"The United States Government should, whenever possible, procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive.” Executive Order on Ensuring the Future Is Made in All of America by All of America’s Workers, President Joseph R. Biden, Jr.
Differently colored balls on waves of blue paper, white background
The Biden Administration is up and running with a bang — thirty-seven Executive Orders so far (as of the end of the day, January 26th, 2021). Monday’s “Made in America” focuses attention - and a new office in the White House - on federal procurement and financial assistance policies that maximize the use of products produced, and services offered, in the United States. The focus on federal government procurement is, by itself, as the President might say: “a big deal.” It is also the opening salvo in a serious effort to effectively bring the supply chain home - both revitalizing critical sectors of the economy, and driving real job creation. The U.S. government procures a whopping $600 billion annually, with Defense accounting for over 60%. The Big Five - Lockheed Martin
Developing Story: The commitment regarding federal financial assistance programs has the potential to be equally important, given the proposed $500 billion+ in funding for state and local infrastructure projects. All of this is a starting point for increasing manufacturing in the U.S., and in supply chain job creation. Let’s see how it plays out.
Next Up Renewable Energy? Pivot to renewable energy, which could very well be the next infrastructure sector to attract the government’s gaze. Federal engagement in this large and growing business segment would dovetail with two additional Biden Administration priorities: Covid recovery, and the climate agenda. The U.S. renewable energy market needs speed in decision-making, and a reliable pipeline of project opportunities - it is continuously hampered by our start/stop policy and our competitor’s (China and the EU) use of their own market power, while we ignore ours. We also hamstring ourselves with a hodgepodge of state and local regulations that make delivered solar electricity three times as expensive as it is in Australia.
Solar & Wind Energy Generation in the U.S., 2016-2020
Tripling Market Size & and Ready Institutional Investment. The overall goals of U.S. policy should be wrapped into the twin objectives of maintaining and driving the sector’s high growth rate, and capturing as much of the value of the U.S. electricity market as possible. This is a private investment market - virtually all green energy is private - and if catalyzing rapid investment is the focus, then removing the brakes on investment should also be a big focus of the new Administration’s policy.
The renewables market has all sorts of features that quicken the heart: most of the jobs are generated by small and mid-sized businesses, that are innovative and entrepreneurial; it is both rural and urban; it is high in technology content; and in electrifying our transportation system, it plays a strategic role in the Fourth Industrial Revolution. This is a segment of the infrastructure market just waiting for the supply chain to come home.
Investment across the U.S. renewable energy sector in the range of $75 billion per year: wind, $14 billion; solar, $18.7 billion; and energy efficiency, as much as $42 billion per year. The growth potential - in terms of investment, in terms of job creation, and in terms of the output of electrons - is extraordinary. It is also dynamic, given the rapid pace of technology innovation (from AI to battery storage) throughout the sector.
Solar energy, which has been growing at a greater than 23% annual rate over the last five years, should be targeted at a 30% rate through 2025. Solar makes up only 1.7% of energy generation in the U.S. (it is nearly 4% in the EU). China, which exports much of its production, supports more than eight times more jobs than does solar in the U.S. Achieving a 30% annual growth rate, and bringing the supply chain home, would see the creation of nearly 2 million jobs in the U.S. market by 2025.
Red Flag: In the list of the Top Ten solar manufacturers in the world, First Solar
U.S. versus China in Terms of Renewable Energy Jobs, 2020
Wind energy has grown at a slower pace over the last five years, in the 9% range. Wind makes up 8.8% of U.S. electricity generation - better than solar, so a much higher penetration than solar, but only about 1/3 of its potential. In Denmark 40% of energy generation comes from wind, and in Ireland, Portugal and Germany wind’s share is between 20% and 30%. Given that at least 50% of the value-added of wind projects is imported, by doubling the size of the market, and bringing the supply chain home, the wind industry could comfortably employ as many as 600,000 people by 2025.
Red Flag: Of the top 10 wind companies in the world, three are from the EU, including the largest company in the world, Vestas; six are from China; and one is from the U.S., General Electric
Energy Efficiency - Buildings - make up an important market in the U.S., generating nearly 10% of greenhouse gas emissions. The market - think of the large ones as giant ships - are going through an extraordinary bout of innovation, driven by AI, Big Data and predictive analytics around O&M. Buildings consume a whopping 76% of electricity in the U.S. One big opportunity: the federal government owns 306,000 buildings, almost none of which are maintained to private sector standards, and so under a performance contract structure Buy America would drive a boom in market size, innovation - and environmental returns. The sector today employs more than 3,000,0000 people. Doubling this behind the meter market, by targeting federal buildings, would double employment - potentially to 6,000,000 by 2025, including export markets.
Market Leaders: Ameresco, Hannon-Armstrong, ABB, Johnson Controls
A Market-based Industrial Policy - Fixing Broken Stuff. Last Saturday I listened to the Biden climate team discuss its plans at the winter meeting of the National Council of Mayors. The discussion was geared toward cities, one of the hardest hit sectors. Listening to John Kerry (Special Presidential Envoy for Climate), Gina McCarthy (White House National Climate Advisor) and Marty Walsh (Secretary of Labor), you could hear the direction and emphasis of en emerging policy, but what was missing - and what they were searching for - was active participation from business.
Based on the above assessment, I would give them three recommendations - to quickly double investment, drive environmental benefits, more than double job creation, and even create a U.S. capacity for the export of renewables related goods and services:
Simplify Regulations. The idea that delivered solar electrons are three times more expensive in the U.S. than in Australia - or, as it happens, Germany - should cause policymakers to leap into action. This is the public sector area that requires velocity in decision-making.
Remove Roadblocks. Plugging into the grid, as one mayor pointed out during the Q&A period at the Mayor’s conference, is frustratingly time-consuming and expensive - and he was on the side of the angels, trying to sell his city’s electrons to the local utility. Energy commercialization needs to be streamlined, similar to what happened with PURPA and independent power at the end of the Carter Administration, so that anyone with a rooftop - public or private - can efficiently become a utility owner!
Predictable/Robust Pipelines. Market supply - of projects - needs to be assured, so that entrepreneurs can build factories and invest in innovation… without that the U.S. supply chain for renewables will continue to be dominated by non-U.S. firms, going the way of the once robust, and now sorely missed, U.S. rolling stock industry.
The Return of Manufacturing. Bringing manufacturing back to the U.S. is complex, full of risk, and not something that fits comfortably in the political dialogue box. Creating a manufacturing friendly ecosystem in the U.S. would also require consistent tax policy support, perhaps pricing carbon (it is carbon intensive to bring products across the Pacific Ocean, whether by ship or plane), and - perhaps especially - worker training and continuous education. JobsOhio is a serious model for the federal government, and for states across the country.
The renewables industry is unique, with enormous economic, environmental and social benefits. Putting a ‘wind at the back’ of the industry would generate truly remarkable benefits, including: (1) environmental benefits; (2) economic growth; (3) innovative job creation; (4) and deep innovation - and hence faster adoption. And the entire business exists in a dynamic ecosystem characterized by rapid innovation, and - this is critical - very long term long-term institutional and private investment!
