Case Paper Case: Procter & Gamble

Massachusetts Clean Energy

Case Paper

10/22/2013

MGT689

Fall 2013

Prof. Stephan Manning

What does clean energy refer to, and what technologies, products and services can be

associated with the clean energy sector?

Clean Energy

Clean energy is also known as sustainable energy. "Sustainable energy is the sustainable

provision of energy that meets the needs of the present without compromising the ability of

future generations to meet their needs" ("Sustainable Energy", 2013).

Clean Energy Technologies, Products, and Services

A broad range of technologies, products, and services can be associated with clean energy.

Although there is no standard definition for clean energy technology, Clean Edge defined clean

technology as "a diverse range of products, services, and processes that harness renewable

materials and energy sources, dramatically reduce the use of natural resources, and cut or

eliminate emissions and wastes" ("Clean Technology", 2013).

Renewable energy is a good example of clean technology. "Renewable energy is generally

defined as energy that comes from resources which are continually replenished on a human

timescale such as sunlight, wind, rain, tides, waves and geothermal heat" ("Renewable Energy",

2013). Recycling, green transportation, green chemistry, electric motors are also other examples

of clean technology.

How did the clean energy sector develop in Massachusetts, and what have been regional

strengths in growing this sector?

Development of Clean Energy in Massachusetts

Massachusetts is a leader in terms of clean energy in the United States. "Massachusetts was

ranked one of the top 10 leading states of cleantech, according to a report by Clean Edge, a

research and advisory firm focused on cleantech" (Resende, June 4, 2013). Massachusetts has

taken the initiative to become a clean energy leader along with green energy companies based in

Massachusetts. Joule Unlimited, Inc. produces clean fuel that requires only sunlight and waste

CO2. Ameresco, founded in 2000, has been providing energy efficiency and renewable energy

solutions for facilities in North America. The solutions include "upgrades to a facility’s energy

infrastructure, and the development, construction, and operation of renewable energy plants"

("Green energy companies", 2013). Behind the development, there were regional strengths that

have supported the development of clean energy in Massachusetts.

Regional Strengths

Massachusetts has been developed as a cluster of clean energy. "The cluster is an economic

phenomenon that is placed in a competitive context in which many business simultaneously

complete and collaborate to gain different economic advantage" (Boja, 2011). Etzkowiz (2002)

mentioned that there were three important factors for a cluster development and suggested Triple

Helix model (See Appendix A, as cited in Boja, 2011). The three important factors include

education and research, business environment, and government. All these three components are

interrelated with one another in terms of innovation and knowledge transfer (Boja, 2011).

Education and Research

Massachusetts is the cornerstone of education and research along with its eminent universities

like Harvard and MIT. MIT specifically has contributed to the clean energy sector as it has held

the MIT Clean Energy Prize, a premiere clean energy competition, for six years ("2013 Winners",

2013). The goal of this competition, led by students and sponsored by NSTAR and the

Department of Energy, is to provide opportunities for learning and rewards to the student

ventures showing exceptional potential of making clean energy cost-effective (Lesser, 2011).

The University is not only generating new technology and knowledge but also it supports venture

creation in the clean energy industry. As it generates clean energy solutions through innovation

and entrepreneurship, many of top venture capital firms around the country keep their eye on

many universities like MIT (Lesser, 2011).

Business Environment

Massachusetts also has a good business environment. "Business environment involves higher

education in research projects and supports private entrepreneurship" (Boja, 2011). MIT,

symbolizing the higher education, has assisted in launching many energy ventures through the

MIT Clean Energy Prize. Numerous energy ventures including 1366 Technologies, 24M, and

SunCatalytix trace their roots to MIT. Furthermore, the products and services the companies

provide are diverse. 1366 Technologies, 24M, and SunCatalytix develop technologies for silicon

wafers in solar panels, productive batteries, and combination of sunlight and water to produce

affordable, highly distributed solar energy respectively ("Green energy companies", 2013).

Government

The government of Massachusetts played an important role for the cluster development.

"Government policies regarding the development of geographic or economic areas influence the

cluster creation" (Boja, 2011). The Massachusetts Clean Energy Center (MassCEC) is the

epitome of the government policies influencing the cluster development. Formed under the

initiative of Governor Deval Patrick, MassCEC has contributed to the success of clean energy

technologies, companies, and municipal energy projects ("About MassCEC", 2013). The efforts

of MassCEC include provision of seed investments to startup companies, a fund of renewable

energy rebates for residents and businesses, and supports to the development of a local clean

energy workforce. According to 2012 Clean Energy Industry Report, there were 71,523

employees working in the clean energy sector throughout the Commonwealth in 2012, increased

by 11.2% compared to the previous year (Clean Edge, 2012).

What other clusters and regions is Massachusetts competing with for investment in clean

energy, and what would be smart policies to manage this competition?

Other Clusters and Regions

Massachusetts, No.2 in the nation.

Massachusetts is not the only region that puts effort into developing clean energy industry in the

US. According to Clean-Energy State Leadership Scorecard provided by Clean Edge (2012),

Massachusetts took second place behind California (See Appendix B).

In support of implementation of important policies, Massachusetts took No.1 in terms of policy

and took Oregon out of second place for the first time. However, Massachusetts was far below

on California when it comes to the technology ranking due to lack of the renewable generation

resources (e.g., wind, solar, biomass, etc.). Top overall states from the Northeast region also

showed a weakness in the technology category compared to their counterparties from the

Western region due to the same reason, lack of the renewable generation resources (Resende,

June 4, 2013).

However, Massachusetts has strength in a diversity of technology although some states focus on

one sector of clean energy technology. For instance, Texas and Iowa are concentrated in wind

energy and New Jersey focuses on solar energy whereas Massachusetts has a wide range of clean

energy technologies (Clean Edge, 2012).

Clean Energy Clusters in the World

The competition in Clean Energy is not limited in the U.S but the competition has occurred

globally. We could tell the fact from a large amount of investment involved in clean energy

industry. "In 2011, some US$ 30 billion was invested globally in venture capital to finance new

cleantech businesses" (Mans, 2012). Mans (2012) introduced seven clusters including Baoding

(China), Calgary (Canada), Hamburg (Germany), San Diego (USA), Piracicaba (Brazil),

Casablanca (Morocco), and San Antonio (USA).

The cluster in Baoding, China is called Green Power Valley. The Green Power Valley has been

completely run by the local government since its inception in 2005. The cluster's objective is to

"make the city the nation's first address for manufacturing renewable and energy equipment"

(Mans, 2012). Baoding has diversity of technology development as "the city promotes the

development of solar energy equipment, wind power equipment, bio-energy, material efficiency,

new mobility and electric vehicles as well as energy efficiency products" (Mans, 2012).

In 2009, Calgary Economic Development (CED), the city's lead economic development agency

set the Sustainable and Renewable Energy Cluster (SURE) in Calgary, Canada. The Cluster's

goal is to “connect local companies with peers, potential partners, funders and clients, with the

overarching goal of accelerating growth of the sustainable and renewable energy sector in

Calgary” (Mans, 2012).

The Hamburg Renewable Energy Cluster is a wind energy cluster and it has a close relationship

with the city's Business Development Corporation. The cluster's goal is to strengthen industry

cooperation and benefit from the potential boom in the wind energy sector (Mans, 2012).

The cluster in San Diego also has a close tie with the local government. "While this cluster does

not have a specific renewable focus, many of its cleantech businesses work on alternative

energy" (Mans, 2012).

The cluster in Piracicaba, Brazil focuses on the sugar industry. The goal of the cluster is to "to

facilitate the interaction between its members, to increase the value of the productive chains of

renewable fuels and its partners, and to contribute to the sustainable development of the region"

(Mans, 2012).

Casablanca in Morocco and San Antonio are planned clusters. Casablanca has a large industrial

base and the city expected to benefit from the wind, solar photovoltaic (PV), and solar thermal

sectors (Mans, 2012). On the other hand, San Antonio is aim "to bring green technology and

sustainable economy to the region" (Mans, 2012). San Antonio is looking forward to creating

green jobs across the city by attracting new businesses to the city.

SWOT Analysis for Massachusetts in Clean Energy Industry

Massachusetts has strengths in world-class academic resources (e.g., MIT, Harvard, etc.), strong

supports of the local government (e.g., MassCEC), and a wide range of development in clean

energy.

However, there are some weaknesses. As mentioned above, Massachusetts has lack of renewable

generation resources (e.g., solar, wind, biomass, etc.) compared to the western regions in the U.S.

Additionally, nation-wide investment in clean energy accounts for a small proportion of the clean

energy investments in the world. According to a Pew/Bloomberg survey the amount of

investment of U.S. accounts for $34 billion out of $243 billion dollars, the total global

investments (As cited in "Evergreen Solar's Failure", August 18, 2011) The high cost of living in

Massachusetts could be another weakness. According to Clean Edge (2012), Massachusetts was

the most expensive state in the US in terms of cost of living.

In terms of the potential of industry, the clean energy industry is feasible because the natural

resources such as coal and gas are limited and they would be depleted eventually if energy

consumers continued to rely on them. As a result, Shifting away from fossil fuels is happening.

The decreasing renewable energy costs and the development in clean energy technologies are

bolstering this movement. "The same size turbine now produces 2.5 times the power it did 15

years ago" ("Shift from fossil fuels", September 26, 2013). The price of solar panels has been

decreased and more efficient. "The cost per watt of solar panel capacity is now about one-fourth

what it was just five years ago" ("Shift from fossil fuels", September 26, 2013). Global

investments in clean energy have continued to increase. The investments soared by 33 percent in

2011 compared to the previous year, topping $243 billion ("Evergreen Solar's Failure", August

18, 2011).

However, as the industry grows, the competition in the industry grows accordingly. China and

Germany whose economies are smaller than the US invested more in clean energy than the US in

2010 (Evergreen Solar's Failure, August 18, 2011). Moreover, expansion of Chinese firms is a

significant threat to the U.S. clean energy development. In the bankruptcy auction for A123, a

lithium-ion battery producer based in Watertown, Massachusetts, a Chinese conglomerate,

Wanxiang bought A123 for $257 million (Arora, 2012). The Obama administration had given

$249 million dollars, borrowed from China, to help A123 compete with China. However, A123,

ironically, was sold to Wanxiang, the Chinese company who beat American company, Johnson

Control in the auction (Arora, 2012). Furthermore, clean energy projects require high capital

supply. "Because the capital needs for energy or water-related projects are so high, many green-

tech companies need to devise business and financing models to crack through and go beyond

what's called "Valley of Death"". (LaMonica, 2009). Appendix C. shows the overall SWOT

analysis as a table.

Smart Policies

As discussed with the SWOT analysis, the Massachusetts clean energy cluster has potentials to

be world's clean energy capital. However, the global competition in the industry seems to be a

critical threat to the cluster. To manage the competition and develop the local economy based on

clean energy, Massachusetts requires smart policies. "Economic development based on cluster

models represent a policy adopted by many economies that can, theoretically, bring multiple

benefits in terms of regional development, competitiveness in an industry" (Boja, 2011). The

smart policies include aggressive incentives for clean energy, strict regulations for clean energy

efficiency & carbon-reduction, and acceleration of funding.

Aggressive Incentives for Clean Energy

Massachusetts need more aggressive for clean energy. Massachusetts already took effect

Renewable Portfolio Standard (RPS) solar carve-out program in 2010. "A renewable portfolio

standard (RPS) is a regulatory policy that requires utilities to produce a specific portion of their

electricity from renewable energy sources by a specific date" (Clean Edge, 2012).

Massachusetts should go further by building on both weaknesses and strengths. As discussed

earlier, one of the weaknesses of Massachusetts is the expensive cost of living. For instance, the

local government of Baoding, China supports renewable energy workers' families in settling

down in Baoding (Mans, 2012). Besides, the government of Massachusetts should encourage

innovation by providing more incentives to Universities and research centers (World-class

academic resources of Massachusetts). MIT's Clean Energy Prize is a successful example of the

incentive system to make students more competitive and innovative in the clean energy sector.

This kind of incentive systems would stimulate the growth of clean energy business

environments since many ventures have been spun out of MIT like 24M, a battery developer.

Strict Regulations for clean energy efficiency & carbon reduction

To be world leader in the clean energy sector, Massachusetts should go further with its

regulations for clean energy efficiency and carbon reduction. Clean Edge suggested a way to

improve clean energy efficiency. According to Clean Edge (2012), Massachusetts should

consider "making the North American Board of Certified Energy Practitioners' solar PV installer

certification mandatory rather than voluntary."

Besides, the more aggressive regulation for carbon reduction would bring the state more

economic and environmental benefits. CBO (2013) estimated in 2011, "A cap-and-trade program

that would have set a price of $20 in 2012 to emit a ton of CO2 (and increased that price by 5.6

percent each year thereafter) would raise a total of nearly $1.2 trillion during its first decade. In

addition, total U.S. emissions of CO2 would be about 8 percent lower over that period than they

would be without the policy."

Acceleration of funding

Acceleration of funding is necessary since the capital needs of clean energy projects are so high,

which is a threat for the clean energy industry as mentioned earlier. Massachusetts needs a

diversity of funding tools to support local clean energy projects and companies.

In case of Piracicaba, Brazil, city officials are closely engaged in its cluster and have connections

to other tiers of government, such as APEX, the national investment promotion agency. The

APEX covers 50% of the cluster funding (Mans, 2012). Besides, Clean Edge (2012)

recommended Massachusetts become first to establish "Green Bank", "an independent,

government-sponsored enterprise that provides loan guarantees, debt instruments, and other

financing tools to stimulate private-sector lending and investments in clean energy" on the state

level. Policy analysts stated, "A $10 million state outlay could attract $100 million to $200

million in private capital" (Clean Edge, 2012).

Massachusetts itself could not compete with global competitors. Moreover, a clear goal and

strong supports of the federal government for the clean energy industry would give more

confidence to external investors. Therefore, it would help Massachusetts boost the clean energy

businesses by attracting more funds from the investors.

References

About MassCEC. (2013). About MassCEC. Massachusetts Clean Energy Center. Retrieved

October 20, 2013 from http://www.masscec.com/about

Arora, N. (2012). China Wins, U.S. Loses In A123 Bankruptcy. Forbes. Retrieved October 21,

2013 from http://www.forbes.com/sites/greatspeculations/2012/12/12/china-wins-u-s-

loses-in-a123-bankruptcy/

Boja, C. (2011). Clusters Models, Factors and Characteristics. International Journal of Economic

Practices and Theories, Vol. 1, No. 1, 2011 (July). Economic Informatics and

Cybernetics Department. The Bucharest Academy of Economic Studies.

CBO. (2013). Effects of a Carbon Tax on the Economy and the Environment. Congressional

Budget Office. Retrieved October 22, 2013 from http://www.cbo.gov/publication/44223

Clean Edge. (2012). A Future of Innovation and Growth: Advancing Massachusetts' Clean-

Energy Leadership. 2012 Clean Energy Industry Report. Massachusetts Clean Energy

Center. MA. Retrieved October 20 from http://www.masscec.com/content/2012-clean-

energy-industry-report

Clean Technology. (2013). Clean Technology. Wikipedia. Retrieved October 20, 2013 from

http://en.wikipedia.org/wiki/Clean_technology

Evergreen Solar's Failure. (August 18, 2011). Evergreen Solar’s failure shows US weakness in

clean energy. The Boston Globe. Boston.com. Retrieved October 20, 2013 from

http://www.boston.com/bostonglobe/editorial_opinion/editorials/articles/2011/08/18/ever

green_solars_failure_shows_us_weakness_in_clean_energy/

Green Energy Companies. (2013). 'Green' energy companies in Mass. Boston.com. Retrieved

October 20, 2013 from http://www.boston.com/business/gallery/massgreencompanies/

LaMonica, M. (2009). Massachusetts goes green to relive tech glory. CNET. Retrieved October

21, 2013 from http://news.cnet.com/8301-11128_3-10265420-54.html

Lesser, S. (2011). Top Ten University Cleantech Initiatives Around the Globe. Clean Techies.

Retrieved October 20, 2013 from http://blog.cleantechies.com/2011/03/10/top-ten-

university-cleantech-initiatives-around-the-globe/

Mans, U. (2012). Role of Local Governments in Promoting Renewable Energy Businesses.

ICLEI World Secretariat. Bonn, German y.

Renewable Energy. (2013). Renewable Energy. Wikipedia. Retrieved October 20, 2013 from

http://en.wikipedia.org/wiki/Renewable_energy

Resende, P. (June 4, 2013). Mass. ranks as No. 2 leader in cleantech. Techflash. Retrieved

October 20, 2013 from http://www.bizjournals.com/boston/blog/techflash/2013/06/mass-

ranks-no-2-in-clean-tech.html

Sustainable Energy. (2013). Sustainable Energy. Wikipedia. Retrieved October 20, 2013 from

http://en.wikipedia.org/wiki/Renewable_energy

Shift from Fossil Fuel. (September 26, 2013). Shift from fossil fuels is under way. Concord

Monitor. Retrieved October 21, 2013 from

http://www.concordmonitor.com/home/8672940-95/editorial-shift-away-from-fossil-

fuels-is-under-way

2013 Winners. (2013). 2013 Winners. MIT Clean Energy Prize. Retrieved October 20, 2013

from http://cep.mit.edu/impact/2013-winners/

Appendix A.

The Triple-Helix Model

[Source: Etzkowitz, 2002 as cited in Boja, 2011]

Appendix B.

Business Environment

Government and Public

Administration

Education and Research

Appendix C.

Strengths

• World-class Academic Resources (Harvard,

MIT, etc.)

• The supports of Government (MassCEC)

• Wide range of development in Clean energy

Weaknesses

• Lack of renewable generation resources (e.g.,

solar, wind, biomass, etc.)

• Less nation-wide investment in clean energy

than other competitors

• High costs of living and energy

Opportunities

• Depleting natural resources (coal, gas, etc.)

• Shifts from fossil fuels to renewable energy

• Increasing Global investment in renewable

energy

• The price of clean energy is getting cheaper

• Clean energy technologies are developing

Threats

• Global competitors (Germany, China, etc.)

• Chinese companies' expansion by acquiring

American clean energy ventures (e.g. A123)

• High capital needs