The Sun, the Wind, and the Promise of Ohio’s Clean Energy Development

TOLEDO -This worn Lake Erie city is an unlikely launching point for Ohio’s new clean energy economy. Dark storefronts and empty homes in Toledo, like the missing teeth of a tired grin, scar the shrinking city of 295,000 that once declared itself the auto parts capital of the world. Tall grass grows in the cracked asphalt of empty parking lots by closed factories that once made steel and glass and manufactured parts that kept America behind the wheel.

But it is along Toledo’s west side avenues, and in the industrial parks of nearby suburbs like Perrysburg, that the cold lonely winter of Ohio’s industrial decline is gradually turning into a new season of economic opportunity fostered by the sun, wind, geothermal, fuel cells, next generation batteries, and the electric vehicles that use them.

An example is the Xunlight Corporation, which two years ago moved into a 122,000 square foot research and production facility on Nebraska Avenue in Toledo to make thin-film photovoltaic cells to produce electricity. The seven-year-old company employs more than 80 technicians, tool and die craftsmen, and line workers. Last month, Xunlight announced that it had developed a state of the art manufacturing process that attaches its silicon cells to flexible sheets of stainless steel three feet wide and up to a mile long. Commercial production is expected to start later this year.

In January, 2010, Xunlight Coroporation received a $34.5 million Advanced Energy Manufacturing tax credit to expand its capacity to manufacture its flexible and lightweight photovoltaic solar energy modules. The Advanced Energy Manufacturing tax credit program, also known as 48c for its place in the Internal Revenue Code, was funded by the American Recovery and Reinvestment Act, and was awarded to qualifying advanced energy projects to support new, expanded, or retooled domestic manufacturing facilities. Awards totaled $2.3 billion and went to 183 projects in 43 states. The funding will create tens of thousands of high quality clean energy jobs and support the domestic manufacturing of advanced clean energy technologies including solar, wind, and efficiency and energy management technologies.

Xunming Deng, the Chinese born physicist and University of Toledo solar researcher who founded the company, predicts that Xunlight’s sales could grow to $400 million a year and support 5,000 jobs in the region.

“Basically, for every 100 megawatts we can create over 1,000 jobs,” Deng said in an interview earlier this year with Sramana Mitra, a California-based technology consultant. “We would like to grow to around 500 megawatts. That would allow us to create about 5,000 jobs. There will be a lot of new jobs with vendors. My estimate of 5,000 jobs includes the entire supply chain. In our plant we would probably have 750 jobs.”

New Development Strategy for Ohio
Xunlight’s business plan reflects a deliberate economic development strategy that the Toledo region and the state have pursued since early in this decade to encourage entrepreneurs and existing companies to build parts and equipment for the clean energy sector.

The state, through various public and private financing mechanisms, has built an interlocking network of research universities, state agencies, public and private economic development organizations, and business incubators – all designed to encourage entrepreneurs and existing companies to jump into the growing market for clean energy components, products, and systems. The ultimate goal: rebuilding Ohio’s prosperity through its traditional strength in manufacturing, which employs one of every five Ohio workers.

While still in its earliest stages, the development of a clean energy manufacturing sector in Ohio nevertheless shows enough promise that successive governors of both parties have called it the most potentially significant economic transition since the internal combustion engine replaced the horse and buggy.

In March, Environment Ohio published Growing Ohio’s Green Energy Economy, an economic assessment that found 60,000 workers and 502 companies already involved in wind, solar, biomass, geothermal, and fuel cell development in the state. “Ohio has the resources right here at home to leverage its strengths and grow its economy through clean energy,” said the report’s authors.

Supporting Reports
In June, the Pew Charitable Trusts published a national survey of clean energy and green-collar job development that found Ohio ranked fourth among states in the number of green-collar workers and sixth in the number of clean energy companies.

Also in June, Policy Matters Ohio published a study that identified more than 3,000 Ohio facilities – employing 250,000 workers – that could easily retool to manufacture components for the clean energy sector. In order to support retooling in Ohio and other manufacturing states, the Apollo Alliance joined Ohio Senator Sherrod Brown in introducing the “Investments for Manufacturing Progress and Clean Technology Act (IMPACT) Act of 2009.”

The measure, which was also introduced and approved on June 26, 2009 in the House version of the new national energy policy now making its way through Congress, would establish a $30 billion revolving loan fund to help small and mid-sized manufacturers invest in energy efficiency and retooling to expand into the clean energy supply chain.

Senator Brown based his proposal on the Apollo Alliance’s Green Manufacturing Action Plan, which was introduced in April and lays out aggressive steps to scale up production of American-made clean energy systems and components while making U.S. factories more energy efficient.

The recovery bill signed by President Obama in February, the appropriations bill enacted in March, and the budget agreement approved in April commit more than $300 billion to clean energy investment and green-collar job generation. These investments will create vast new markets for clean energy, but “without a program to support our own domestic manufacturers, policies that create new demand for clean energy will just lead to more imports,” said Phil Angelides, chairman of the Apollo Alliance.

Sen. Brown Introduces Manufacturing Legislation
Apollo estimated that Sen. Brown’s IMPACT legislation, if approved, will create at least 680,000 direct manufacturing jobs nationally and 1,972,000 indirect jobs over the next five years. “The domestic manufacturing industry helped build our nation’s middle class and is critical to national security,” said Sen. Brown. “It accounts for 12 percent – $1.6 trillion – of the U.S. gross domestic product and almost three-fourths of the nation’s research and development. Despite this, the U.S. manufacturing industry has contracted for 16 consecutive months.”

Here in Toledo, the transition from the flagging auto industry to the new clean energy sector was fostered by administrators and researchers at the University of Toledo; a number of timely state and federal investments; and by a group of pioneering industrialists led by Harold McMaster, a noted inventor and glass industry executive who in 1987, helped found the first of Toledo’s four solar energy manufacturers, Solar Cells Inc., which as it grew became First Solar.

First Solar, expected to produce $1.2 billion in revenue this year from sales of thin-film solar cells, operates a state-of-the-art manufacturing plant in nearby Perrysburg that employs 700 people. The company is building a 500,000 square-foot addition that will employ 135 more people when it opens next year.

Indeed, the city over the last two years has emerged as one of the important solar energy manufacturing centers in the United States.

Last year, Willard & Kelsey Solar Group LLC spent $7 million to buy a 262,000 square-foot former television component manufacturing plant in Perrysburg to manufacture thin-film solar panels. In March, CEO William R. Mitchell told the Toledo Blade he planned to hire 400 people at an average wage of $21 an hour by the end of the year. And nearly two years ago, Q Cells, a German company, purchased Toledo-based Solar Fields, joining the Ohio solar research company to its Calyxo brand thin-film solar photovoltaic panel production division. Q Cells’ Toledo office employs about 25 people.

A Growth Sector in Sun
In all, nearly 1,000 people now work in the four Toledo-based high-tech solar companies, producing photovoltaic cells to generate electricity, and perfecting manufacturing techniques to reduce costs and compete worldwide. According to the Regional Growth Partnership, Toledo’s primary economic development agency, roughly 5,000 more people in the area, including a team of researchers and economic development specialists at the University of Toledo, support the growing solar sector here.

“We’re building on the strengths that we have, and that is knowing how to build things,” said Megan Reichert-Kral, the director of incubation at the Office of Research Development, a division of the University of Toledo, which has fostered the research and helped to attract the financing that led to the solar sector’s development. “We have the people that know how to put complicated things together the right way. We have the universities that are producing the new ideas. We have manufacturers that are willing to stay in the game over the long term.”

Ohio has a storied history of linking research, public investment, and entrepreneurial industrialists to produce new economic eras. After all, the nation’s seventh largest state is the birthplace of Thomas Edison, the Wright Brothers, and John Glenn.

But rarely has a Midwestern state so effectively aligned its politics and policymakers, its state agencies, research institutions, and sizable pools of public and private capital to support the development of a new industrial sector.

Bipartisan Support
In 2002, former Governor Robert Taft Jr., a Republican, successfully campaigned to launch the 10-year, $1.6 billion Third Frontier Fund to finance promising research and technical development in new Ohio industries. The fund has proved pivotal to building the statewide interlocking network of research groups, economic development organizations, technical support firms, and capital accounts that has been crucial to the early development of Ohio’s clean energy startups, among them the Xunlight Corporation.

Current Democratic Governor Ted Strickland, who asserted the need to develop Ohio’s renewable energy and energy efficiency sectors as a central feature of his 2006 campaign, is now making the development of these sectors a centerpiece of his economic policy. Last year alone, Ohio approved a $1.57 billion stimulus program that directed significant resources to clean energy development and green-collar job creation. Gov. Strickland also signed a renewable energy standard on May 1, 2008, requiring utilities to produce 12.5 percent of their electricity from renewable sources such as wind, hydropower, geothermal, and biomass. Of that amount, 0.5 percent must be generated from solar energy. The law also requires electric utilities to achieve energy savings of 22.5 percent by the end of 2025 through energy efficiency programs.

The new statutes are providing financing and a large built-in market for Ohio manufacturers to produce the parts, equipment, and processes to meet the new standard.

“While our energy bill is expanding the market for advanced energy in Ohio, our jobs stimulus bill is building on that commitment by investing in Ohio companies that can supply the component parts, install the hardware, and harvest the power of advanced energy,” said Strickland earlier this year in the annual State of the State address. “Ohio is key to meeting the energy needs of the nation and the world – and we are already seeing promising results. Over the last three years, Ohio has led the nation with 350 new or expanded facility projects in the renewable energy sector.”

Wendy Patton, a senior associate at Policy Matters Ohio, noted in an interview that two historic trends have merged in Ohio to produce opportunity for clean energy companies.

First, she said, is the enormous urgency that is leading lawmakers, banks, business executives, and workers to embrace a strategy that will help reverse the steady decline of Ohio’s manufacturing sector. Since 2000, Ohio has lost 550,000 jobs, more than half of them in manufacturing, according to the Bureau of Labor Statistics. The median income is slipping, and 300,000 people migrated out of Ohio in the last eight years.

Second is the clear consensus that has developed in the business and political communities of Ohio, Michigan, and other Heartland states that the energy markets of the 21st century will favor clean sources, and that supplying those markets with globally competitive products is a blockbuster economic opportunity that no state should miss.

“Clean and green is happening in the industrial base across the state,” said Patton. “You can see it. It’s making progress because we have a huge manufacturing base, and companies want to get involved. It is clear that the strong public policy direction of the state has sparked the development of new companies. I think what is less apparent is the extent to which existing companies are quietly adding clean energy to their portfolios as well.”

A Network Statewide to Support Clean Energy Entrepreneurs
Economic development specialists have a different take, asserting that state and regional guidance, university incubators, technical assistance, and funding have made it possible for new companies to start and older companies to change their product lines and practices.

Xunming Deng’s success so far with Xunlight is a case in point. The basic research for developing the company’s thin-film solar technology was supported by federal, state, and regional grants. The business plan also was developed with the help of experts at the Wright Center for Photovoltaic Innovation and Commercialization, a technical advisor and business incubation program at the University of Toledo that was launched in 2006 with an $18.6 million Third Frontier Fund grant.

Various regional and state economic development executives also have assisted Dr. Deng in securing $20 million in government loans, and $40 million more in private venture capital. The University of Toledo retains rights to licensing fees and royalties, and has a small ownership stake in Xunlight.

“They were happy because of all the grants coming in,” said Dr. Deng, referring to the University of Toledo. “When you have a spinoff company, everyone wins. That is the type of situation that worked out perfectly for the state because it can invest in emerging technology.”

Still, Toledo’s solar sector is just one measure of Ohio’s steady emergence as a base of American clean energy manufacturing. Ohio also is developing other regional centers of clean energy innovation and manufacturing.

Akron is becoming a center of fuel cell development. Researchers and economic specialists in Dayton are focusing on technology developments to help Ohio’s existing manufacturers convert their production lines to build the specialty equipment and parts to supply the clean energy sector.

In Cleveland, Case Western Reserve University and Cleveland State are anchoring new startups in wind and battery technology. Cleveland-based Parker Hannifin, for instance, a world leader in hydraulic systems and motion control, is developing a more durable and easier-to-operate hydraulic pump to replace the conventional gearbox in a utility-scale windmill.

Another Cleveland company, Stratum Technologies, is developing a more efficient manufacturing process for polymer lithium-ion batteries in an automated, state-of-the art production facility. In nearby Shaker Heights, Contained Energy is developing direct carbon fuel cells with 30 times the energy density of lithium-ion batteries, making them useful in storing energy from wind and solar, and for powering next generation vehicles.

Still, no region of Ohio has matched Toledo’s clean energy development. In March, Willard & Kelsey Solar Group LLC, the newest solar energy manufacturer in the region, invited Gov. Strickland to tour its new plant in Perrysburg. The company plans to start annual production of 2 million solar panels and has been assisted by a $5 million state economic development loan and a $500,000 grant.

In his remarks, Strickland scanned the dark economic landscape left in Ohio by the old economy and also saw something new and fresh and possible. “When you look at the challenges facing us, when you look at the way the economy is changing, the fact that we have a new company like this with a new, highly technical, highly efficient product to create energy. It’s very exciting,” he said. “Our economy is in a state of transition. Everyone knows that. As this company grows, a lot of auto workers that may have lost their jobs in the auto industry will be able to find employment with this company.”