Washington, D.C., United States – When it comes to exporting green energy, talk tends to centre on whether or not the US can compete with China. But that has little bearing on the international business activity of California-based Greenhouse Holdings, which builds eco-friendly infrastructure.
With employees that are military and security experts, the company brings solar and other forms of sustainable energy to denied areas, places where little or no energy infrastructure now exists. ‘We’ve found a niche,’ said John Galt, the company’s executive chairman and founder. ‘For us it is not China, but more like Africa, where they need rapidly deployable energy alternatives.’
It is such niches, both large and small, that the Obama administration hopes to ferret out as part of a new strategy to increase U.S. exports of renewable energy. Released in December, the plan includes 23 commitments from eight government agencies to help U.S. companies find opportunities and overcome trade barriers. It is part of a broader Obama goal to double U.S. exports in five years.
‘I love it. I think it was just the thing that was needed,’ said Galt. ‘This policy is going to help companies like ours that have a different segment of the market.’
The Trade Promotion Coordinating Committee (TPCC), an interagency group chaired by the US Secretary of Commerce Gary Locke, pegs U.S. renewable energy product exports at US$2 billion in 2009, up from $1.3 billion two years earlier. These are conservative estimates based only on scant data now available on U.S. clean energy exports. Still, the numbers indicate US renewable energy exports account for only a tiny fraction of the $6 trillion global energy market, of which clean energy is the fastest growing segment.
Many U.S. clean energy companies do not export, according to the report by TPCC’s working group on renewable energy and energy efficiency (RE&EE). Those companies that do tend to focus on only one or two markets. The report blames the low export levels on several factors: a lack available market research, a shortage of manufacturing capacity, unfamiliarity with export logistics, risk aversion to foreign markets, lack of links to foreign partners or buyers, currency fluctuations, and financing snags abroad.
Still, export opportunities appear to be considerable. Together with efficiency, renewable energy received $162 billion in private sector investment globally in 2009, a figure that U..S officials expect to climb as economic conditions improve. Stimulus bills accounted for another $183 billion investment worldwide in the same year.
To help U.S. companies capture rich green energy markets, the government plans to offer new trade missions, financing products, market research and other services. (See sidebar, below) ‘We will identify markets that need to be developed, where demand needs to be created for the technologies that U.S. companies can provide,’ said Adam O’Malley, the director of the Office of Energy and Environment in the International Trade Administration (ITA).
The export initiative creates no new programmes or policies, but instead coordinates and ramps up existing agencies that offer assistance. Therefore, the programme does not require action by Congress, a definite plus given the legislative body’s typically slow pace on energy policy.
Solar development expertise is one key area on which the US could capitalise (Source: Greenhouse Holdings)
As a first order of business, the export initiative intends to make sense of the vast amounts of information available about renewable energy development worldwide and to identify countries that offer a high potential return for U.S. technologies. The research will move beyond pinpointing hot markets, and instead try to define exactly where U.S. products can succeed. In some cases, the countries have no market yet for renewable energy, but offer great potential, if they receive help in developing policy and regulation.
The ITA also points out that hot markets — nations that are expanding renewable energy rapidly — are not necessarily good export targets. There may be burdensome regulation or strict protectionist policies, such as high tariffs or ‘content requirements’ mandating a large percentage of goods be produced within their borders. Transporting the product from the US might prove too costly or too difficult. Or the nation may offer little protection of intellectual property rights, a problem for all companies but especially smaller enterprises that may have their entire business plan secured against a patent.
Where’s the Money?
Another major barrier is lack of easily accessed financing, a problem Greenhouse Holdings’ Galt says stymies him abroad. ‘You’ve got this great project, and you’ve got a company or country ready to sign on the dotted line, but financing is the question,’ he said. ‘There needs to be assistance in how to obtain financing.’
The ITA says that government recognises this problem. U.S. companies find themselves delayed by the inexperience of foreign banks and regulators in assessing renewable energy technologies, especially if they are new and unfamiliar. Further, U.S. companies must compete against firms that arrive with greater financial support from home.
As a result, the new export strategy will place a high priority on finding ways to increase financing and to streamline the application process. These new commitments will build on financing already available through the Export-Import Bank of the United States (Ex-Im Bank) the Overseas Private Investment Corporation (OPIC), and the US Trade and Development Agency (USTDA).
The USTDA already has increased its funding for renewables and energy efficiency from 23% of programme funds in 2009 to 50% in 2010, a commitment it intends to continue. Money is being channelled towards developing and middle-income countries.
In addition, both Ex-Im Bank and OPIC will unveil new financing products and streamlined procedures to obtain funds. OPIC is focusing on private equity funding to make risk capital available to green energy companies, and creating opportunities to lease US-made equipment to remove upfront costs to purchasers. Ex-Im already has created what ITA describes as a highly effective programme called Solar Express, which fast-tracks the approvals of solar transactions valued at $3 – 10 million. Ex-Im says that it can process a Solar Express application in 60 days. The programme offers both direct loans and guarantees with terms that can extend out to 18 years.
Indeed, while the U.S. exports many clean energy technologies, it is solar energy that has proven its mettle so far in the international marketplace. The Solar Energy Industries Association and GTM Research took a close look at solar exports in 2009 and found the US to be a significant net exporter with PV-related imports of $1.6 billion and exports of $2.3 billion, creating total net exports of $723 million.
Polysilicon, the primary raw material of crystalline silicon PV modules, was the largest solar product exported, accounting for $1.1 billion in sales. In fact, the US was the single largest source of polysilicon with 40% of market share internationally. The report, ‘US Solar Energy Trade 2010,’ says that US trade in the solar industry had proved to be more ‘balanced’ than in the overall economy, which had a trade deficit of $374 billion in 2009.
Beyond solar, it may be services, rather than products, that offer the greatest opportunity for US companies, given that the service sector now accounts for 70% of US GDP. ‘It would be a mistake to overlook opportunities to strengthen service exports such as architectural design of green buildings, energy audits and licensing of U.S. wind turbines,’ said the TPCC report. The government is uncertain about the current quantity of service exports.
What about China?
The trade report echoes what several renewable energy companies say: the nation needs to stabilise its domestic energy policies before it can build a strong export industry. Short-term tax credits leave manufacturers and developers wary of deep investment in the U.S. ‘Firms from countries that have provided long-term incentives and have removed barriers to commercialising and installing RE&EE technologies are challenging US companies,’ the TPCC report said.
China offers tax holidays for certain clean technology companies located in economic development zones and Malaysia gives solar manufactures a 100% tax holiday for up to 15 years.
In the U.S., when federal policy fails, state policy sometimes fills in the gap, providing stability and spurring renewable energy growth. The report says 29 states plus the District of Colombia now have renewable portfolio standards, and 18 states have public benefit funds, surcharges on utility bills specifically for clean energy.
But state policy is not always enough when U.S. companies are competing internationally. The U.S. was dealt a blow in early 2011 when solar wafer manufacturer Evergreen Solar announced it was closing its facility in Devens, Massachusetts, although it had received some $32.25 million in state grant and tax incentives. The closure cost the local area a reported 800 jobs.
‘Solar manufacturers in China have received considerable government and financial support and, together with their low manufacturing costs, have become price leaders within the industry. While the U.S. and other Western industrial economies are beneficiaries of rapidly declining installation costs of solar, we expect the U.S. will continue to be at a disadvantage from a manufacturing standpoint,’ said Evergreen Solar president and CEO Michael El-Hillow.
Production costs at the facility had steadily decreased, beating company targets and even many western manufacturers, but they still remained much higher than Chinese production costs, says El-Hillow. China dominated the wafer manufacturing market in 2009, according to the SEIA/GTM Research report. Its market share was 48%, compared with the U.S.’ 3%. ‘During the month of December , we experienced a 10% decrease in average selling prices from the beginning of the fourth quarter. As industry selling prices continue their rapid declines into 2011, panel manufacturing in Devens, either fully or partially, is no longer economically feasible,’ said El-Hillow.
Despite the U.S.’ problem competing with China’s low manufacturing costs, it remains a strong market for U.S. green energy products and services. ‘China certainly presents tremendous opportunity and a variety of challenges,’ said ITA’s O’Malley.
Through the US-China Joint Commission on Commerce and Trade, the two nations have made significant strides in removing trade barriers for clean energy, he said. For example, China agreed to remove local content requirements for wind turbines and their components as a result of commission efforts.
In addition, the China/US business relationship seemed to improve in January with a spate of energy deals announced as China’s President Hu Jintao visited the U.S. and met with Obama. They include Duke Energy and China-based ENN Group collaborating to help build greener cities in China and the U.S. The companies created the Future Energy Technology Demonstration Platform to exchange knowledge in a deal expected to help ENN construct China’s first smart energy city in Langfang, near Beijing.
American Electric Power also signed energy deals with two giant Chinese energy companies: China Huaneng and State Grid Corporation of China. The deal encompasses a variety of technologies, including distributed generation and smart grid energy storage. Meanwhile, Florida-based wind power developer UPC Management negotiated a deal with the China Guo Dian Corporation. The two will form ventures to develop new wind facilities up to a value of $1.5 billion.
Whether it is the vast market of China tapped by Duke and AEP, or the smaller markets found in under-developed countries that are pursued by Greenhouse Holdings, export appears to offer new opportunities for U.S. renewable energy companies. But competition is stiff, and success of the export initiative rests on the U.S. government’s ability to overcome significant trade and financing hurdles. ‘These are really the first steps being taken by the U.S. government to coordinate our efforts in this space, and there is a lot to be done,’ said ITA’s O’Malley.
Sidebar: A New Export Strategy for Renewables
Released in December 2010, the export strategy was developed through the US Trade Promotion Coordinating Committee Working Group on Renewable Energy and Energy Efficiency, which includes representatives from the departments of Commerce, Energy, State, and Agriculture, as well as the Export-Import Bank of the United States (Ex-Im), the Overseas Private Investment Corporation (OPIC), the US Trade and Development Agency, and the Office of the United States Trade Representative.
‘Spurring domestic clean energy innovation to meet America’s needs is only half of the picture. Empowering US business to create and deliver those new technologies to energy-hungry foreign markets is the other,’ said US Commerce Secretary Gary Locke, writing in the White House blog in late December.
The strategy includes several new services to help US clean energy companies export products and services:
• The federal government launched a new online portal to provide clean energy companies with easy access to government export resources.
• The Department of Commerce committed to an increase in the number of clean energy trade and trade-policy missions.
• Government will create new foreign buyers’ guides for US RE&EE technologies.
• OPIC will invest an additional $300 million in clean energy financing in emerging markets and new financial products for subordinated debt financing and equipment leasing.
• OPIC and Ex-Im will streamline financing applications.
• The Office of the US Trade Representative will address market access barriers through a new subcommittee.
• The USDA’s Market Access Program will expand to include biomass wood pellets.