Sector Overview:

Solar Power - The State of Arizona has the potential to become what some have called the Saudi Arabia of solar energy. Geographically, the State encompasses over 113,000 square miles of land, most of which sees more than 300 days of sunshine a year. In 2002 the National Renewable Energy Laboratory found Arizona to have 101 million kilowatt hours/year of potential solar energy. It would seem that given Arizona ’s geographic location and weather conditions, the State would be a national leader in the solar energy market.

Yet research shows Arizona to be one of the most sluggish states in making renewable energy a reality. Among the 24 states cited by the US Department of Energy as having initiated a Renewable Portfolio Standard (RPS)[1] Arizona ranks among one of the least-aggressive states in the pursuit of alternative energy, with an RPS of 15% by 2025. Compare this figure to that of the State of New Jersey which has an RPS of 6.5% by 2008; or the State of California which has an RPS of 20% by 2017. Markets like California, New Jersey and Nevada, which have much more ambitious Renewable Portfolio Standards and buy-back programs, are often chosen over Arizona by investors for large megawatt plants, commercial projects and extensive residential installations.

One reason for this can be seen in the "Solar Roadmap" initiated by the Arizona Department of Commerce. This ’road map’ shows the solar Kw/H price for Residential Photovoltaic Systems not even becoming close to the current retail price of electricity until 2020, thus stunting the possibility of large-scale residential grids for at least another 12 years. Arizona consumers enjoy relatively inexpensive coal-generated electricity which impedes consumer demand for more expensive alternatives.

The solar industry in Arizona is a relatively new market, and while solar power is not necessarily a new concept, the efficiency of the production of these technologies is improving. Further, given the sheer amount of sunlight the Arizona landscape is exposed to each year, Arizona could become prime real estate in the solar power market.

Given the relative infancy of the Alternative Energy market, and in particular the use of solar power, there are very few statistics available regarding the economic impact that this sector would have on the Arizona economy. Research has shown, however, that in the next 20 years, the predominance of the solar energy market in Arizona will increase significantly.

The Arizona Department of Commerce has laid out an 18 year "Solar Roadmap" in which projections for the Arizona economy includes the creation of 3,000 new, solar-related jobs as a means to produce 1,000 megawatts of solar installations. The majority of these 3,000 positions are projected to be in the installation and construction market, while a much smaller percentage (around 17%) are projected to be filled by manufacturing and administrative positions.

It is still important to note that while the State of Arizona is lagging in the renewable energy race, it is a State that at least is in the race. A couple of things should be noted; firstly, Arizona, while lacking in its renewable energy ambitions, plans to fulfill a large percentage of its Renewable Portfolio Standards with solar power.

As such the Arizona Department of Commerce projects potential preliminary funding of around $60 million per year, much of which could be used for solar energy development. Further, the Arizona Corporation Commission sees this number growing as the various stages of the "Solar Roadmap" are actualized over the next 18 years.

Secondly, Arizona has a vast amount of State Trust Land and Tribal Land that may be well suited for large-scale commercial installations. Currently there is a smattering of large-scale commercial installations in and around Phoenix and Tucson, but these seem to be the exception in the energy market and not the standard. Arizona Public Works, for example, has more than 15 installations around the State, yet all of these combined only generate approximately 5 megawatts per year.

Residential and commercial photovoltaic (PV) installations seem to be the most predominant commodities in the solar energy sector. Arizona ’s population has grown over 20% in the last 6 years and now it is the fastest growing State in the Nation. While the aforementioned issues pertaining to the cost of residential PV installations could stunt market growth for the next 12 years, there is an immediate need for commercial installations in both the private and governmental sectors.

For example, recently, a large law firm in Phoenix, Arizona installed a 110,000 kWh PV system to supplement its energy consumption and received supplemental subsidies from State level programs in the process. In addition, at the residential level, if the benchmarks in the Department of Commerce’s "Solar Roadmap" are met, by 2020 the price of a residential PV system in cents/kWh will be close to that of the retail electric rate, creating a better competitive advantage in the market, which in turn could create a huge demand for standardized residential PV packages. In keeping with the Arizona focus on Solar power the Arizona State University Photovoltaic Testing Laboratory (PTL) is the only one of its kind in the United States. The PTL serves as a testing lab by which private companies can undergo systemic testing of their photovoltaic technologies for national standards requirements; Canadian technologies are in place at this testing center. Qualification testing takes 90 days and there is a long list of clients on the waiting list.

Wind Power - Among the many sources of Alternative Energy, the ability to harness the wind for energy generation remains one of the more provocative solutions. Much like the solar market, the wind power market is still in its infancy, however, if enough foresight is achieved, there is real opportunity for Canadian industry. Research shows that the global wind power market is growing, as the American Wind Energy Association (AWEA) estimates that wind installations worldwide will total more than 100,000 megawatts over the next decade, or more than $100 billion worth of business.

In 2006, the National Renewable Energy Laboratory (NREL) published a new wind resource map for the State of Arizona . This map indicates that Arizona has wind resources consistent with utility-scale production. The larger contiguous areas of good-to-excellent resources are located in northern and eastern Arizona . However, there have been numerous setbacks at the State level in Arizona to make utility level production a reality.

Currently Arizona’s focus on wind power remains on the privatized level. While the State does have the Wind Working Group, a State-level think-tank formed under the auspices of the Federal Wind Powering America Program, is still in the beginning stages of developing a wind power plan for the state of Arizona . There is one major company in Arizona to represent the wind power market, Southwest Wind Power is the world’s largest manufacturer and distributor of small-sized wind turbine installations and has virtually no competition in the Arizona market. Canadian companies looking to penetrate the Arizona wind power market would benefit from focusing on small, privatized distribution to the northern and northeastern sections of the State.

Biomass - Arizona’s biomass production takes advantage of the State’s highly productive farmlands and forests, as well as its numerous gaseous landfills which produce high amounts of transmutable chemicals all of which help to produce over 72 megawatts a year of energy. In August of 1999, the City of Tucson and Tucson Electric Power funded a 5.5 megawatt landfill gas system at the Los Reales Land Fill. In 2002 the Salt River Project (SRP) entered into an agreement with the Salt River Maricopa Indians to purchase gas from landfills on tribal land, which generates 4 megawatts of electricity.

Much more energy could be produced from the large amounts of forest in northern Arizona , however, economic considerations and governmental regulations are the largest impediments to effective use of these resources. In 2005 a US Department of Agriculture grant worth $16 million dollars was awarded to Arizona to help build a $53 Million, 20 megawatt biomass plant in the White Mountains known as Snowflake White Mountain Power (SWMP). The plant is being built with a new Babcock and Wilcox (Ohio-based engineering firm) bubbling fluidized bed boiler being built specifically to meet the fuel makeup at SWMP. Much of the SWMP plant’s other components (conveyors, screw presses, etc.) are being acquired from an idled paper facility in Houston, Texas. Fuel for the biomass plant will come from two sources; woody waste material from surrounding National Forests and waste recycled paper fibers.

These paper fibers will be acquired and supplied by a large Canadian firm, Abitibi-Consolidated, a newsprint and recycling firm that has a plant in Snowflake, Arizona with 440 employees, produces 356,000 metric tons of standard recycled newsprint a year. Currently most of the biomass technology is imported from other states which have had experience building biomass facilities.

Air Pollution - On February 7 th, 2007 Arizona Governor Janet Napolitano and State Senator Carolyn Allen unveiled a joint effort to address air quality issues in Arizona and passed a comprehensive piece of air quality legislation in the Arizona Legislature, Senate Bill 1552. Included in this Bill was a measure to expand the use of clean-burning, low-emission fuels in the areas of Arizona that are seeing the fastest growth. The Bill was conceived not a minute too soon as Arizona is facing two tight federal deadlines to show actions taken to reduce emissions of particulate pollution and meet the new, National Ozone Standard by the end of 2008 and for 10 years thereafter. In particular, Maricopa County, which represents the Phoenix metro area, has continually failed to meet the National 8-hour Ozone standard. Thus the State is under severe pressure to meet these standards as a failing grade in the National Ozone Standard could mean Federal sanctions on highway funding.

Water Management - In 2005 the Arizona Water Initiative (AWI) was announced by the Governor’s Office. The AWI combines the expertise of the State’s water managers and industry with the resources of the three State universities to support water resources management and technology development in real-world applications. This initiative was formed in an attempt to make Arizona a worldwide leader in water sustainability in a number of areas including research, education and commercialization of water sustainability products.

Arizona as a State is currently in the middle of a full-scale drought. Records of drought and winter precipitation levels show dry episodes that are longer and more severe than others that have occurred within the last 100 years. Scientists have found that in Arizona , notable multi-year droughts have occurred in every century over the last 1,000 years. Such droughts are often characterized by low levels in most of the large rivers in Arizona, including central rivers such as the Salt River and the Northern Colorado River Basin. These cyclical drought conditions have begun to take their toll on Arizona communities in relationship to ground water. Hence there is an increased reliance on the Colorado River , which is experiencing its own declining levels in parallel with the underground aquifers in the cities of Tucson and Phoenix .

These facts, in conjunction with the enormous amount of growth in the last 10 years in the State of Arizona , mean that Arizona is facing an impending water crisis. Current underground aquifers are not recharging at a rate that is sufficient to meet projected growth consumption. The Arizona Drought Preparedness Plan was adopted in October of 2007, which is a State-level regulatory Commission designed to monitor, plan and respond to drought conditions. This commission is focused on three main components of drought preparedness; potable water, drought preparedness and operational drought planning.

Market and Sector Challenges:

The Alternative Energy market has come out of the shadows and is now considered one of the strongest growing markets in the United States economy. Perhaps one of the most interesting aspects of this market is that there is not simply some niche technology that will come to dominate this sector; instead the market will be comprised of a diverse collection of various technologies that fit the various geological and meteorological nuances of the locations in which they are needed.

There are a number of issues that are currently affecting the Alternative Energy market in the United States, but perhaps the most crucial at this early stage is regulation. While it is true that the State and Federal incentives have bolstered this sector in recent years, many say that still not enough is being done. Most technology available is new, expensive, and requires a long-term investment to start realizing cost benefit. As such, more legislation needs to be enacted on both the State and Federal levels to provide strong and encouraging incentives to both the private and commercial consumer. Yet putting the future of any market into the hands of legislatures is risky and competing objectives between the State and Federal levels of government could produce some very uncertain market conditions. However, much of the legislative influence on the sector may be reduced when technologies have evolved to produce a more competitive cost per kilowatt-hour product for the consumer that can offer a viable alternative to more traditional sources of energy.

The State of Arizona, like many other states in the United States, has worked over the last few years to develop alternative energy plans. Arizona is one of 28 states in the US that has initiated a Renewable Portfolio Standard (RPS). Arizona’s RPS target is that by 2025, 15% of the energy generation in the state will be produced from alternative sources, and of this, 30% will be from distributed sources divided evenly between residential and commercial. What this means on the business end is that Arizona, over the next 18 years, will be actively seeking new and innovative technologies to produce alternative energy.

Clearly since electricity rates (traditionally-produced compared to alternatively-produced,) will take years to align, one issue that governments can address is support for the capital cost of alternative systems. For example, a typical 3 megawatt residential solar system costs about $21,000, clearly a significant investment but with no positive ROI for about 15 years. Furthermore, as the price of building lots escalates, Arizona is seeing a move away from the traditional single storey, flat roof, design to two storey, pitched roof architecture, seen more commonly in the north. This will further impede the efficiency of solar systems as they are currently offered in this market which already suffers from diminished utility due to the intense summer heat.

Canadian Participation:

Canadian participation in the Alternative Energy market in Arizona has been limited, yet opportunities for Canadian penetration into this market are very possible. Given the aforementioned facts, one can see that Arizona is a State that is actively looking for ways to diversify and purify its energy portfolio, which in turn means that businesses capable of meeting these needs have the potential to generate long term service contracts. Research has shown that opportunity exists for the supply of solar concentrators.

In another example a large Canadian engineering firm recently actualized this potential, receiving two large public contracts for water remediation projects in southern and central Arizona. In another example of Canadian participation in the renewable energy sector, one can look to the Arizona wind power market. Canadian participation has been strong in the wind power market, largely due to Western Wind Energy, a publicly traded company based in British Columbia . Over the last few years Western Wind Energy has managed to broker some of the largest wind generation installations in the United States, including a $700 million installation in Tehachapi pass, California. It has expanded its agreement with Arizona Public Service to more than double wind power generation at Kingman Steel Plant and is the first wind energy company to sign a Power Purchase Agreement with the State of Arizona. Discussions are ongoing related to the development of one of the largest wind power generation sites in the United States in northern Arizona.

In the solar power sector, the Canadian company Carmanah has launched itself into the Arizona market. In 2005 Carmanah won a request for production from the City of Tempe to supply up to 40 of its i-SHELTERTM solar-powered LED lighting systems to the City’s new bus shelters. The RFP is worth $535,000 over 4 years. In addition to various levels of commercial participation, there has been substantial Canadian participation in Arizona in the area of alternative energy research and development. Perhaps the most innovate case is that of Solar Hydrogen Energy Corporation (SHEC). In 2004 SHEC built its first solar reactor in Phoenix, Arizona to test its hydrogen conversion technology using its proprietary Solar Thermal Chemical Process. Using the Arizona sun, the team was able to extract Hydrogen from water at a temperature of 850 degrees Celsius, this was a landmark result in the field of hydrogen conversion.

Further, hydrogen and fuel cell research collaboration is taking place between NRC in Vancouver and the Sandia National Laboratory in New Mexico. Opportunity exists for enhanced research partnerships between Canadian centers-of-excellence and the Water Resources Research Center in Tucson, a world leader in hydrology and all matters pertaining to water management.

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Excerpts from: Alternative Energy Sector Profile - USA, Arizona, Canadian Trade Commissioner Service, January, 2008.