Power shifts

Government support has helped make Massachusetts a leader in clean-tech, but are the firms that have taken root here strong enough to survive looming budget cuts?

By Erin Ailworth
Globe Staff / July 24, 2011

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WHAT EXACTLY IS clean energy? In Massachusetts - one of the leaders in alternative energy policy - it is far from monolithic. The state counts at least 1,200 companies spread across several industries, from new-age batteries, to fuel made from plant waste, to technologies that help business and households use electricity more efficiently.

That diversity has been promoted by state and federal leaders offering subsidies to alternative technologies of all kinds, and pushing mandates to encourage their adoption. But the sector, which has depended heavily on government support, could be reaching a crossroads as Washington moves to slash multitrillion-dollar deficits, and states deal with their own tight budgets.

Just over a week ago, executives from several local alternative energy firms traveled to Washington to meet other industry leaders and discuss challenges to the sector, including competition for financing. Among the concerns: the future of ARPA-E, a federal agency that has doled out hundreds of millions of dollars to advanced energy projects across the country since 2009, and tens of millions in Massachusetts.

“One of the big challenges with the federal budget is whether ARPA-E is going to be funded,’’ said Peter Rothstein, president of New England Clean Energy Council, a trade group in Boston.

Ultimately, both government and venture capitalists may need to abandon scattershot approaches that seed an array of firms and begin to target investments - analyzing which companies, industries, and activities may have competitive advantages to succeed. As a result, all may not survive.

Here’s a look at key components of the Massachusetts alternative energy sector, and how they stack up:

Advance batteries and storage As the nation moves toward wind, solar, and other sources that produce electricity intermittently, the importance of advanced batteries and technologies to store this power is only expected to grow.

Massachusetts is already a leader in this area, with at least four of the industry’s best known firms, including A123 Systems. Headquartered in Waltham, A123 has more than 3,000 employees worldwide, including 300 in Massachusetts. Its high-powered, quick-charging batteries have been used in New York City buses, specially-adapted Priuses, and - most recently - regional energy grids.

Last year, the company opened two manufacturing plants in Michigan - which it built, in part, with nearly $250 million in federal stimulus funds. It hopes to become a major supplier for the automotive industry, which is launching electric vehicles. That expansion, in turn, has fueled growth in Massachusetts, where A123 does research and development, and designs large-scale energy storage systems.

David Vieau, the firm’s chief executive, said he’s heartened by this success, but concerned about the future of government support. “There’s momentum building, in particular, about getting off of foreign oil,’’ he said, “[but] that said, no one wants to spend any money.’’

Wind Wind, especially offshore wind, is likely the state’s most plentiful natural resource, according to Massachusetts energy officials. And with Cape Wind, the nation’s first offshore wind farm, slated to be built in Nantucket Sound, the state has attracted several prominent companies, including Vestas of Denmark, one of the world’s leading wind turbine suppliers. The company has a research and development facility in Hudson.

Governor Deval Patrick promoted the industry by mandating that the state have 2,000 megawatts of wind power capacity - enough for more than 525,000 homes - installed by 2020, attracting not only global companies such as Vestas, but also encouraging home-grown firms. In addition, the nation’s largest wind blade testing facility located on Boston’s waterfront.

Among the local firms is First Wind, a Boston wind farm developer founded in 2004 that now employs about 200, including 100 in Massachusetts. “That’s all on the back of these [government] policies,’’ said First Wind chief executive Paul Gaynor.

Solar power Since 2007, the number of companies installing solar panels in the state has quintupled to 270 firms from about 50, according to the Massachusetts Clean Energy Center, a quasi-public agency. That growth was prompted, in part, by government rebates for installing panels, and a state goal to have 250 megawatts of solar capacity - enough to power at least 37,500 homes - by 2017.

But whether a robust solar industry can emerge here remains unclear, given cost, weather, and other challenges that all manufacturing faces in Massachusetts. Evergreen Solar, the once-promising solar panel manufacturer that received millions in state support, is on the brink of bankruptcy, battered by competition with low cost producers in China.

At 1366 Technologies, a Lexington company that makes solar wafers, president Frank van Mierlo said such competition is positive, driving companies like his to develop super-efficient manufacturing processes that cut costs and prices, and ultimately increase market share. In the last few years, he said, solar panel prices have fallen by more than half.

“Not everyone will make it,’’ he said, “but that’s the price of progress.’’

Energy efficiency and demand response In Massachusetts, several companies focus on helping businesses and residents use energy more wisely. Two of the most prominent are Conservation Services Group, a Westborough nonprofit that works with utilities to conduct energy audits, and EnerNOC, a Boston company that pays customers to reduce energy use at times of peak demand, and sells that extra capacity to electrical system operators.

EnerNOC employs more than 600 people - with more than half in Massachusetts - and recently expanded into Australia.

Tim Healy, chief executive of EnerNOC, views EnerNOC and A123 - which both had successful initial public offerings of their stock - as “big, stable, stalwarts’’ that can anchor the clean-tech sector in Massachusetts. But, he added, “The clean energy industry is so diverse that it can sometimes play against us if we don’t have a collaborative voice.’’

Alternative fuels Despite several promising start-ups that make so-called biofuels from grasses, plant waste, algae, and other materials, the industry in Massachusetts hasn’t taken off yet.

Sue Hager, a spokeswoman for Qteros, a Marlborough company that makes ethanol from a variety of feed stocks, including grasses, said the industry’s slow development in this country is a result, in part, of lack of strong government support. Last year, for example, a state mandate to blend biofuel into heating oil and diesel fuel was suspended before it could begin.

Qteros wasn’t affected by the mandate because its fuel is a gasoline alternative. The company, which employs about 53 people locally, recently raised $38 million from private investors, and has talked with the state about creating a “center of excellence’’ to showcase technology at the company’s Chicopee production plant, Hager said.

Greg Bialecki, state secretary of Housing and Economic Development, called Qteros’s move toward commercial-scale production a sign that the state’s alternative energy sector is maturing.

“We’ve moved from R&D to pilot projects and demonstration plants,’’ he said, “That’s a very good sign that it’s not just an industry built on getting someone to pay for research.’’

Coal gasification Companies like the venture-backed GreatPoint Energy are developing technology to take coal, one of the nation’s most plentiful, but dirty fuels, and convert it into clean-burning gas.

GreatPoint, which employs about 30 people in Massachusetts and Illinois, had some early success and built a demonstration plant in Somerset a few years ago, with plans to sell the product locally first.

But the economy crashed, and new stores of North American natural gas were discovered, driving down natural gas prices and making GreatPoint’s manufactured gas less competitive, said chief executive Andrew Perlman. The company is now working in Europe and Asia.

Perlman said he still sees Massachusetts as the place to be because of its history of innovation and highly educated workforce. But its clean-tech sector still needs a lot of support.

“The biggest challenge,’’ he said, “is making sure that all the companies have enough money to get what they need in order to convince a big partner to come in.’’

Globe correspondent Alli Knothe contributed to this report. Erin Ailworth can be reached at Follow her on Twitter @ailworth.