Sunday, June 07, 2009
By Winthrop Quigley
Copyright © 2009 Albuquerque Journal Journal Staff Writer
For years, New Mexico has been trying to create its own version of Silicon Valley, that cluster of semiconductor and computer companies surrounding San Jose, Calif.
The latest effort to create an industry cluster here — and the long-term economic growth and jobs that would come with it — centers on solar energy companies.
The effort is still in its early stages. Economists estimate it takes about 10 years to create an industry cluster. State Economic Development Secretary Fred Mondragón says that we are at about Year 2.
But results are so far promising.
Three out-of-state solar energy manufacturing companies are setting up what the companies say will be significant operations in New Mexico, joining homegrown Advent Solar and locally headquartered Emcore.
Mondragón said that, in the past four months, between three and five alternative energy companies a week have come to New Mexico to explore commercial prospects.
Most are solar energy companies, and many come from Germany and Spain, two countries with significant solar industry activity.
Even more promising is the reason at least two of the companies — Schott Solar and Solar Array Ventures Inc. — decided to locate in New Mexico.
While Schott, a unit of a German conglomerate, and SAVe, a startup from Austin, received millions of dollars in incentives from state and local government here, they got good offers elsewhere. They said New Mexico had the work force, the technical skills, the educational system and the business climate they were looking for.
Industry clusters are what Harvard University professor Michael E. Porter, an expert on business competitiveness, describes as a critical mass of companies "of unusual competitive success in particular fields."
They become unusually competitive because, when similar firms cluster, each firm's productivity improves, Porter wrote in the Harvard Business Review.
Clustering similar companies in an area gives each one better access to employees and suppliers, which lowers the cost of finding people and parts. Clusters spur innovation. They allow more efficient use of infrastructure like roads and power grids. They stimulate creation of local suppliers.
Places like New Mexico are so interested in industry clusters because, as Porter put it, "many new companies grow up within an existing cluster rather than at isolated locations."
Clusters abound in all sorts of industries in all sorts of places.
Manufacturers of cardiovascular equipment have clustered in Minneapolis. Pharmaceutical companies are clustered in eastern Pennsylvania and southern New Jersey. Despite state and local efforts to create a light aircraft cluster in Albuquerque, the aviation cluster remains in Wichita.
Clusters also take time.
The first Silicon Valley semiconductor company, Shockley Semiconductor, was founded in 1956 in Mountain View, Calif. Intel was started by former Shockley and Fairchild Semiconductor employees 12 years later.
New Mexico has spent millions of dollars on solar energy technology companies:
• Signet Solar, which is building a plant in Belen, received $38 million in tax incentives.
• The state invested $17 million in Advent Solar, based at Mesa del Sol.
• Schott Solar received $130 million in government incentives to build a factory, also at Mesa del Sol.
• Solar Array Ventures, slated to build a factory west of Albuquerque, will benefit from a $175 million industrial revenue bond issue and a $15 million revenue bond issue that will pay for water and sewer lines to the plant.
• The state Legislature has appropriated millions of dollars in capital outlay money to build infrastructure to support new solar technology plants.
In return, if things go as planned, Solar Array could employ 1,000 people, Schott could employ 1,400, and Signet could employ 600.
Advent Solar has demonstrated that things don't always go as planned.
In three rounds of layoffs starting in September 2007, Advent has let go 150 workers to reach a 39-member work force early this year. The company had hoped to employ 1,000 people by next year.
Christian Ketels of Harvard's Institute for Strategy and Competitiveness said government's use of big tax incentives to lure companies can be "a problematic sign."
"Using tax breaks as a tool to create a concentration of companies from a given sector in a place where they would otherwise not have gone has a high likelihood to fail," Ketels said in an e-mail exchange with the Journal.
The community has to offer companies a chance to be more productive, he said.
That seems to be what the solar companies are finding in New Mexico.
"It was not just about the money," SAVe Chief Executive Officer Joe Hudgins said Thursday in speeches to business leaders in Albuquerque. "We were offered better money elsewhere."
If all New Mexico had to offer was tax incentives, Schott would never have come here, said Gerry Fine, Schott North America president and CEO.
He said Schott looks at lots of factors:
"Are we near the markets we serve? There is no point in building factories 3,000 miles away from the sun.
"Do we have access to a work force that's available and exemplary for doing the job we need done? Are there trained, available people? Are the educational and social infrastructure in the region capable of supporting us in the long term?
"Can we come up with adequate training programs with the university? Is there a steady supply of graduates with advanced degrees or engineering degrees?
"Are we in a location that actually has favorable renewable energy policies? Does it look like a place where we can do business?
"In New Mexico, a big question was could we get the plant erected quickly? Were there construction firms available? Was the city of Albuquerque able to give us a building permit quickly?"
Fine knew Schott was onto something in New Mexico when he looked at Intel's activities here.
"What I saw was a large semiconductor fab in Rio Rancho employing multiple thousand people. That was proof to me the labor force was capable of doing the job."
Even better, he said, was that Emcore, Advent and Eclipse Aviation "seemed to be having good experiences in Albuquerque. You can be certain we talked either overtly or covertly with people from many of those companies."
The University of New Mexico and Central New Mexico Community College are producing "a stream of employees who are more than qualified to work in our factory. We're seeing workers coming out of places like Intel and even Sandia National Laboratories, all of whom have the kind of skills and technical background we like."
Hudgins said Albuquerque Economic Development made it easy for SAVe to get up and running in Albuquerque, which shortened the company's time to market.
"In other places, it was like pulling teeth," he said.
There are a lot of hurdles ahead for the solar industry and for New Mexico's cluster development efforts.
Fine said solar manufacturers have to come up with products that compete with conventional energy sources even if government incentives to encourage solar energy use disappear.
The Wall Street Journal recently reported that the global recession has forced European governments to curtail subsidies for solar manufacturers and banks to stop financing some major solar projects. Demand for solar energy products is dropping globally.
Mondragón said solar companies need a local supply chain if the industry is to become productive enough to be a cluster.
The cluster could use New Mexico-based manufacturers of silicon material and mirrors.
Mondragón said it isn't likely New Mexico will attract a silicon manufacturer, but glass companies in the Pittsburgh area "are interested in locating here," and Schott has introduced state and local industry recruiters to European suppliers who might become part of a solar cluster in New Mexico.
Outgoing University of New Mexico engineering Dean Joe Cecchi said alternative energy needs help from electric utilities and policymakers to succeed.
Taxes, utility rates or other mechanisms need to capture the environmental and societal costs of carbon so alternatives like solar can compete fairly, he said. Utility infrastructure has to be designed more intelligently to use alternative sources more efficiently.
There are, however, "lots of reasons to be optimistic," Cecchi said. "There is such a pressing need for alternative energy. Sustainable energy broadly is where the semiconductor industry was in the 1970s, meaning barely on the radar screen."