Laying the Foundation for a New Michigan Economy

Green Growth: Smart Polices, Technologies, and Markets

October 21, 2010

Presented by :Amy A. Butler, DirectorBureau of Energy SystemsDepartment of Energy, Labor, Economic Growth

Focus

• Michigan: A defining moment

• Today…and Tomorrow

• Challenges

• Moving Michigan Forward

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A Defining Moment…

•Montcalm County city of 8,000 loses appliance manufacturer.

•Loss of 2700 jobs.

•“Working with the Greenville community and the UAW, we

offered Electrolux an incentive package that was

unprecedented,” the governor continued. “Electrolux

thanked us for our proposal, but said nothing could change

its mind because in Mexico, Electrolux could pay wages of

$1.57 an hour.

•The world had changed, and we needed to change, too.”

Today and Tomorrow… the trends

Significant Job/Industry Losses:

Michigan has lost nearly half its manufacturing employment since June 2000

13 % unemployment rate

Detroit 3 in jeopardy

15M units produced in ‘07 including 9M light vehicles.

Light vehicle production was forecasted at 4.5M in ’09 on pace for 9M in ‘09

77% market share in 1997 now below 50%

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Financial Challenges

• Declining collateral values– Typically 80% over past 18 months

• Declining cash flows– Due to declining revenues and industry

uncertainty

• Inability to finance receivables– Due to Chrysler bankruptcy and GM bankruptcy

• Red lining of banks by sector and geography

“It is estimated that OESA members have $8B in unmet financial needs” -- Original Equipment Supplier Assoc.

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Governor’s Response…

Create a Plan for a New Economy

To Create jobs must diversify our economy.

Target Specific Economic Sectors

Clean energy, Advanced manufacturing, life sciences, homeland security and defense, the film industry and tourism.

Train Workers for New Jobs

Created No Worker Left Behind Program

Build New Partnerships

Government, Business and Local Communities

Michigan: Center of North American Tool & Die Industry

•One-sixth of all U.S. tool & die companies are located in Michigan

[17%]

• 1 out of every 5 tool & die makers work in Michigan

• Two main tooling centers– Detroit – Grand Rapids

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Inventory of Assets – Tool & Die

Inventory of Assets: Critical Infrastructure

• 10,000+ manufacturing firms--R&D, design, engineering, product validation/testing, machining, fabrication, automation and assembly

• Manufacturing infrastructure within 500 miles of half of North America’s population and income

• This infrastructure and intelligence is the backbone for critical U.S. manufacturing industries 5

Inventory of Assets: Skilled Workforce

Graduate more engineers than 46 other states and home to the 4th largest high tech workforce in U.S. Michigan has more than 87,000 engineers.

Manufacturing and process engineering are core competencies

Statewide expertise in Six Sigma Quality systems

700+ potential wind energy suppliers – 250+ engaged inassessment and 30+ supplying components/services

“Michigan's tradition of auto R&D expertise combined with its great research universities, strong manufacturing base, and skilled work force make it the perfect state for all kinds of diverse industries to thrive.“ -- Governor Jennifer M. Granholm

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Inventory of Assets: World Center for Industrial R&D

• Michigan is second in the nation in industrial R&D spending as a percentage of gross state product

• Major automotive suppliers are beginning to diversify into the wind energy market along with solar, defense, aerospace and medical device fields

• Home to more than 330 national and international R&D centers

• Home to NextEnergy, one of the nation’s leading research catalysts and business accelerators for alternative and renewable energy

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Moving Michigan Forward

• Centers of Energy Excellence

• Supplier Diversification

• Clean Energy Advanced Manufacturing

• CEAM Technology Demonstration Grants

• Partner Alliances

Plan Set in Motion…

• Diversification opportunity research- identifying industry diversification opportunities leveraging MI competitive advantages

– International/Federal/State trends

– Market Analysis (size, trajectory, etc.)

– Partner input

• Examine Worldwide best practices in industry acceleration programs (Swedish Triple Helix, Cluster Approach)

• Advanced Energy sectors emerge ad high potential targets

• Implementation of Cluster teams (biofuels, wind, water, advanced energy storage)

• Leadership of Governor Granholm - 2008 “State of the State”

• Legislation: Energy Act; Centers of Energy Excellence; PA 295 State Energy Act; EE/RE RLF; American Recovery and Reinvestment Act

Centers of Energy Excellence

Swedish “Triple Helix” Model

• Goal is to rapidly grow an industry cluster

• Includes high profile anchor company at the center

• Geographically located in area with strong business infrastructure

• Surrounded by private sector companies, academic institutions, and government entities

Universities & Laboratories

Research

Technology Transfer

Schools & Training Centers

Workforce Development

Policies

Incentives

Regulatory Climate

Permitting

Growth Capital

Venture Capital

Angels

Banks

Supply Chain

Suppliers

Customers

Competitors

Industry Support

Trade Groups

Service Providers

PA 175 – Centers of Energy Excellence

• Allow the MSF to create and operate a COEE Program to promote the development, acceleration, and sustainability of “energy excellence sectors” in Michigan.

• Allow the MSF board to spend up to $45 million from the 21st

Century Jobs Trust Fund appropriations on the COEE program. ($18.1 million allocated for ’08)

• Allow grants for the Program to be awarded only to for-profit companies.

• Require the inclusion of at least one institution of higher learning

• Require at least 50% of the funds allocated for the Program to be used to match Foundation funding, Federal funding, or International Investments. Other purposes include;

– Supplementing in-kind contributions provided by a person or entity other than the State– Accelerating the commercialization of an innovative energy technology or process that will

be ready to market within 3 years of the effective date of the agreement.

Examples of COEE Awards

Swedish Biogas International: Waste to Energy ($4 million leveraging $3 million from Swedish Government and $ 1 million from Mott Foundation)

A biogas production facility at the City of Flint's wastewater treatment plant. Partners in the project include Swedish Biogas International, the City of Flint, Kettering University, the Mott Foundation, the Swedish Energy Agency, Vinnova, and Linkoping University (Sweden).

A123 Systems, Inc. – will receive $10 million to establish a center focused on the manufacture of rechargeable lithium batteries for the transportation and alternative energy sectors.

The University of Michigan will contribute research on manufacturing system design, performance and processes; and Michigan State University will contribute research on battery materials and electrode designs.

Astreaus Wind Manufacturing – A cooperative venture with MAg Products; Dowding Industries; in collaboration with ORNL and Dow Chemical. Manufacturing wind turbine blades with advanced materials. Will receive 6 million, COEE, and 7 million CEAM.

Supplier Diversification - Connections

• Monthly summits to educate manufacturers on diversification opportunities and prepare them for new lines of business

• 706 companies have participated

• $3M to assist in recertification

• 900+ manufacturers in Michigan’s Renewal Energy supplier network

• 20+ supplier match making events and 250+ organized private meetings

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700+ Manufacturers Ready to Supply the Wind Industry

• Financial assistance of $1 B for facility upgrades and new equipment

• Has potential to create/retain 14,840 manufacturing jobs

• For every $1 invested, almost $5 will return to the economy!

(Source: NextEnergy)40

Diversification Success To Date

Match making events over the past 2 years between renewal energy product producers and Michigan manufacturing firms have resulted in:

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•$377 M in contracted business•Additional $3 B of business currently being quoted•1,145 manufacturing jobs positively affected, added/retained •$80.5 M invested in facilities and equipment

Financing Solutions – Diversification Fund

• $25 M State commitment

• Addresses the three current impediments to lending:

– Collateral Shortfall — cash collateral depository accounts

– Cash Flow Support — subordinate debt with no interest payments

– Gap in Financing Availability — mezzanine financing to directly loan to un-bankable companies

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Financing Solutions – Clean Energy Advanced

Manufacturing Grant and Loan Program

• Targeted funds from the American Recovery and Reinvestment Act through the State Energy Program

• Designed to accelerate the deployment of Renewable Energy Technology in Michigan with commercially available technologies,

• Adapting to more efficient production.

• Stimulates market transformation and leverages private investment.

• Direct Jobs retain/creation.

• Work collaboratively with other strategies and innovations.

CEAM Areas of Interest

“We can put Americans to work today building the infrastructure of tomorrow “

• Area of Interest 1: Manufacturing of Renewable Energy Systems

• Area of Interest 2: Manufacturing of Components of Renewable Energy Systems

• Area of Interest 3: Manufacturing of Energy Efficiency Technologies

• Area of Interest 4: Manufacturing of Energy Efficiency systems

CEAM Projects

Energetx – Yachts to Watts

Luma Resources –

Shingles go Solar

Merrill Technologies –

Wheels to Wind

Loc – Gears

State Energy Program – Technology Demonstration Program

• Renewable Energy and Energy Efficient Technology Demonstration Grants

• $1,500,000 in matching funds to Michigan small businesses

• 4 awards

• Implement and demonstrate innovative technologies to accelerate adoption within the business sector by making available objective information on each technology’s benefits, costs, and overall performance.

• Projects completed by December 31, 2011

• Requires a University tie and a jobs definition/training component

Alliance Initiative

Concept - Bring key funding partners from Federal Agencies, National Laboratories, International partners, and Industry players to support the development of domestic battery manufacturing, lightweight materials production and Biofuels commercialization in MI. Battery example;– “Commonize” defense and commercial requirements– Assist in selection of Cell Manufacturer (HB 6611)– Primary focus on the development of the supply chain to support

Manufacturing operations• ID key technology gaps• Fund key projects

Potential partners (currently in discussion)– Department of Energy– Oak Ridge National Laboratory (entry point into National Lab system)– Tank Automotive Research, Development & Engineering Center (TARDEC -

entry point into DOD Ground Vehicle systems)– Sweden (Saab, Volvo, Vinnova, Swedish Energy Agency,US/Sweden

Bilateral Agreement)– Dow Corporation (Global expertise in materials & chemistry).

In Conclusion:

• Greenville and the Great Lakes Bay Area –staking claim on solar power.

• Holland, and several other cities soar with the announcement of advanced battery manufacturing incentives and ARRA grants.

• Advanced manufacturing supply chain developing in wind.

• Michigan’s film subsidy program is growing a new industry, retaining young workers and instilling the entreprenurial opportunity.

Progress in Motion- Today’s Headlines

• URV USA announces expansion of foundry, hiring 275 jobs: “We’ve had a larger than anticipated success in securing new orders from North American Wind Manufacturers”

• Milliken Institute Jobs Report ranks Lansing MI among top 10 in country in job growth – and top performing economy in Michigan.

• State’s jobless rate trending downward for 2010, total employment has increased by 34,000 in last year.

• Governor Granholm recognized by His Majesty King Carl XVI Gustaf with Sweden’s Insignia of First Commander, Order of the Polar Star for fostering relations between Michigan and

Sweden to promote a clean energy economy.

Case Studies

• COEE

• Mega Tax Credits

• Clean Energy Advanced Manufacturing grants and loans

• Technology Demonstration Grants

Merrill Technologies

• LUMA

Energetx

Loc

Astreaus

SEP/NOV ’08 COEE Awards

4. American Process Inc. - The Atlanta-based company, in partnership with San Antonio’s Valero Energy Corporation, will receive $4 million from the COEE program to establish a pilot scale biorefinery at the Decorative Panels International hardwood plant in Alpena.

– The biorefinery will convert the process waste effluent from the plant into cellulosic ethanol, sodium acetate and clean, warm water. The project has potential for replication across the state in other biorefineries, pulp and paper mills, and food and agricultural processing plants. Michigan Technological University will contribute research to improve fermentation processes and also on the use of sodium acetate for novel anti-icing applications.

SEP/NOV ’08 COEE Awards

5. Working Bugs LLC - This company with operations in East Lansing, Webberville and Sweden will receive $2 million from the COEE program to establish a biorefinery that will produce high-value specialty and fine biochemicals and biofuels from natural feedstocks.

– Technology developed at this center can be applied to existing biomaterial processing facilities across the state such as corn ethanol plants, beet sugar refineries, and pulp mills to produce new, higher margin products. Michigan Technological University will contribute research toward the supply chain for biomass feedstock that will be delivered to the biorefinery.

SEP/NOV ’08 COEE Awards

6. A123 Systems, Inc. – This Boston-based company with an office in

Ann Arbor will receive $10 million from the COEE program to establish a center focused on the manufacture of rechargeable lithium batteries for the transportation and alternative energy sectors.

– The project leverages the state’s automotive assets. The University of Michigan will contribute research on manufacturing system design, performance and processes; and Michigan State University will contribute research on battery materials and electrode designs.