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awareness of and need for specific resources, including skilled labor, and the extent of theirinvolvement in international markets.Of the 363 firms in ARC designated counties we contacted in the survey, 72 (20%) reported thatthey were involved in the solar or wind industry. The survey revealed a limited number ofmanufacturing firms that were potential suppliers to the solar or wind industry. Manufacturersare generally older, established firms with a small percentage of their domestic or internationalsales derived from the solar or wind industry. Few reported that the solar or wind industry wasthe primary function of the business. We found many more service providers that had thecapacity to serve as installers or distributors of renewable energy products, primarily toresidential customers. The barriers to market entry are lower for them than for theirmanufacturing counterparts. The workforce of established firms requires specialized training thatis transferable between making renewable and non-renewable products. The workforce ofemergent firms focuses mainly on installing, servicing, or selling renewable energy products, andrequires more general skills development.In Phase II, Part 3, we examine the policy environment in the region on a state-by-state basis andthe programs available to stimulate and support the development of renewable energy industriesin the region. The states are predominantly emphasizing conventional economic developmentpractices, including tax abatements, location incentives and grant and loan programs. Seven ofthe 13 Appalachian states have a renewable energy portfolio standard or goal. New York andPennsylvania have aggressive policies that encourage experimentation and demonstrate a varietyof innovative industry-state collaborative approaches to solar and wind energy development.Although nationwide policies that would promote wind and solar industry development havebeen proposed, nothing has developed thus far. States that do have rapid growth in solar or windinstallations and/or manufacturing have introduced a set of mutually reinforcing policies thatlower the initial capital outlay for solar or wind installations (e.g., feed-in tariffs, rebates, lowinterest loans, sales or property tax abatement), have a renewable portfolio standard (usually witha solar or wind set-aside), and/or have energy costs above the national average, thus shorteningthe payback period for these investments.The highly decentralized policy environment that is characteristic of the U.S. has impededgrowth of the renewable energy industry. States have myriad policies that are varied and subjectto change. Appalachia, more than other regions of the nation, is unlikely to emerge as a leader inthe global renewable energy industry due to insufficient incentives and the general lack of asupportive policy framework that would encourage industry development. The presence of somany firms that could contribute to the wind and solar industry supply chain in Appalachiameans that there is a great deal of potential for development of the industry, given the right mixof policies and incentives. In some states, wind energy is at grid parity with conventional energysources. However, in states with low energy prices, energy efficiency improvements are a morecost-effective way to reduce energy costs and avoid carbon emissions. Thus, it may make senseto focus policy, incentives, and resources on improving energy efficiency in the near term, whilecontinuing to encourage a policy environment that is more conducive for development of thedomestic wind and solar industry.7

PHASE I. INDUSTRY MARKET STRUCTURE, FORECAST, AND POTENTIALPART 1: THE SOLAR INDUSTRYDemand for Solar EnergySolar cell production grew 85% in 2008; 7.9 gigawatts (GW) were added worldwide. The topfive photovoltaic (PV)-producing countries are China, Germany, Japan, Taiwan, and the U.S.1Cumulative PV power installed worldwide jumped from 9 GW in 2007 to almost 15 GW in20082. Worldwide photovoltaic (PV) installations reached a record high of 5.95 GW in 2008.Spain led the world in new solar installations in 2008 (2,011 MW); Germany (1,500), UnitedStates (342), Korea (274), Italy (258), and Japan (230) follow in that order3. Cumulativeinstallations in the U.S. in 2008 totaled 9,183 MW, an increase of 16% from 2007. Californiaaccounted for the lion’s share of installations (178.6 MW). New Jersey was second ininstallations (22.5 MW). Colorado (21.6 MW) Nevada (14.9 MW) and Hawaii (11.6 MW) arethird, fourth, and fifth, respectively4.Germany has one of the highest electricity rates (cost/kWh) in the world, and is heavilydependent on imported oil. That explains why political support in the German parliament wassufficient to enact a strong feed-in tariff in 1999 (revised in 2004 and 2008). The feed-in tariffrequires utilities and other power providers to buy renewable energy at above market rates for upto 20 years. Thus, they pay owners of solar panels more for the energy they generate (viarebates) than the owners pay utilities or independent power producers (IPPs) for conventionalenergy. This subsidy is scheduled to decrease each year in order to encourage the industry topass on lower costs to the end users. The feed-in tariff in Germany is 0.50-0.60 USD/kWh. It islower in other EEC countries, but still substantial. Spain’s generous feed-in tariff prompted ahuge increase in solar installations during 2008. In September, the government significantlyreduced payments under the feed-in tariff and capped annual PV installation from 2009 through2010, aiming at a target of 3,000 MW by the end of 20105.One might expect demand to be highest where solar is most efficient; for example, where thehours/days of solar radiation per year (i.e., insolation) are highest, but this fact matters far lessthan government subsidies. Solar insolation in Los Angeles, California is 5.62 KWh/m2/daywhen a solar array is providing peak output; it is 2.63 kWh/m2/day in Hamburg, Germany6. Thisclearly suggests that Germany’s current leadership in cumulative solar installations is less relatedto insolation than it is to subsidies.1PHOTON International. (2009, March). Little smiles on long faces. PHOTON International, p. 170.Li, Y. (2009, June 20). Solar Power Experiences Strongest Year of Growth Yet. Worldwatch Institute.3LaPedas, M. (2009, March 24). U.S. lags in top 10 solar markets. EE Times.4Solar Energy Industries Association. (2009, March). US solar industry year in review.5RenewableEnergyWorld.com. (2008, September 29). Spain Makes Changes to Solar Tariff. Retrieved fromRenewableEnergyWorld.com.6NASA Atmospheric Science Data Center. (2009). NASA surface meteorology and solar energy data set. Retrievedfrom http://eosweb.larc.nasa.gov/cgi-bin/sse/sse.cgi? s01#s0128

In the U.S., investors in solar energy are allowed a 30% investment tax credit (ITC)7. Also mostforms of renewable energy are eligible for accelerated depreciation over five years. TheEmergency Economic Stabilization Act (October 2008) extended the ITC for eight years,removed the 2,000 cap on residential installations and allowed participation of utilities. TheAmerican Reconstruction and Recovery Act (February 2009) provides commercial businesseswith a cash payment to cover 30% of the cost of installing solar equipment. The Act also createda fund to provide up to 60 billion in loan guarantees for renewable energy and transmissionprojects8.Twenty-nine U.S. states and the District of Columbia have renewable portfolio standards (RPSs),which mandate that a certain percentage of renewable energy be available by a specific date9.Five states have renewable portfolio goals (Virginia, Vermont, North Dakota, South Dakota, andUtah). Liberal RPSs include those in California (20% by 2010), New Jersey (20% by 2020 ofwhich 1,500 MW must be solar) and New York (24% by 2013). Some states also offer cashincentives or rebates for solar investments. For example, the California Solar Initiative offerscash incentives up to 2.50 per watt (based on system performance) for installations on existinghomes in areas served by specified public utilities. California has set a goal to create 3,000 MWof new solar-produced electricity by 2017 at a cost of 3.3 billion. Solar must be offered as anoption on all new homes in 2011. Other states offer a mix of grants, loans and rebates to supportthe goals of their RPS.Several states also allow renewable energy credits (RECs) to be traded like commodities. RECowners can claim to have purchased renewable energy equal to 1 MWh of electricity that wasgenerated from an eligible renewable energy source. Buyers of RECs (e.g., utilities) raise thecost of producing conventional electricity (to comply with a state’s RPS) and subsidizeproducers of electricity generated from renewable sources (REC sellers).Subsidies are expected to remain in place in most countries until “grid parity” is reachedsometime around 2012. Grid-parity (when the price/kWh for solar is the same as grid-basedprice/kWh for oil, gas, coal) already exists in California and New Jersey, and in 15% of OECDcountries (for peak load rates). Solar demand in the U.S. is highest in areas with the highestprice/kWh, e.g., New England ( 0.14), Mid-Atlantic ( 0.11), and California ( 0.12)10. Mostnorth and south central states and southeastern states have low average cost per kWh ( 0.06 0.07), so there are fewer subsidies and less use of solar energy.7Database of State Incentives for Renewables & Efficiency (DSIRE). (n.d.). Retrieved August 25, 2008, fromhttp://www.dsireusa.org8Solar Energy Industries Association. (2009, March). US solar industry year in review.9Database of State Incentives for Renewables & Efficiency (DSIRE). (n.d.). Retrieved August 25, 2008, fromhttp://www.dsireusa.org10Think Energy Management. (n.d.). Electricity Costs. Retrieved from http://www.thinkenergy.net/electricitycosts.htm9

Solar Energy TechnologiesThe most common solar energy technology is based on the photovoltaic effect that wasdiscovered by A.E. Becquerel in 1830. This effect occurs in solar cells that are comprised of twolayers of semiconducting material: P and N-. The boundary between P and N- acts as a diode:electrons can move from N- to P but not the other way. The voltage difference can be used as apower source. The P and N- layers are created by doping silicon or similar materials with boronand phosphorous, respectively. Silicon-based PV cells (mono- and multi-crystalline) made up87% market share in 2007. Thin-film-based PV cells make up about 13% of market share11.The conversion efficiency (ratio of sunlight to energy produced) of mono-crystalline cells ishigher than for multi-crystalline cells12. However, multi-crystalline cells are cheaper to make.The conversion efficiency of thin-film is lower than for silicon-based cells, but they have otheradvantages. For example, they use much less material – the cell's active area is usually only 1 to10 micrometers thick, whereas silicon-based cells typically are 100 to 300 micrometers thick.Also, thin-film cells usually can be produced with an automated, continuous production process.Finally, thin-film material can be deposited on flexible substrates (e.g., metal, plastic, glass) thatenhance their utility, (e.g., integrated into roofs and windows). Major thin-film producers are:Uni-Solar and EPV Solar (uses amorphous silicon); First Solar (uses cadmium telluride (CdTe));and Heliovolt, Nanosolar, Miasole (uses copper indium gallium selenide (CIGS)). Thin-filmmarket share is expected to grow to 20% in the next four years13. Finally, concentrator PV orCPV uses Fresnel lenses to concentrate diffuse sunlight onto a smaller, but highly focused cell ormodule area (Amonix, Concentrix).Solar thermal is another solar energy technology. Concentrating solar power (CSP) uses mirrorsto heat fluids and thereby create steam that drives turbines. CSP projects are large-scale andexpensive, thus mainly utilities or large power producers use this technology. Differentcompanies use different types of solar thermal technologies, e.g., parabolic troughs (Ausra andSchott Solar), dish-Stirling engines (Stirling Engine Systems), Distributed Power Towers (LuzII). Solar thermal technology can also be used to heat hot water tanks and swimming pools(Heliodyne, Thermomax).Markets and ApplicationsBy far, the most common application of solar energy in the U.S. is electricity generation forprivate and public buildings (94% - See Table 1)14. This percentage includes crystalline-based,thin-film silicon, and concentrator silicon cells and modules15. The remaining 6% of applicationsinclude government and industrial, (e.g., street lights, roadside call boxes, telecommunications,water pumps, and health). Also included are space applications, (e.g., satellites).11PHOTON International. (2008c, March). The Q factor, Sharp and the market. PHOTON International, p. 140.Solarbuzz.com. (n.d.). Solar cell technologies. Retrieved from d, T., Grama, S., Wesoff, E., & Bhargava, A. (2007, August). The future of thin film solar. GreentechMedia and Prometheus Institute , 1 (1).14Energy Information Administation. (n.d.). Annual photovoltaic module/cell manufacturers survey, Form EIA-63B.15Although these figures are for cells and modules, they are a reasonable proxy for installed systems in the U.S. EIAdata show that 130,757 kilowatts (39%) were exported.1210

Table 1. Shipments of PV Cells and Modules by Application (peak kW)Application (end-use)ElectricityGrid ConnectedOff-GridCommunicationsConsumer GoodsTransportationWater PumpingOEMs16HealthTotalTotal (2007)Percent of Total 75.902.039.010.002.014.014.017.001100.00Source: Energy Information Administration, Form EIA-63B, “Annual Module/Cell Manufacturing Survey”On-grid/Off-grid. Utilities and independent power providers (IPPs) generate solar energy from acentralized location (large PV power plant or CSP plant) to customers in relatively populatedareas via state or regional grids. In such cases, solar energy generally supplements conventionalenergy, and is especially useful during peak loads when conventional energy is most expensive.Off-grid applications are

In eight of the 13 ARC states, 30% or more of solar-related employment is concentrated in one county. Additionally, single plants rather than small numbers of jobs are found in many counties. Part 2 presents findings from a survey of firms that operate facilities in the ARC region. These