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Competition Heats Up Among States for Clean Tech Dollars

Thursday, 1 Mar 2012 | 12:44 PM ET

Even as tax credits and funding from Washington dry up, U.S. states remain in a fierce competition for clean energy funding, especially from venture capitalists.

"States are putting all kinds of incentives for firms to open more operations like manufacturing, and that includes clean energy firms," says Roger Ballentine, president of Green Strategies, a consulting firm on energy and the environment.

"They're competing for federal and private-sector funds with tax incentives and loans."

There's even competition among cities within the same state for money, says David Cook, a partner at the law firm of Autry, Horton & Cole and specialist in energy law.

"When states get clean energy money, certain large local governments automatically receive funding, but other state entities have to apply and there can be competition for that," Cook adds.

What's pushing the drive for funds? Jobs, because of the still-rocky economy. Recent estimates show that the solar industry supports more than 100,000 workers across the country, while the wind industry supports some 75,000 to 85,000.

Those jobs, along with tax revenue, have politicians on both sides of the aisle seeing green.

Several state governments, now controlled by Republicans, are pressing ahead with some clean energy programs started by their Democratic counterparts. Arizona and Ohio are two examples.

Asked why they were continuing some of the plans,a spokesman for the Arizona governor's office said the economic benefits were "too alluring."

According to the National Governors Association, all but Georgia, Montana, Rhode Island and Wyoming have passed at least one clean energy policy since 2008. And according to a Congressional Research Service report, the U.S. has some 420 wind component manufacturing facilities in 43 states.

To capture the green funding, states are offering manufacturing tax breaks, grants for clean tech start-ups and worker training programs. States themselves can act as a private entity because up to 30 percent of a state's clean energy funding from the federal government can be used for private activity.

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The clear winner in the race is California. With its tech-based economy, the Golden State drew more than $3.8 billion in venture capital in 2011. That's up from $2.9 billion in 2010, according to the Cleantech Group. Next was Massachusetts with $542 million in venture capital, up from $426 million the year before.

The states with the best chances are those with energy policies, says Tony Clifford, CEO of Standard Solar, a developer and installer of solar systems in six mid-Atlantic states.

"Maryland, where we're based, has good solar energy incentives, but if you look at Virginia right next door, it doesn't," Clifford says. "You don't even need sunshine. Germany doesn't have much of it, but it's a leader in solar energy because of its policies."

While there is still money for which to compete, there has been a rethinking of the whole clean energy market, says Green Strategy's Ballentine.

"The dynamic has changed since 2009," he says. "There's a bit of a de-emphasis on investing in green, simply because some very high expectations have not been met. Some of the money is now going to more later-stage companies rather than start-ups. So the competition among states for money has narrowed somewhat."

While no one is predicting the demise of a green economy in the U.S., some rough moments lie ahead.

Congress has allocated some $3.2 billion in bonds to fund energy programs for states. But tax credits for energy-efficient homeowners expired at the end of 2011, as have some renewable energy grants. A tax credit extension of wind production has stalled in Congress. The current 30 percent tax credit for installing solar panels in homes ends in 2016.

What that means is the clean energy industry may have to find ways to survive on its own.

"Losing tax credits like the one for solar panels won't help," says Clifford. "But with the cost of energy going down because of what we're doing, there's a good chance we can be self-sufficient as an industry by then."

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