Yes, it’s sunny here.
But Arizonans are learning that it takes more than blazing rays to make Phoenix the “solar capital of the world.”
The Sonoran Desert is among the most efficient spots on Earth for solar power plants and rooftop solar arrays. State requirements for utilities to get 15 percent of their energy from clean sources by 2025 also would seem an opportunity for solar manufacturing.
But most solar panels, mirrors, frames and other equipment are made elsewhere. In case after case, the state has fallen short of the competition. At least 10 companies have looked at Arizona in the past two years but decided to move their factories and about 4,500 workers to other Western states.
Business experts say the state needs to use some of the tax credits and other tools used by those other states to diversify its housing-dependent economy and deliver the state high-paying manufacturing jobs.
Some business leaders and politicians have made it a mission to grow Arizona’s solar industry, saying it could anchor a strong economy.
“Just because it’s sunny doesn’t mean we are going to get solar companies here,” said Rep. Michele Reagan, a Scottsdale Republican who is co-sponsoring a renewable-energy manufacturing-incentive bill with Sen. Barbara Leff, R-Paradise Valley.
“We have not capitalized on any industry in the solar arena or renewable energy at all.
“If you’re a company and you are trying to decide what state to move to, and some states are embracing you with open arms and you’ve got Arizona saying, ‘We are not doing anything,’ which one are you going to pick?”
Tough competition
In recent years, several states have offered financial incentives to the fledgling renewable-energy industry, helping to establish factories.
With the industry getting much more attention under President Barack Obama, and with nationwide calls to produce more clean power, the future of those factories is looking brighter.
The federal government’s economic-stimulus package includes $50 billion in spending and $20 billion in tax provisions for alternative energy that should spur the industry even further.
With other manufacturing operations shedding their U.S. workforces, renewable-energy jobs are increasingly attractive.
Nevada, California, Colorado, Texas, Oregon, New Mexico and Tennessee all have successfully courted solar manufacturers to their states.
Oregon, for instance, offers a 50 percent tax credit to pay construction costs for renewable-energy equipment manufacturers. Development officials say it has helped them land seven international solar manufacturers in two years. Most of those companies had considered coming to Arizona.
In the Midwest, Ohio is offering low taxes and incentives such as job-creation tax credits.
And just next door to Arizona, New Mexico is looking to set itself apart.
When Gov. Bill Richardson formed the state’s economic recruitment team in 2003, renewable energy was one of its primary targets.
The state landed Advent Solar Inc. after that company licensed technology from New Mexico’s Sandia National Laboratories in 2003.
Advent opened a small manufacturing and research facility in Albuquerque that began production in 2005.
Then the state’s economic development team successfully used $130 million in a variety of tax incentives to recruit Schott Solar from Germany to build a plant near Advent.
In December, the state announced that Signet Solar of California would build a manufacturing plant south of Albuquerque that could qualify for as much as $185 million in tax incentives.
Both Schott and Signet also had considered sites in Arizona.
New Mexico doesn’t just sweeten the pot with tax benefits. It also provides reimbursement to companies for job training and helps foot the bill for infrastructure needs.
When Schott Solar announced last year it would build a plant in Albuquerque, it not only qualified for all the state’s tax breaks, but the governor said he would ask the Legislature for an additional $12 million to pay for infrastructure. The city itself kicked in $1 million.
“When I was in Phoenix, we didn’t consider New Mexico competition,” said Jim Colson, a former economic-development official for New Mexico, Glendale and the Greater Phoenix Economic Council. “That has shifted. Now, New Mexico doesn’t consider Phoenix competition.”
How Arizona rates
That sun-soaked Arizona isn’t leading the solar-manufacturing frontier perplexes some experts in the field.
The state is often one of the first places looked at by executives shopping for factory sites. But financial analyses usually keep Arizona off the short list when companies make their final decisions because the cost of doing business in other states is lower once incentives are factored in.
Arizona traditionally has shunned tax incentives and relied on its climate and population growth to drive industry.
Some oppose tax benefits for a few when they believe an overhaul of the tax code is needed to lower taxes on all businesses. When similar incentives were proposed last year during the final weeks of the legislative session, they didn’t pass.
“Arizona should be more competitive than it is,” said Colson, now president of site selection for Austin-based Angelou- Economics Inc.
With AngelouEconomics, he helps companies decide where to open new facilities, including solar companies trying to decide on U.S. locations.
“I’ve had several projects where Arizona was included in the mix, and it didn’t stay there very long,” he said. “It wasn’t all because of the lack of incentives. The property-tax impacts were significant when comparing it to its neighbors.”
The business property tax rate on a factory not in an enterprise zone is 2.95 percent in Arizona. Oregon has the next-highest rate in the West, at 1.52 percent. Rates are 1.13 percent in Nevada, 1.03 percent in New Mexico, 0.5 percent in California and 0.6 percent in Colorado, according to Scottsdale-based Incentives Advisors, which analyzed the effect incentives would have in Arizona.
However, some of those states have higher levies than Arizona for corporate income, unemployment or other taxes. Incentives Advisors concluded that the tax incentives proposed at the Legislature would make Arizona more competitive for solar-manufacturing factories.
Such incentives can help level the playing field.
When a state has a particular weakness, such as a high commercial property tax, tax credits and other incentives can be the final factor that drives a factory to that location, said Andy Mace, a principal with Cushman and Wakefield Consulting in Pennsylvania.
“It’s not always the place with the most incentives that wins, it’s the place with the total lowest cost of operating,” Mace said. “Over 10 years, where will I spend the least on labor, land, energy and transportation?”
Arizona has strong selling points, such as its weather and a workforce with manufacturing skills. But factories require expensive buildings, lots of energy and hundreds of employees, making the economics much more important than, say, a corporate headquarters that simply needs office space for a few dozen employees.
“If you’re comparing Portland, Albuquerque and Phoenix, I know I can get real estate, labor, transportation, they’re all within one or two points of each other,” Colson said. “Then I overlay the incentives on top of that. Albuquerque jumps up, Portland jumps up and Phoenix actually goes down.
“That’s why the Greater Phoenix region is not winning these projects.”
Arizona’s odds
Economic development officials say the solar industry isn’t likely to spread evenly over the country but grow around those cities established as hubs.
They say Arizona still has a narrowing chance at being one of those hubs.
“Right now, there are 11 companies looking to decide (on factory sites) this year,” said Barry Broome, president of the Greater Phoenix Economic Council, a proponent of the incentive bill. “We may be in or out (of the industry) after two quarters.”
Arizona has an available workforce, mostly because of continuing job losses in the semiconductor and construction industries.
The state not only represents a large market for solar devices but is next door to California and its large population. Transportation is on par or better than some of its competition.
The research taking place at Arizona State University, along with the recently upgraded solar-testing lab there that international companies use to certify their products, also are among its strengths.
But those pluses haven’t added up to much yet.
Arizona hasn’t had any major solar manufacturers move to the state. It boasts a few, small, homegrown companies and some German manufacturing companies that have opened small factories near Tucson.
Even the companies that have so far passed up Arizona for factories say the state is a potential home of solar manufacturing.
“I can’t fathom why this isn’t a hotbed of solar activity,” said Peter Green, president and chief executive of Advent Solar in Albuquerque and a former executive with ON Semiconductor in Phoenix.
But Green said that building a solar-manufacturing industry in Arizona will be challenging.
He agreed, when asked, that even if the tax-incentives bill passes, the state lacks the strong political backing, the money for sweeteners such as infrastructure improvements, and the word-of-mouth industry buzz that help foster a solar industry.
“I think it is going to be a struggle,” he said.
Reach the reporter at ryan .randazzo@arizonarepublic.com.
Other states eclipse Arizona’s efforts to lure solar industry