Gambling on Green

Cover story for September 2009 edition of DBusiness magazine - Detroit’s premier business journal.

By Babu Emile and R.J. King

Myriad political and economic leaders tout energy independence as the solution to a plethora of America’s employment, defense, and environmental challenges.

The plan is to leverage renewable energy by investing billions of dollars and implementing policies that will enable America to kick its addiction to foreign oil, undermine the threat of terrorism, protect the environment, and create a new economy with millions of jobs.

A May 2009 Michigan Green Jobs Report suggests that a $2.3-billion investment in alternative energy in Detroit alone would create 23,880 jobs, while a $4.8-billion investment in the state of Michigan would create 54,000 jobs. However, Michigan relies on coal for about 57 percent of its annual electricity production. Even as unemployment in the state reached a record 15.2 percent in June, limited coal reserves mean that the state continues to rely on $2 billion worth of imports, helping neither the economic situation nor the environment.

Today, even as Michigan is home to a high concentration of highly skilled and well-educated workers, it struggles to balance the harsh realities of the economic recession with the burden of national debt and President Barack Obama’s vision for an energy-independent America.

What’s more, Gov. Jennifer Granholm has decided to use millions of dollars in federal stimulus funds that were intended to be invested in new jobs and technology instead of making needed cuts in an over-bloated and benefit-rich public-service sector.

Despite these challenges, the state is headed down a new path of energy efficiency, having passed legislation that requires utilities to meet 10 percent of electricity demand through renewable energy and energy-efficiency programs by 2015 — while a new package of bills calls for 30 percent green-generated power by 2025. The federal government, meanwhile, through the proposed American Clean Energy and Security Act, wants utilities to produce 20 percent of electricity through the same programs by 2020.

Politicians spurred on by environmentalists and businesses ready to reap the benefits of sustainable technology and investment are gambling that the mandates they’ve enacted or will soon pass into law will create hundreds of thousands of jobs in research and development, manufacturing, sales, installation, and service. Whether those goals are met remains to be seen, but it’s clear that those businesses that specialize in designing, producing, installing, or servicing wind turbines, biofuel plants, advanced batteries, and solar cells stand to benefit. Overall, more than $5 billion will be invested in green energy in Michigan over the next 20 years.

But reaching the goal won’t be easy. Detroit Edison, the state’s largest electric utility, is investing millions of dollars to meet Michigan’s renewable-energy mandate. A good deal of that investment will go toward wind turbines — some 600 are planned. Studies show the most active areas of the state for wind are north and south of Traverse City, around Benton Harbor and St. Joseph, and in the Thumb area. While wind is typically strongest on the Great Lakes (where there’s less resistance from forests and buildings), placing turbines in the water is a colossal challenge, given the constructional, environmental, and infrastructural hurdles.

For Trevor Lauer, vice president of retail marketing for Detroit Edison and the utility’s point man for renewable energy, the task of meeting the mandates is herculean: “Do we build turbines in the most active areas for wind, which may not be near transmission lines, or do we build turbines in areas that have less wind, but are near transmission lines?”

Lauer and his colleagues are charged with navigating the complicated process for locating towers more than 325 feet high and equipped with turbines that span 230 feet (or some 475 feet from ground to blade tip). “We’re still working all of those details out,” he says.

In addition to finding the optimal location for the turbines that balances wind power against the cost of building transmission lines, Lauer must also get municipal approval for the infrastructure — and not every community is eager to host the imposing structures.

“There are a lot of NIMBYs (Not In My Backyard) out there,” Lauer admits, “so it’s not going to be an easy process.”

Currently, Detroit Edison has garnered easements across 70,000 acres of land, and needs to reach 100,000 easement-ready acres to meet the energy mandate. Alan Ackerman, a longtime real-estate attorney and partner of Ackerman, Ackerman & Dynkowski in Bloomfield Hills, says the transmission lines needed to upgrade the electric grid are the “new freeways of the future.” The utilities, he says, will be “massive users of land that will bring in new investment and taxes, but not every community is going to allow the turbines to be built.”

In preparation for a differently fueled future, Detroit Edison and Heritage Sustainable Energy in Traverse City installed two German-built turbines last fall at the emerging Stoney Corners Wind Farm near Cadillac. In total, up to 60 turbines — each one producing around 2,500 kilowatts of power — are planned at the site.

In addition, the wind farm and others like it require a substation to transfer the generated power to the electric grid. “On average,” Lauer says, “the wind needed to move a turbine occurs about 30 percent of the time on a given day. Plus, there’s generally less wind in the summer months when you need it to power air conditioners.” Because wind is sporadic, the substations are needed to provide a steady flow of electricity to the grid, which can’t handle a sudden spike or drop in power.

On average, it takes about four years to get a turbine up and running, including gaining community approvals. While Stoney Corners is moving forward, Lauer says the Thumb area, including Huron, Tuscola, and Sanilac counties, offers the most promise for wind turbines. He hopes to start construction of a wind farm in the Thumb area next year.

Lauer says that, apart from wind, Detroit Edison is working on a plan to install thousands of solar panels to help meet the renewable-energy mandate. In total, some 2 million square feet of solar panels are planned. Some solar arrays will be built on large parcels of land, while others will be placed on the roofs of expansive structures like manufacturing plants or schools.

“As we gear up to meet the mandate, people are going to see some very visible signs of progress,” Lauer says, “whether it’s wind turbines or solar panels. We have some very sophisticated financial models that we use to determine the direction of our green efforts.”

On the nuclear front, DTE unveiled a reactor design last year for a proposed plant next to its Fermi 2 site in Newport, Mich. The alternative-energy plan of the plant would reduce the creation of greenhouse gases by an amount equivalent to the emissions of 1.5 million cars, DTE says. The plant could plausibly replace the same amount of electricity generated by traditional U.S. sources.

But nuclear power, for all its benefits, doesn’t fall under the state’s green umbrella mandate.

Whether nuclear plants are considered a renewable energy source is open to debate, but it’s clear that over the last few years green has become one of the most popular buzzwords in the country — so popular that politicians utter it frequently in public to bolster their campaigns. Today, nearly everyone in America has adopted at least a small part of the green lifestyle. While some own green cars, others shop from an ever-expanding catalog of green products and services.

Still, executives like Michigan Biodiesel CEO John Oakley suggest that all this hype won’t solve the energy crisis or lead to the growth of alternative energies if it isn’t backed up with appropriate action. “If we were at all seriously engaged in the food-for-fuel debate,” he says, “there would not be one mile of interstate road system that had places where you couldn’t grow a crop. There would be crops on the median and on the shoulders of every road in the entire state.”

To augment availability and capacity, Oakley and his Bangor, Mich.-based company support added legislation to increase incentives, especially since only 100 service stations in the state offer ethanol pumps.

Dave Gloer, general manger of POET Biorefining’s corn-based plant in Caro — in Michigan’s Thumb — agrees that added legislation is crucial in the ethanol sector. “The problem we have is that the Environmental Protection Agency puts a 10-percent blending limit on corn-based ethanol,” he says. “For an industry where demand currently equals supply, it will be hard to grow unless the EPA changes that cap.” Increasing the cap to at least 15 percent, he adds, would allow cellulosic ethanol (made from abundant plants like switchgrass) to move beyond the development stage to the production stage.

As the green revolution finds its footing, proponents argue that renewable energy and energy efficiency cannot be total solutions. They say these should be pursued as a part of a bigger strategy that may involve the very source the country is trying to free itself of — coal — but a “new and improved” clean coal, which emits fewer environmentally hazardous compounds. That will have to wait, though, as Granholm recently put on hold plans to construct seven coal-fired plants in the state, including one near Bay City.

In her most recent state of the state address, Gov. Granholm directed the Department of Environmental Quality to evaluate “both the need for additional electricity generation, and all feasible and prudent alternatives before approving new coal-fired power plants in Michigan.” Her comments put into question the future of Consumers Energy’s proposed $2-billion, 830-megawatt, coal-fired power plant in Bay City. The utility estimates the plant’s net economic impact would be $1.2 billion and would create 1,800 construction jobs at peak, about 2,500 indirect jobs, and more than 100 permanent jobs once the plant is operational.

Nevertheless, key parties remain optimistic. “The governor hasn’t issued any hold on building new coal plants,” says CMS Energy spokesman Jeff Holyfield.

“[She] said before you get a permit, the utility [must conduct] a needs analysis and an alternatives analysis. We’ve done all that, and we’ve delivered our reports to the Michigan Public Service Commission and the Department of Environmental Quality.”

Several residents, along with the Michigan chapter of environmental-advocacy group the Sierra Club, supported Granholm’s decision, arguing that “the proposed coal plant will emit 8.1 million tons of carbon dioxide, 64 pounds of mercury, 1,820 tons of nitrogen oxides, 2,154 tons of sulfur oxides, and 911 tons of particulate matter each year.”

But, Holyfield counters, “The club has been on the record opposing any new coal-fired plants, so that’s not surprising. What we’ve been trying to explain to folks is that our new unit is going to produce 10 percent less emissions than the existing units. We’re even talking about retiring some of our older units after bringing the new unit online in order to have a net emissions reduction.”

Meanwhile, President Obama and the press relied heavily on the versatility of the “green” buzzwords to provide fetching sound bites to boost his presidential campaign; he was smart enough to link them to the real issues of his audiences. In Michigan, that issue is “jobs.” And he did not disappoint.

“We will invest $150 billion over the next 10 years and leverage billions more in private capital to build a new energy economy that harnesses American energy and creates five million green-collar jobs to assuage the nation’s economic and environmental woes,” he pledged at a rally in Lansing in August of 2008. But Obama never referenced this promise to any study or valid projections.

Until recently, hard numbers on the “new energy economy” were tough to come by. In response to the need for statistics, the Bureau of Labor Market Information and Strategic Initiatives published the Michigan Green Jobs Report in May 2009, making Michigan only the second state (after Washington) to release a scientific survey on the subject of green jobs.

According to the report, Michigan has 109,067 private-sector green jobs — 96,767 direct green jobs and 12,300 green support jobs. From a sample of 358 Michigan firms, the survey found that the green sector’s workforce increased by 2,500 workers from 2005 to 2008, a growth rate of 7.7 percent, compared with an overall statewide employment decline of 5.4 percent during the same period.

Reflecting on Michigan’s automotive heritage, the report reveals that clean transportation and fuel research compose 41 percent of the green jobs. It predicts that this sector will grow exponentially as the Big Three automakers, their competitors, and suppliers develop alternative fuel, hybrid, and electric vehicles in Michigan.

Michigan is already several strides ahead of most of the country in transforming its state economy to embrace the new energy vision — with metro Detroit at the center. The city and region are banking on decades of industrious leadership to develop blueprints for prosperity in the new energy era.

To assist the effort, the state recently invested $6 million in a Green Jobs Initiative that will convert a portion of its blue-collar workforce into a lean, green production machine. Under the No Worker Left Behind program, Michigan intends to provide the tools for green enterprises to prosper in the state by financing academia to facilitate green-sector skills that will offer investors trained, experienced manpower. The state is also providing millions of dollars in incentives for advanced battery research (around $550 million to date) in addition to mandating the use of renewable energy.

If it works, Michigan will have positioned itself as among the greenest economies on the planet. If it fails, the experiment will simply go down as a very expensive green gamble.

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