Risks to Regional Green Energy Cluster

Long time readers of this blog know that I have been trumpeting the growth of and benefits from the green energy sector in Colorado.  A series of exogenous events are serving to undermine this cluster in the state and the U.S. 

In the wind energy vertical, the Federal renewable energy production tax credit (PTC) which provides an income tax credit of 2.2 cents per KW/hour of wind energy produced is set to expire on December 31, 2012 and appears to be another casualty of gridlock in Washington DC.   This has implications for employment in Colorado as companies like Vestas and their supply chain partners will basically stop making wind generation equipment in 2013, leading to large layoffs if this policy is not renewed.  It should be extended to provide a predictable environment for investment decisions, promote increases in renewable generation capacity, protect jobs and the environment, spur innovation and help U.S.-based facilities compete globally.

In the solar energy vertical, several high profile companies - including Loveland Colorado-based Abound Solar - have recently declared bankruptcy in the face of tough competition from Chinese manufacturers and headwinds from the weak economy.  Thus GE's recent announcement that
it will be suspending its plans to build the largest Solar factory in the U.S. for 18 months is particularly painful.

In the longer term, Colorado, the Front Range, and the Denver Region remain well positioned to benefit from an increase in demand for renewable energy but the short to medium terms seem to be filled with risks and disappointments.

Denver Post: Colorado Companies' Get Green Job Tax Credits

The Denver Post reported that six Colorado companies got green federal tax credits totaling $75.2 million: Abound Solar, Advanced Energy Industries, Coolerado Corp., ReflecTech, Hexcel Corp., Vestas Blades America Inc., and Vestas Towers America Inc.

Is Colorado a Renewable Energy Hub?

One of the overriding themes of this blog has been the importance to Colorado and the Denver Region's economic health of seizing the moment and becoming a center for the emerging renewable energy sectors. Up until now I have not seen any data which allows us to measure the region's progress in this regard.

The recently released report by the American Solar Energy Society, "Defining, Estimating, and Forecasting The Renewable Energy and Energy Efficiency Industries in the U.S. and Colorado," provides useful data
for understanding if Colorado is succeeding in becoming a green energy hub. According to this report as of 2007 Colorado had 91,285 renewable energy and energy efficiency jobs (10,075 in just renewable energy). In the U.S. as a whole there were 504,000 renewable energy jobs and 9.09 million total renewable and efficiency jobs.

By combining this data on renewable jobs in Colorado and the U.S. with overall data on Colorado and U.S. employment as of December 2007 (138 million and 2.3 millon non-farm jobs in the U.S. and Colorado respectively) its possible to calculate a location quotient(LQ) which shows the concentration of renewable jobs in Colorado.

One way to think about the LQ is it measures the ratio of a state's share of total national jobs in a specific industry to that state's share of total national jobs. So a LQ>1 indicates the state has a greater share of jobs in a specific economic sector than its population would otherwise warrant which means the state is a net "exporter" of the products and services produced by that sector to the rest of the nation (or world). Detroit has a high LQ in automobile manufacturing (at least for now), California has a high LQ for film production, New York in financial services, etc. So a LQ>1 means an area could be a hub or cluster for a given economic sector. Obviously having a high LQ in a growing sector is a good thing for a region's economic health but having a high LQ in a shrinking sector can be disastrous.

Based on the data cited above, Colorado had a LQ of 1.18 in renewable energy jobs in 2007. Given the string of positive job announcements in early 2008 in Colorado in the renewable sector, it seems likely to me that this ratio may have grown in 2008. However, a LQ of 1.18 only indicates a moderate level of concentration and it means Colorado has a long way to go before establishing itself as a primary alternative energy hub and there is likely to be fierce competition from other areas of the country to obtain this status.

(Photos courtesy of the National Renewable Energy Laboratory, All Rights Reserved)