizona doesn't have what it needs to thrive in the solar industry, having a large semiconductor industry with many local engineers and a major research university (also did I mention it is very sunny here?).

The 8 year extension of federal tax credits this past year is expected to help move solar and other renewable energies forward in the U.S., but Arizona has continued to fail to attract proposed projects to the state, losing at least 8 projects in the last year to other states (including several to Oregon - not exactly a sunny state - and our neighbor New Mexico).  One of the main reasons for this failure is that other states provide much stronger tax incentives to companies planning new solar facilities.

Last year, the Greater Phoenix Economic Council (GPEC) failed in its push for state legislation giving tax credits and other incentives to companies locating their manufacturing and solar generating facilities in Arizona.  But they aren't giving up easily, as many Arizona business and political leaders believe that solar is the future economic engine Arizona needs to thrive (myself included).  What they are up against is strong resistance to any sort of tax assistance to private industry in Arizona.

The Arizona Republic had an article this week about this year's efforts by GPEC, indicating that the proposed tax credits would be 10% of a company's capital investment in Arizona and a company would in return agree to pay at least 125% of the state's median wage to its workers and provide health care to at least 80% of its employees.  The credits would sunset over 5 years, but many believe it would be enough to jumpstart the solar industry in Arizona and to establish it as the "solar equivalent of Saudi Arabia" (in Arizona Cardinal's President Michael Bidwell's words).

Hopefully, for the long term economic health of Arizona, something gets passed this year as many solar companies are deciding on locations in 2009 for future facilities to take advantage of the federal tax credit extension.  Arizona needs manufacturing and construction jobs and building a strong solar industry here would help greatly.

A rundown of some of the issues from the solar summit in Phoenix this past week can be read here.

APS SEEKING EMERGENCY RATE HIKE

On the heels of the rate increase for renewable energy earlier this week, APS is in a two-day hearing to attempt to convince the Arizona Corporation Commission that they need an emergency rate hike in order to keep their credit rating from being downgraded (therefore avoiding higher borrowing costs, etc.).  The emergency rate increase would add an additional $4.66 per month for residential APS customers.

Ryan Randazzo blogs for AZ Central this afternoon that the 9+ hours of hearings so far leads him to believe that APS will not be granted the full rate hike and may in fact not get a hike at all.  It is also possible that half of the rate hike requested will be granted.  But the ACC is asking questions about potential cost savings measures that APS can take, such as a hiring freeze and cutting executive pay.  It's good to see they are asking APS to take some cost-cutting steps instead of just handing over consumer money.

I'll post an update when the ACC decision is made.

Update:  The ACC approved just over half of the requested emergency rate increase - $2.68 per residential customer - and APS promised an additional $20 million in spending cuts.  The increases this past week will stay in place pending the annual rate review next year, where APS has asked for an even larger rate increase.

APS ELECTRICITY RATES GOING UP TO FUND ARIZONA RENEWABLE ENERGY

I wrote about the approval by the Arizona Corporation Commission of Solana last week and noted that the second piece to the puzzle would likely be a rise in electricity prices to help pay for the renewable energy requirements placed on the public utilities in Arizona.  The Arizona Republic is reporting tonight that the ACC raised the renewable energy tariff allowed to be levied on APS customers from $1.32/month to $3.17/month for residential and from $48.84/month to $117.93/month for businesses.

As noted in the article:

The tariffs will be worth an estimated $78.4 million to the utility, which uses the money to acquire renewable energy and pay incentives to people who use rooftop solar and other renewables.

This money won't be utilized in 2009 for the Solana power plant - since it won't yet be built - but this is what Arizona consumers should expect going forward to help support renewable energy in Arizona. 

Now I know not everyone is a big fan of renewable energy initiatives and, in particular, paying extra fees for them - but I will go on the record saying that we need to get rid of the big smog cloud that hangs over Phoenix for many days of the year and is only getting worse.  Electric cars will be on the road in Arizona by 2010 and we are going to need more electricity generation to power those cars.  In a state where the sun shines 320 days a year, that electricity should come from the sun.

Hopefully as solar energy technology advances over the next several years and comes down in price closer to conventional energy (APS estimates that the cost of solar power generating at Solana will be 19% higher than through conventional means), the ACC will recognize that the public utilities no longer need the tariffs to purchase this renewable energy and see fit to reduce the tariffs on consumers.

SOLANA SOLAR POWER PLANT RECEIVES ACC APPROVAL

The Phoenix Business Journal reported today that the Arizona Corporation Commission (ACC) has approved the site west of Gila Bend for the Solana solar power generating facility – which if built will be the largest in the world.

Solana has been slowly jumping over all the major hurdles it faces on its way to viability. The initial contingency in building the plant was getting the federal renewable energy tax credit extension passed into law. This was supposed to happen much earlier in 2008 so renewable energy projects did not have to delay their new projects waiting to see if the credit extension would be granted. But political wrangling in Washington held up the process for most of the year. An eight year extension was finally passed by tacking it on to the “Bailout Bill” in October 2008 to much relief of the renewable energy crowd. Without this, Solana would not go forward.

The second major hoop to jump through was getting the ACC approval that was reportedly received today. The ACC regulates all public utilities in Arizona. In this case, APS is purchasing the power to be generated by Solana as part of the benchmark requirements they need to meet under ACC regulations of generating 15% of their energy from renewables by 2025. Solana will generate about 5%, putting APS one-third of the way to their goal. The ACC has a siting committee that does a study of utility projects over a certain output size and recommends to the full ACC whether the project is feasible environmentally and logistically. The ACC in this case approved the site based on the siting committee recommendations and now the question is how much of the cost will get passed on to consumers. In their filings, APS has requested that the ACC approves consumer rate increases to cover the added expense of purchasing renewable energy. In APS’ estimation, the power from Solana comes in at a 19% premium in cost over conventional power generation.

The final hurdle for Solana may be the highest however – obtaining financing. The Arizona Republic carried this article last week about how the tight credit markets are making it very difficult to find the debt financing necessary to make the project viable. Hopefully the credit markets will open sufficiently by the mid-2009 timeline for when the project hopes to get started. It’s about time Arizona started to capitalize on its 320 days of sunshine a year.

To read the full case history before the ACC – click here and do a docket search for docket # E-01345A-08-0106.  To read the ACC regulations for renewable energy benchmarks, click here and scroll to Article 18 (Renewable Energy Standard and Tariff).

Update:  Here is the official press release from Abengoa Solar (the Solana developer).