The fight to lure solar energy companies to Arizona will be fierce in 2011, as states become more competitive in their efforts to land solar companies that are themselves battling for funding in a stagnant capital market.
“(This year) will be more competitive than 2010 because the states are feeling more pressure and the idea that we’ll emerge out of this recession soon is just falling out of people’s heads,” says Barry Broome, president of the Greater Phoenix Economic Council, a major player in the efforts to bring solar and renewable energy companies to the Valley.
At least 10 renewable energy companies have located or announced plans to locate in Arizona since the state Legislature passed a tax-incentive program in 2009, Broome says. The most notable players are Chinese giant Suntech Power Holdings Co., the leading solar manufacturer in the world, and Power-One, which makes solar and wind inverter products.
Their arrival not only burnishes Arizona’s reputation as a potential leader in the effort to harness renewable energy, but also creates a burgeoning supply chain for solar energy manufacturers.
For example, United Kingdom-based FAIST GreenTek plans to open its first U.S. plant, a 56,000 SF facility in Phoenix, to provide metal steel containers for Power-One’s inverter boxes. Additionally, Spanish glass manufacturer Rioglass located to Arizona to provide materials for Abengoa’s Solana plant near Gila Bend, which is expected to be the largest concentrating solar energy power plant in the world.
“The tentacles that are caused by these companies will grow long over time,” says Eran Mahrer, director of renewable energy for Arizona Public Service, which will purchase the electricity generated at the Gila Bend site.
GPEC currently is working to lure two solar companies to the Valley, Broome says, adding, “I’m not saying we won’t see 10 companies again, but it’s much tougher. The industry is maturing and the capital markets haven’t recovered.”
He believes the market will see a roll up, or a decline in smaller, newer companies and will settle on fewer, major players.
The impact of solar companies on the commercial real estate market is significant. Solar-related companies gave a shot in the arm to Arizona’s persistently high industrial vacancy rates, says Pete Wentis, an industrial broker with CB Richard Ellis.
The second quarter of 2010 saw positive absorption in the industrial sector for the first time in a year and a half, Wentis says. By 4Q 2010, the market saw 4.4 MSF of positive absorption, which lowered the industrial vacancy rate in Maricopa County from 16.1% to 14.7%. Wentis estimates that solar companies contributed between 15% to 20% to that absorption.
The 14.7% vacancy rate means there is 40 MSF of industrial space available.
It is difficult to say whether there is enough available inventory for solar-related companies, as they don’t all require the same type of industrial space, Wentis says, adding that industrial is the most diversified of all the tenant types of space.
Solar proponents agree that Arizona is just starting to establish itself as a leader in the solar industry, but more needs to be done.
“Are we doing a good job? Yes,” Broome says. “Are we doing a great job? No. Could we be doing better? Yes.”
Factors that helped draw solar companies here and drive the production of solar generation include state tax incentives, utility incentives to customers for rooftop photovoltaic systems, a federal grant program that has been extended for one more year, and state renewable energy standards that require utilities to generate 15% of their kilowatt-hours sold from renewable sources by 2025.
Finally, the total installed cost of photovoltaics has dropped 40% in three years due to several factors, including better production, innovation, and the emergence of China into the market, says Nancy LaPlaca, a policy advisor and spokesperson for Arizona Corporation Commission commissioner Paul Newman.
Stable and well-thought-out energy policies would help the industry, Broome says, adding that the state has taken a “herky jerky” approach to renewable energy. A federal energy standard also would bring stability to the market, he adds.
The state also should discuss ways to export green energy, LaPlaca says. Currently, Arizona exports 30% of its electricity to California, but that is “brown” energy derived from coal, natural gas and nuclear.