Capitalism with a Human Face

Capitalism's Human Face
From BusinessWeek Online

Social Entrepreneurs tackle the world's problems in the face of a global downturn.

PHILANTHROPY November 25, 2008, 5:00PM EST
Social Entrepreneurs Turn Business Sense to Good
As charitable giving dries up, new kinds of leaders are taking on the world's problems, using the for-profit world as a model

By Steve Hamm

As chief executive of Mercy Corps since 1994, Neal Keny-Guyer helped turn the Portland (Ore.) relief organization into a global powerhouse with 3,500 employees and a budget of nearly $300 million. But he was taken aback last year when one of his lieutenants proposed the radical step of buying a bank in Indonesia. Why would a not-for-profit disaster relief agency go the capitalist route and buy a bank?

Gradually, though, he warmed to the idea. He saw that, if Mercy Corps operated a wholesale bank that could offer capital to some 2,000 local microcredit organizations and had an ATM network, it could help turn microfinance into a powerful force in Indonesia. Keny-Guyer was in uncharted territory, however. In the last days before the acquisition closed in May, he feared the risky gambit would end in disaster. "I imagined a newspaper headline saying, `Mercy Corps' Bank in Bali Fails,' " he recalls. "I thought of the reaction of our donors to that bit of news."

Now, as the renamed Bank Andara cranks up operations, Keny-Guyer is hopeful. If the strategy works in Indonesia, he says, Mercy Corps may try it in the Philippines next.

This departure from business as usual in the nonprofit realm is part of a major shift in the way people are taking on the world's social problems. In developing nations and parts of the U.S., governments have failed to make substantial progress against poverty, disease, and illiteracy. Traditional charities and social service agencies often provide Band-Aids for problems instead of long-term solutions. Now a new breed of do-gooder—the social entrepreneur—is trying fresh approaches. While the term is used in many different ways, there's a narrow definition that gets to the heart of what makes these people stand out: Rather than depending solely on handouts from philanthropists, social entrepreneurs generate some of their own revenues and use business techniques to address social goals. "Traditional ways of doing things haven't produced the kind of progress we all hoped for, so we're trying to come up with new approaches that are truly transformational," says Keny-Guyer.

The idea of the social entrepreneur has been percolating for decades, but it has become a mass movement in the past couple of years. Thousands of people are launching ventures and trying out new business models, both for-profit and nonprofit. Now that the global financial crisis is squeezing charitable giving, socially oriented organizations are pushing even harder to reduce their dependence on donors and generate their own funds. Lehman Brothers, for instance, was a generous backer of both nonprofits and social entrepreneurs. No more. In this climate, only the most efficient and effective organizations will thrive.

Social entrepreneurs are being backed in part by a new generation of super-aggressive philanthropists and social investors, including Microsoft (MSFT) co-founder Bill Gates and former eBay (EBAY) executives Pierre M. Omidyar and Jeffrey Skoll. These guys expect results from their social investments and grants. Says Gates in an interview with BusinessWeek: "Nonprofits are applying what we've typically thought of as business strategies for better outcomes, and businesses are beginning to apply what I call creative capitalism strategies to increase the positive social impact of their work. That's a powerful combination." He believes the most effective way to make social progress is through partnerships among nonprofits, businesses, government, and philanthropists.

WHICH MODEL WORKS?
In this emerging social sphere, there's a danger of confusing enthusiasm with effectiveness. Many social enterprises, from microfinance organizations to those aimed at purifying water or improving agriculture, aren't being built to grow large or to last. They're poorly managed, undercapitalized, or overly dependent on philanthropic handouts. In India, for example, there are an estimated 1.2 million organizations aimed at addressing social problems. "Many are just too small to be effective," says Manoj Kumar, chief executive of Naandi Foundation, a large Indian social service organization.

In a sense, the social enterprise phenomenon is like an industry just starting to take shape. Think of the early days of autos or computers, when startups tried a variety of approaches to see what worked best. For this movement to have a major impact, it needs the same kind of dynamic business climate as Detroit in the 1920s or Silicon Valley a decade ago. What's necessary—once the global financial crisis eases—is free-flowing capital, a willingness by entrepreneurs to aim high and take risks, and a level of transparency that quickly makes obvious what's working and what isn't. "You have to get beyond the gee-whiz factor of social entrepreneurship," says Michael E. Porter, a professor at Harvard Business School. "Which of these models really works? How do you create a high social value per dollar invested?"

It's difficult to prove success in such an immature field. Nobody has come up with numbers quantifying the overall impact of social entrepreneurship. Some organizations make impressive claims. Grameen Bank, the pioneer of microfinance, says it has brought 65% of its 7.5 million clients out of "extreme poverty." Yet while Grameen's home base of Bangladesh is crawling with microfinance outfits, it remains one of the poorest countries in the world, with 40% of its people under the poverty line.

At the same time, there's much disagreement over which business models are best. Grameen founder Muhammad Yunus, who won the 2006 Nobel Peace Prize for his work, argues that social businesses should not make a profit off of poor people. In other cases, people who call themselves social entrepreneurs seem to be in it mainly for the money. Banco Compartamos in Mexico, for example, charges interest rates topping 100% per year, claiming that such rates are justified because it's expensive to operate a microfinance business (BW—Dec. 13, 2007). Yunus berates for-profit outfits for charging exorbitant interest. "When you charge high rates, you're no longer microcredit. You're a loan shark," he says (see a video interview with Yunus).

To others, the profit motive is crucial for addressing the needs of poor people. C.K. Prahalad, a University of Michigan Ross School of Business professor and author of the influential book The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, argues that the poor should be seen as consumers, not charity cases. Their basic needs can best be addressed by businesses that are attuned to dealing with them. "If we get entrepreneurship right, social entrepreneurship won't matter as much," he says.

Vikram Akula, a social entrepreneur based in Hyderabad, wants it both ways. He's out to prove you can make a healthy profit while serving—and not gouging—the poor. Akula grew up in Schenectady, N.Y., but returned to his native India in the mid-1990s after he got a PhD in economics from the University of Chicago and worked as a consultant at McKinsey & Co. He first worked for a government-run microfinance organization. But with limited funds, it couldn't expand fast. He says his conversion to the for-profit, faster-growth model came after an encounter with a poor woman he had to turn down for a loan because he couldn't operate in her village. "She said: 'Don't I deserve to get out of poverty, too?' " he recalls. "I decided to come up with a model that works so you don't have to say no to anybody."

Today, Akula is chief executive of SKS Microfinance, which has 9,500 employees and 3.3 million customers throughout India and is adding 300,000 new clients per month. SKS charges an average of 26% annualized interest. Given the cost of granting and servicing microloans, that's considered a reasonable rate by many industry observers. SKS had revenues of $48 million in the half-year ended in September, up 153%, and net income of $6.16 million.

A journey with Akula into the villages of India's state of Andhra Pradesh shows just how aggressive he is about applying business methods to economic development. In a schoolyard in Narayanraopet, a village of 3,500, three dozen women dressed in brightly colored saris sit in a circle in the shade of a spreading rain tree. K. Sandhya Rani, a self-assured 18-year-old SKS field assistant, takes attendance, collects weekly loan payments, and hands out new loans with all of the efficiency of an employee at McDonald's (MCD), which, in fact, Akula uses as a model of business-process excellence. (When he set up the company, he even tracked the time it took to do things with a stopwatch.) The whole meeting lasts just 25 minutes.

Afterward the women hustle back to their shops and farms. There, money from SKS pays for more goods and for the purchase of chickens and buffalo. A woman named Sarojamma carries in her hands a six-inch pile of currency with which she plans to buy rice, lentils, and other food to replenish the shelves in her four-year-old kirana, or mini general store. In the coming days, she explains, her husband will call on his mobile phone to suppliers in neighboring cities to find the best prices for the items they stock, then take a bus and a taxi to fetch the goods back to Narayanraopet. Sarojamma has a simple dream: "I want to make my shop bigger."

Sarojamma and people like her represent a new market opportunity for companies that hope to reach India's vast population of villagers. SKS's Akula is using his network of field agents and customers as a distribution channel for moving a wide variety of products and services on behalf of business partners such as Nokia (NOK). SKS helps sell mobile phones, insurance, and foodstuffs for shopkeepers. "The potential here is huge," says Devinder Kishore, Nokia's marketing director in India.

"BUSINESS IS BUSINESS"
While Grameen Bank's Yunus doesn't believe in profiting off the poor, he, too, sees his microlending network as a strategic jumping-off point for all sorts of economic activity. The bank's parent company, Grameen Family of Enterprises, is forming joint ventures with large multinationals in an effort to develop vast new markets and improve the health and livelihoods of poor people. The first of the ventures, Grameen Danone Foods (GDNNY), sells nutrition-enhanced yogurt to poor people in affordable, single-serving packages, with a portion of the deliveries handled by Grameen Bank customers.

But the strains between social goals and business imperatives are showing. Wahidun Nabi, the executive director of the venture, who came from Danone in mid-2007, says he's being forced by economics to sell larger packages and market to those with more money, which means he's doing less than he might have for poorer people. "For the success of the project, we must improve the bottom line," he says. "This is a social business, but business is business."

Such strains are even more intense in fledgling social enterprises. Belgian Bart Weetjens was focused purely on altruism when he started an organization called Apopo a decade ago. It trains African giant pouch rats to sniff out land mines on former battlefields. The mines, if they remain undetected, occasionally blow up and hurt people and animals. The program was a modest success, with mine-clearing operations in Mozambique and a contract to expand into Africa's Great Lakes Region. But Apopo ran into problems when Weetjens tried to secure a more dependable source of funding. An adopt-a-rat program launched on the Internet, HeroRATS.org, failed to attract many supporters. "We're living in uncertainty," says Apopo Chief Executive Christophe Cox. "If some of the main donors drop off, then we're finished."

So Weetjens and Cox decided to run Apopo more like a business and generate their own money from operations. Earlier this year they hired Virtue Ventures, a consulting group specializing in social enterprises, to help them write a business plan. And in the summer they brought four interns from the MBA program at Oxford University to their headquarters in Tanzania to help size up their money-earning potential. Options include expanding mine-clearing operations to the Middle East, getting into the cargo-inspection business, and forging aggressively into disease detection. It turns out the rats can sniff out the presence of tuberculosis, and perhaps other diseases, at costs dramatically cheaper than traditional laboratory tests.

The pressure of switching to a for-profit model is evident during a meeting of the two founders and their student advisers in Morogoro, Tanzania. The six gather for their weekly progress discussion in the war room, where interns work in stifling heat under two fast-spinning ceiling fans. It's not clear how big the long-term cost differential will be for their rats compared with other outfits that use European-trained dogs for mine-clearing. Cox cautions against exaggerating their advantages: "We don't want to compare the worst dogs with the best rats."

Weetjens, the organization's front man, says it now looks like Apopo may continue the mine-clearing operations on a not-for-profit basis but try to turn disease detection into a profit-maker. Their tests with Tanzanian health-care clinics are producing strong results in cost and quality.

For all the challenges that Apopo faces, there is anecdotal evidence that social enterprises can grow large and balance their social and economic imperatives. But it requires a lot of time and effort.

That was the case with Sekem Group, an Egyptian conglomerate with businesses in organic farming, garment manufacturing, herbal medicines, and food processing and distribution. The family-controlled company got off to a fragile start in 1977 in the desert 50 kilometers northeast of Cairo. Egyptian-born founder Ibrahim Abouleish had been managing a pharmaceutical-research facility in Austria but returned to his homeland after he realized that two decades of socialism had ruined the economy. His goal was to convert the country to organic farming and enrich Egyptian culture with a renaissance of art and education. Abouleish chose a place in the desert far from urban influences so he could create a self-defining community. It all started in a mud hut built for him by Bedouin.

The original hut remains as part of a guest house on a campus that now includes 20 sparkling-white buildings for offices, farm operations, and factory work. Sekem has 2,500 employees, 500 acres of nearby farmland, and a vast composting operation. The company, which has been growing at 25% per year, brought in $40 million in revenues and $3 million in net income in 2007—after spending much of its operating profits on schooling and health care for employees' families. Sekem just bought 4,000 acres of arid land on the Sinai Peninsula and in the Western Desert that it plans on converting to farming.

THE NEED FOR CAPITAL
For Abouleish and his son, Helmy, who now runs day-to-day operations, more important than the financial accomplishments is the impact of Sekem on Egyptian agriculture. When done right, organic farming uses a lot less water, and farmers don't spend money on expensive and polluting herbicides and pesticides. When Sekem started operations, there was no organic farming in Egypt. Today there are several other major organic growers, and Sekem has developed a network of 800 independent farmers on 50,000 acres whose produce it exports to major grocery chains in Europe. The company's nonprofit Sekem Development Foundation runs a school, a medical center, and economic development programs in the seven villages around the campus. But Ibrahim Abouleish is not satisfied. "What we have achieved is a great model. Now we have to change the whole country," he says. He figures it could take more than 100 years to reform Egypt from the bottom up.

While Sekem shows that such enterprises can grow up and make progress, there are many economic and social hurdles that need to be cleared for this phenomenon to become powerful. Money is a major issue. While philanthropies and investors are plowing hundreds of millions of dollars into social enterprises, that's still minuscule compared with the $35 billion in venture capital invested worldwide last year.

To attract more capital, social enterprises have started trying to better quantify their results. A group spearheaded by Acumen Fund, a nonprofit supporter of social enterprises, has begun gathering an ocean of information into one massive, easily accessible database. That way, results can be monitored by the funders and investors, and social entrepreneurs can see how they stack up with their peers.

Still, it's hard to justify most social enterprises on strictly financial grounds. In many cases, investors have to accept lower returns than they would expect from traditional investments. That trade-off has tormented investors in Freeplay Energy, a social business that sells hand-crank radios and lights for people in developing countries and Western nations. The company went public in Britain in 2005, but its revenues have been disappointing, and its stock price plummeted until it was taken private again this year. "It's hard to have a social mission in a capitalistic system," says Rory Stear, Freeplay's co-founder and co-chairman.

When Ramalinga Raju, chairman of India's Satyam Computer Services (SAY), set out to improve India's woeful health-care system, he decided to bring in government as his partner. His idea was that, by combining Satyam's technology and business-operations expertise with government resources, innovative new health-care initiatives could spread rapidly. Emergency Management and Research Institute, a free ambulance service he launched in 2005 in the Indian state of Andhra Pradesh, has branched out to two other states. The government pays 95% of operating expenses. "I have no doubt that this will be a model for the rest of the world," Raju says.

Maybe. Raju's ambulance service is catching flack from rivals. Sweta Mangal, co-founder of Dial 1298 for Ambulance, which operates in Mumbai, says EMRI relies too much on government support, which might be fleeting. She also doesn't think it's affordable for governments in emerging nations to offer free ambulance service for everybody. Her company charges wealthy and middle-class patients, which subsidizes free service for poor people.

This is just one of the debates that show how unsettled the world of social enterprise is—and may remain. Until today's entrepreneurs discover which business models really work, there will be uncertainty and wasted effort. The movement is growing and taking on more ambitious projects. But from Mercy Corps' Keny-Guyer to Satyam's Raju, these entrepreneurs know most of their work still lies ahead of them.

A Social Entrepreneurship Schism
In Philanthrocapitalism: How the Rich Can Save the World, Matthew Bishop and Michael Green argue that the wealthy can save the world by giving money to social entrepreneurs. But Michael Edwards wrote a sharp critique called Just Another Emperor? The Myths and Realities of Philanthrocapitalism. His concern: The hype will divert attention from the deeper changes he believes are required to transform societies.

To read Edwards' summary of his book, go to BusinessWeek Business Exchange; http://bx.businessweek.com/social-entrepreneurship/reference/


Hamm is a senior writer for BusinessWeek in New York and author of the Globespotting blog.

Edward Norton's $9,000,000,000 Housing Project (that's $9 Billion)

Article can be found here
http://www.fastcompany.com/magazine/131/edward-nortons-9000000000-housing-project-thats-9-billion.html
Fast Company Magazine Online
November 25, 2008
Edward Norton's $9,000,000,000 Housing Project (that's $9 Billion)
By Ellen McGirt

Edward Norton, the two-time Oscar nominee, stood at the podium at the Hilton Washington this past May and tried to be humble. The actor was in the capital to present a major civil rights award to someone he knew well -- his grandmother. It was gearing up to be a nice moment. "I work in a profession," he told the crowd of social workers, lawyers, and community organizers, "that gets a totally disproportionate amount of attention relative to its true contribution to our culture." Suddenly, from the front row, the no-nonsense clerk of the U.S. House of Representatives, Lorraine Miller, snorted, then began to clap, slowly and theatrically, beat by sarcastic beat.

Startled, Norton looked up from his notes and peered into the dark ballroom. Then he shrugged and started to laugh along with the audience.

Tough crowd, D.C. Not even the Hulk can get a break -- which, in this case, wasn't really fair. Norton went on to honor 82-year-old Patty Rouse for her role in Enterprise Community Partners, an affordable-housing organization that she cofounded with Norton's grandfather, real-estate developer James Rouse.

But Norton's appearance wasn't merely a cameo, a movie-star drive-by. On the contrary, he has been an active participant in Enterprise since he was a kid. His first job after college was an analyst spot there; he sits on the board and has donated more than $1 million. What's more, he has played a key role in encouraging Enterprise to embrace green building -- a shift that has enabled the business to keep moving despite the housing crisis and mortgage meltdown. In fact, Enterprise is arguably the one bright light in an industry dominated by excess and foolishness. Its model offers clues to how we all might climb out of our real-estate mess.

Enterprise may be one of the most influential organizations you've never heard of. A for-profit/not-for-profit hybrid, Enterprise has invested $9 billion in equity capital, predevelopment lending, mortgage financing, and development grants to house low- and moderate-income Americans. It has revitalized some of the country's poorest neighborhoods, from Fort Apache in the Bronx to the Tenderloin in San Francisco. Perhaps its most important accomplishment was helping to create the low-income-housing tax credit (LIHTC) that for 25 years has provided a way for the business world -- developers, bankers, and boldface names like Warren Buffett -- to address the pressing social need for affordable housing while still making a profit. That credit has had a bigger impact than the Department of Housing and Urban Development, accounting for some 90% of the affordable rental housing in the United States.

Norton is hardly the only contributor to Enterprise's success. It has been an ensemble performance, including former CEO Bart Harvey, who was tapped this fall to join the reconstituted board of Fannie Mae; his successor, Doris Koo; and Charlie Werhane, who runs the organization's tax-credit business. There is no assurance that the credit storm will not undo two-and-a-half decades of Enterprise's good works. But it's instructive to look at Norton, Enterprise, and their behind-the-scenes role -- even in the current drama, in Congress, and at the White House -- to see what is possible when responsible business and a farsighted social mission dovetail in a search for creative solutions.

From the beginning, Enterprise has used a combination of market forces, good data, and political savvy to create mechanisms -- no, not subprime mortgages or mysterious derivatives -- that help nonprofit developers and cities build high-quality housing for low- and middle-income people. Now, with the neighborhoods it has helped resurrect under pressure, Enterprise has launched a new round of financial innovation. Armed with mounds of real-world construction-related data about energy efficiency, carbon emissions, and public health, and dismayed by the vulnerability of traditional credit schemes, the Enterprise team is marketing regional green-building investment funds to companies anxious for both financial returns and environmental cred. It has also launched the first carbon-offset fund designed to raise money for affordable housing. At the end of the day, Enterprise's mission has always been to provide people with clean, safe, affordable homes and create communities that work. But if its efforts can help buoy the whole real-estate market -- and save the planet as well -- so much the better.

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With the stock and credit markets in full meltdown mode -- and Congress, the media, and taxpayers melting along with them -- late September was not a good time to be in the housing sector. But some good news went largely unnoticed. In Los Angeles, Mayor Antonio Villaraigosa announced an ambitious five-year, $5 billion plan to build or restore 20,000 affordable-housing and mixed-income units in neighborhoods threatened by mass foreclosures. To pull it off, the mayor will need public and private financing, but he had one critical piece in hand: a $700 million check from Enterprise Community Partners.

Meanwhile, in Chicago, Mayor Richard Daley said that the city would launch a green retrofit program for thousands of units of low-income housing. The initial funding will come from Enterprise.

And in D.C., Enterprise was busy on Capitol Hill. Back in January, newly minted CEO Koo warned the Senate Committee on Banking, Housing, and Urban Affairs that looming foreclosures were going to hit cities hard. "The Center for Responsible Lending has estimated that 44.5 million homes adjacent to subprime foreclosed properties will lose value," she testified, "and $223 billion in neighborhood wealth will be lost." She walked the senators through an earlier Enterprise-inspired program that had helped the Federal Housing Authority dispose of 40,000 homes in the last foreclosure crunch, and she made the case that a $10 billion fund to shore up neighborhoods could also generate new revenue and more jobs. Chairman Christopher Dodd, among others, took note.

As the reality hit that Fannie and Freddie were near collapse, Enterprise stepped up its campaign to turn the idea into reality. By June, as the 600-page Housing and Economic Recovery Act worked its way through Congress, Koo's proposal morphed into the Neighborhood Stabilization Fund, a $3.9 billion block grant to help states and local governments buy or rehabilitate foreclosed properties. The bill even included language championed by Representative Barney Frank that favored use of the fund for green housing.

But at the other end of Pennsylvania Avenue, the bill's momentum evaporated. A "fact sheet" from the White House raised the "bailout" objection: "The principal beneficiaries of this type of plan would be private lenders, who are now the owners of the vacant or foreclosed properties, instead of struggling homeowners who are working hard to stay in their homes." President Bush was adamant. Take the fund out, he insisted, or the bill dies on my desk.

It was not the first time Enterprise had felt push-back from the White House. In 2003, a Bush administration tax proposal threatened to gut the low-income-housing tax credit, the basic financing vehicle for affordable housing across the country since Harvey, then a senior executive at Enterprise, helped establish it in 1986. Bush proposed that companies could either use tax credits or increase dividends to shareholders, but not both. "It would have entirely removed the incentive for corporations to invest in any tax-credit program," says Stockton Williams, senior vice president and chief strategy officer for Enterprise. In the midst of the battle, Karl Rove called with a message for Enterprise: Stand down. "It was a very intense experience," says Williams diplomatically. Ultimately, moderate Republican senators scaled back the tax cuts and, in the process, killed the troublesome provision.

This year, it was Fannie and Freddie's plummeting fortunes that got Bush to blink. According to two people familiar with the matter, Treasury Secretary Henry Paulson went to the president in early July and told him in Washingtonian terms to hold his nose about the stabilization fund and sign the bill. "Paulson was no fan of the provision," says Williams, but by then, the magnitude of the mortgage crisis was stark.

For places like troubled Tarrant County in North Texas, relief arrived in record time. The county, which includes Fort Worth, was facing a dramatic year-over-year spike in foreclosures; in one zip code alone, 38 of every 1,000 homes have been posted for foreclosure. In September, the county was awarded a $3.3 million allocation from the new Neighborhood Stabilization Program. (By contrast, provisions in the behemoth housing bill to help individual homeowners renegotiate their existing loans to avoid foreclosure didn't go into effect until October.) Says affordable-housing expert Frank Alexander, a professor at Emory University Law School: "The neighborhood stabilization grants are the only good news coming out of all of this for the affordable-housing marketplace."

Washington-based emergency measures aren't the only innovations Enterprise is championing in this volatile climate. It has smart long-range plans, too. And, surprisingly, to understand them, the best person to start with is Edward Norton.

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Early on the day of the awards ceremony in May, Norton testified on Enterprise's behalf before the House Select Committee on Energy Independence and Global Warming. Well-prepared with facts, figures, and a detailed 10-point policy plan -- the Beltway equivalent of a supercharged PowerPoint presentation -- Norton politely made the case for green construction. An investment of only 2%, he told the committee, could reduce energy costs by 20%. "We can make progress on all these issues, create green jobs, and lock in long-term environmental benefits by making green affordable homes a national priority."

Norton grew up in the town his grandfather built, Columbia, Maryland. The family spent many nights gathered around Jim and Patty Rouse's kitchen counter, cooking, doing dishes, and talking relentlessly about their mission. For the Rouses, a clean and decent home was a civil right, a starting point for all citizens. "Here we are, the wealthiest country in the world," Jim once lamented in a speech, "and we let millions of our people live in these deplorable conditions." And he held no illusions about fellow real-estate developers, who were driven all too often, he said, by the "determination, at whatever cost to the community, to make a profit." Enterprise was the Rouses' vehicle to help poor and working-class people and save American cities.

"Social entrepreneurs run on rocket fuel," Norton says. "I've seen my grandfather and Patty talk through waves of younger people who would fall away and go to sleep. They never stopped. Ever." He sums up: "You might not fully appreciate how exhausting it was!"

Something about the late nights -- or perhaps it was a young man's quest for a dose of spiritual rocket fuel -- was embedded in Norton. Discussing his role at Enterprise, he told me after his congressional testimony, "The thing I've been most proactively working toward is the notion of converting our model into a green program." The son of an environmental lawyer, Norton has long been a green activist. But, he explains, "we didn't have a whole lot of data within Enterprise for how high-cost premium items like solar would impact the low-income context. I came up with Solar Neighbors as a mechanism to gather data."

The Solar Neighbors program, in concert with energy giant BP, encourages famous folks -- like actors Don Cheadle, Brad Pitt, Alicia Silverstone, and Will Ferrell -- to install a solar system on one of their homes. BP then donates a solar installation to a low-income family. Twenty-nine celebrities have participated since the program began in 2003; in return, BP has provided 41 systems, 39 of them to low-income single-family homes, mostly in south Los Angeles. The recipients have offset their electric bills by 30% to 80%.

The program has been a financial boon for the rich and famous, too. Actor Larry Hagman, who embodied housing excess as J.R. Ewing on Dallas, became one of the first Solar Neighbors in 2003. The annual electric bill for his 46-acre Ojai farm has dropped from $37,000 to $13, he says. According to the California Public Utilities Commission, Hagman and his wife, Maj, own the largest residential solar-power system in the United States; it sends 10,000 kilowatt hours a year back to the grid. Six L.A. families received solar units in Hagman's name in 2004.

For 25 years, the low-income-housing tax credit (LIHTC) has worked as a business because it gives profitable companies from Sherwin Williams to Disney to Deutsche Bank an incentive to invest in below-market-rate housing, and make money doing it. What Enterprise got from Solar Neighbors -- beyond PR pop and solar panels for a few units -- is real-world data about the economic benefits of going green that Enterprise could use to devise new ways to fund affordable housing.

"Our priority has always been getting people into homes, not saving the environment," Williams says. Sitting in Enterprise's spare D.C. office, he and colleague Dana Bourland are trying to explain how they ended up in the climate-change game. "We were focused on the social issues related to the environment, like asthma," Bourland says. Then, around 2003, Williams recalls, "we were seeing the excitement around the Al Gore slide show on climate change that eventually became An Inconvenient Truth and realized we had a contribution to make." Because many of its not-for-profit developer partners were open to the idea of green construction, Enterprise was in a position to collect data measuring the impact of this new way of building. "If we could prove the benefit of green building," explains Bourland, "we could create new financial products and a marketplace around it."

The data from Solar Neighbors were a start, but they wouldn't be extensive or rigorous enough to convince investors, so the Enterprise team put together a Green Communities checklist of mostly mandatory specifications covering construction, materials, and design -- the first nationwide green criteria for residential construction -- and set a goal of building 8,500 residential units in five years. Michelle Moore, the senior vice president for policy and public affairs at the U.S. Green Building Council (USGBC) -- which expanded its LEED standards to residential building only in 2007 -- marvels at what Enterprise has accomplished. "Their data really appealed to us because they're focused on affordable housing," she says. "We can't let a green home or school be 'eco-bling.' It's great to demonstrate that a green lifestyle is not just something celebrities can afford. We've learned a lot from them."

Enterprise met its 8,500-unit goal two years ahead of schedule. Showing an analytical fortitude that would make Silicon Valley proud, Bourland is leading the charge to crunch the resulting data and determine what it costs to integrate Green Communities building criteria and what savings can be harvested. By 2008, she says, it was clear that "water savings are 20% above baseline. Energy is pretty close to that. Those are stunning figures." The team also learned that asthma in children could be reduced for a tiny expenditure. "It's a database that exists nowhere in the world," she says.

Those data are driving financial innovation. Enterprise is introducing its first Green Communities Retrofit Fund, which will work with energy-services companies, or ESCOs, to provide affordable-housing operations with in-depth assessments of energy efficiency, construction plans, and loans based on the expected operating savings. Williams says the fund could grow into a stand-alone ESCO, staffed with its own auditors, trained in energy efficiency and home building, and generating green jobs. For the Chicago project that Mayor Daly announced in September, says Williams, "basically we'll be making low-interest-rate loans that will finance the retrofit of affordable-housing developments. We plan to prove that, for the first time, we can scale this across the country."

Perhaps the most ambitious new product is the Green Communities Offset Fund, which plunges Enterprise into the controversial world of carbon trading. Again, the data drove the financial innovation. "We can now look at numbers by region and project type, and know specifically what each improvement costs and what carbon benefits they provide," Bourland says. "And we can sell an offset because our data are measured and verified and real." Developers apply to the fund for financing; once the project is approved, the fund sells credits in the voluntary market, based on the amount of carbon that will be saved by building to Green Communities standards.

The fund is at an early stage. It has raised nearly $500,000 and made its first transaction, for a new apartment building in Albuquerque, New Mexico, for low- and middle-income tenants. Because the fund lives within the nonprofit part of Enterprise, future investors can offset their own carbon-rich lifestyles and get a tax deduction. (In a nice karmic nod, the USGBC plans to offset the carbon associated with its own annual shindig.) With banks and investment banks struggling to regain their footing, "it may very well be that Enterprise will become a major player in the carbon market," says Garry Hattern, a vice president at Deutsche Bank and creator of its community-development financing group. (Over the years, Deutsche Bank has participated in more than $120 million in tax-credit funds.)

Enterprise is also using its green-building expertise to reenergize its tax-credit operations, which have provided about $700 million in capital each year to affordable-housing efforts across the country. Under the rules administered by the Internal Revenue Service, the federal government allocates low-income-housing tax credits to all 50 states based on population. Developers make proposals to the state housing agencies, which review and award credits based on the size of the projects. "Then," explains Werhane, "the developer takes the credits to people like us, and we syndicate it to investors." The marketplace sets the dollar value of the credits.

Most tax-credit investors have been financial institutions with plenty of profits to offset and a comfort level with complex markets. Harvey recalls the first big commitment, from Hugh McColl at NationsBank, later CEO of Bank of America: "Hugh said to me, 'You can invest in these areas and make money doing it? I don't believe it.' He checked with his CFO and came back in and said, 'We'll take a billion.' " Today, with banks in disarray, the value of the credits has fallen -- from about 90 cents on the dollar last year to as little as 75 cents in some regions today -- leaving developers scrambling to make up the shortfall or postponing new projects.

To attract new investors, Enterprise has begun creating green-themed regional funds that might appeal to profitable companies that want to be part of the environmental movement. Think energy companies. Werhane and his team have been plugging away for over a year. "Tax credits are a tough investment to understand. It takes a lot of explaining," says Rich Gross, who plans on closing Enterprise's first California Green Equity Fund for $45 million in mid-December.

Gross has set his sights on tech companies for another California Green Equity fund to close next year; he has been working closely with the Silicon Valley Leadership Group, an organization designed to advance the local public-policy initiatives of more than 200 businesses in the valley. "Enterprise is unlike other tax-credit syndicators in that we offer technical assistance and expertise to developers," which prospective investors seem to like, he says, adding that he's optimistic that the Googles and HPs will come on board. "California now accounts for about 25% of Enterprise's green affordable housing. The new fund can really grow that number."

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Like Enterprise, former CEO Bart Harvey has shifted gears. "It's been a very difficult time," he says of his new role on the board of Fannie Mae. "Job number one is to make sure that Fannie is healthy and that it's making sensible loans and policy around those loans." Although the government has sent a clear signal that affordable housing is a priority, Fannie and Freddie will not be purchasing housing tax credits anytime in the near future. Will the affordable-housing market survive the onslaught to come? "I'm definitely ..." he chooses his words carefully, "concerned."

But Harvey is also mindful of what Enterprise has accomplished -- and optimistic about the team that Jim and Patty Rouse's vision has attracted, from family like Norton to pros like Koo. Harvey still credits Rouse as the inspiration for Enterprise's success. As a child in Baltimore, he recalls, "I watched Rouse take the decaying downtown of a written-off city and bring it back to life." But when Harvey was asked to join Enterprise from Dean Witter, where he was managing director of corporate finance, he wasn't sure about Rouse's new venture and the idea that affordable housing for all was possible. "I thought Jim was crazy, out of his mind," he says, laughing. Who is going to invest in those neighborhoods? What are the financial products? "You'll have to invent them," Rouse replied. Harvey pauses. "So we did."

Article can be found here
http://www.fastcompany.com/magazine/131/edward-nortons-9000000000-housing-project-thats-9-billion.html

Correction: A previous version of this article stated that Community Enterprise Partners closed their first California Green Equity Fund for $50 million with PG&E on board.

High Point: Seattle's Green Community
Article location: http://www.fastcompany.com/magazine/131/a-high-point.html
November 25, 2008
Tags: Ethonomics, Doris Koo, asthma, Enterprise Community Partners
By Fast Company Staff

"When George shows you his water trick, be very amazed," whispers Enterprise Community Partners CEO Doris Koo. "It's his favorite." We are at High Point, a 120-acre mixed-income project in Seattle, waiting for George Nemeth of the city's housing authority. He arrives bearing charts, graphs, and a bottle of water. About 10% of the water runoff from High Point ends up in a 4-mile salmon stream called Longfellow Creek that has been stressed by overdevelopment, Nemeth tells me, and High Point was designed to be a natural-water channel and filter: "We attempted to re-create what nature has always done." Vegetated drainage channels replace gutters and curbs, and sidewalks are made of a material that allows rainwater to seep quickly into the ground. Nemeth pops open his bottle of water and dumps its contents on the sidewalk on a steep incline. The water magically disappears into the ground -- and I am amazed. This single feature has saved millions in engineering costs and even more in environmental damage -- and provided a template for urban development around the country. ("I plan to steal those ideas," San Francisco's enviro-mayor Gavin Newsom told me.)

It took $8.5 million from HUD and $27 million in financing from Enterprise -- Bank of America was the lead tax-credit investor -- along with state and private funds to transform what was once one of the grimmest housing projects in Seattle into an idyllic neighborhood. High Point is part New Urbanism, part environmentalism, and part civil-rights triumph, designed from the beginning to seamlessly mix subsidized low-income housing, Habitat for Humanity projects, apartments specially designed for the elderly, and 252 market-rate townhouses and single-family houses built by private developers to meet Enterprise's Green Communities standards. There are also 35 Breathe Easy homes designed and built with asthma and pulmonary patients in mind. Developers created new protocols -- everything from no smoking on the job to airtight construction, insulated windows, hydronic heating instead of forced air, blinds instead of curtains, and HEPA vacuum filters -- all for about $6,000 per unit. Six-year-old Ozie Whitfield IV hasn't had an asthma attack since his family moved in 18 months ago.

Koo, who was a housing advocate on New York's Lower East Side when she first met Enterprise founder Jim Rouse, says she feels his influence in every blueprint, financing gizmo, and clean home. "Jim knew that dignity is everything," she says. "When everyone is invested, everyone is a neighbor."
http://www.fastcompany.com/magazine/131/a-high-point.html

The Solar Industry Gains Ground

Fast Company Magazine Article
Article location: http://www.fastcompany.com/magazine/131/solar-goes-supernova.html
November 25, 2008

At a time of economic pain and planetary peril, a renewable global powerhouse takes shape. Just when we need it most.




By Chris Turner
To get a sense of just how bright and sunshiny the future looks to the solar-energy industry, consider The Graph: It's a standard affair, projecting solar's share of global energy production over the coming century. The Graph [1] was created by a scientific organization that counsels the German government, but it has since become a prized piece of propaganda, embedded in glossy brochures and PowerPoint presentations by solar companies from California to gray-skied Saxony. At the left-hand, present-tense end of the scale, solar power is a microscopic pencil line of gold against the thick, dark bands of oil and natural gas and coal, an accurate representation of the 0.04% of the world's electricity produced by solar power as of 2006. The band grows slowly thicker for 20 years or so, and then around 2040 a dramatic inversion occurs. The mountain-peak lines indicating the various fossil fuels all fall steeply away, leaving a widening maw of golden light as solar power expands to fill the space. By 2060, solar power is the largest single band, and by 2100 it is by far the majority share.

This has always been solar energy's tantalizing promise, since the first photovoltaic (PV) cells emerged out of Bell Labs in the 1950s to power space probes and ignite the dreams of a generation of giddy utopian dreamers. Solar energy is as plentiful as daylight, as limitless as organic life itself, a fuel that comes free of charge and replenishes itself every time the earth rotates on its axis. Almost all energy, after all, is ultimately stored solar power: Oil, gas, and coal were born of the ancient sunlight that fed prehistoric animals and plants, the wind is set howling by the sun's unequal heating of the atmosphere, and even a campfire draws its warmth from solar power trapped long ago through photosynthesis. Enough radiation from the massive fusion reactor at the center of our solar system hits the earth every hour to fill all of its energy needs for a year.

Fifty years on, the PV cell remains the most effective engine yet devised for the conversion of sunlight into electricity. The core of every PV cell is a semiconductor, traditionally a highly purified wafer of crystalline polysilicon, virtually identical to the "chips" upon which computer circuits are built. When sunlight strikes the semiconductor, its atoms get excited; if the light beam's photons pack a sufficient punch, they knock the semiconductor's electrons loose for collection by the PV cell's circuits, creating an electric current. Assemble a handful of these cells in a glass frame and wire it to a battery or a power grid, and you have got a solar panel (or module, as it's sometimes called in the industry). A small, pollution-free power plant. Compared to splitting an atom or sucking liquefied phytoplankton from 300-million-year-old bedrock, it's practically child's play.

Solar has nevertheless been stuck for decades in the future tense. PV cells have been too inefficient and too expensive, or too reliant on a fickle sun. But the solar industry has recently made a dramatic leap from the feel-good margins to the mainstream. An unprecedented production boom began around 2004, well before the rise and current fall in crude-oil prices; that boom continues unabated and has led to plunging costs, vastly more rational supply chains, and record-setting gains in the efficiency of traditional crystalline silicon cells (the best now conduct electricity at efficiency rates almost 30% better than the lab record of 2003). In the past 50 years, about 10 gigawatts of solar power -- roughly the output of 10 standard nuclear reactors -- have been installed worldwide. But current estimates, which have been modified only upward in recent years, are that 10 gigawatts more will be brought online in 2010 alone.

A new global industry is taking shape before our eyes. A journey through this energy revolution suggests that the age of truly ubiquitous solar may at last have begun. Solar's emerging titans are scattered across three continents and three technological generations -- from established crystalline PV manufacturers in California to newer "thin film" cells now reaching mass-production scale in Germany and to even third-generation compounds being developed in Australia that can be integrated into building materials to deliver power in the darkest shade. Even in this time of enormous financial uncertainty (not to mention a deepening concern, if not panic, about the health of the planet), the sense of boundless potential, the promise of The Graph, is palpable. Erik Straser, who oversees the clean-energy portfolio at Mohr Davidow Ventures in Silicon Valley, puts it this way: "Sometimes I ask myself, 'If this company was successful, would people name libraries and public high schools after it?' Who made the steam engine? Who made the lightbulb? Who will those people be for the 21st century? Who's the person that made mass-market solar affordable?"

A global industry is taking shape, with the hottest spots in Silicon Valley, Germany, and Australia. The age of truly ubiquitous solar may at last have begun.
Back in the present tense, in the piercing glare of a July morning in Silicon Valley, I'm shielded by the smoked glass of a standard-issue corner office. Tom Werner, CEO of SunPower, America's largest PV manufacturer by revenue, sits across from me at a glass-topped conference table, essentially making the case that he's that guy, the godfather of cheap solar. One of them, anyway.

"The hypothesis of SunPower," Werner tells me, his argument bottom-line blunt, "was take a high-technology, high-efficiency solar cell and mass-produce it at low cost. And it worked." He slides a small pane of glass out of a file folder. It's about the size of a household floor tile and inlaid with a blue-black hexagonal pattern. This is SunPower's PV cell, which, at 22% efficiency, holds the world record for a commercial product. (The industry average is about 16%.) He holds it up for my inspection, and I notice the hexagons are identical to the ones on the tabletop between us, which turns out to be a large SunPower panel mounted on four legs. "As you create this market for solar," Werner says, "you create the opportunity to scale. And so what happens is, you innovate your way down the cost curve."

Werner strikes me as exactly the type of hypercompetitive, profit-obsessed executive the solar industry had long been lacking. At 48, he's trim and athletically wiry, with tidy side-parted hair and a goatee. He slurs a bit through gritted teeth as we talk because the night before, in a rec-league basketball game, he caught an elbow that drove his incisors through his lower lip. "I'll get that guy," he tells me. I'd bet on it.

Werner's spiel might sound like textbook, first-year MBA stuff, but the second part of it -- the cost-reducing, mass-producing part -- was mostly absent from the solar industry for its first half-century. Incremental efficiency gains were the industry's core focus, and solar companies tended to be small and mission-driven, with a university lab's sense of priorities. SunPower was, until recently, no exception: Founded in 1985 by a Stanford engineering professor, it spent its first 15 years building solar-powered aircraft prototypes for NASA and sci-fi solar concentrators shaped like satellite dishes.

"What's the purpose of solar?" Werner asks, switching to rhetorical mode. "It's to get energy, right? So then the question is, Will the cost of solar energy converge on the cost of the way you get energy otherwise? And in the '70s, the answer was definitively no." The answer was still a pretty strong no when Werner took the helm of SunPower in 2003. He'd been transferred from Cypress Semiconductor, which had recently bought the company, and was given the monumental task of bringing the price down to mass-market rates.

"Today," he says, "the cost of the grid's gone like this." He slices his hand sharply upward, indicating the skyrocketing price of conventional energy. "And the cost of solar is coming down. So that crossover point is imminent."

Werner calls that point the "levelized cost of energy," but in most of the industry the preferred term is "grid parity" -- that magic moment, which may arrive by 2012 or even sooner in heavily subsidized energy markets such as California, Germany, Italy, and Japan, when the price of a kilowatt-hour of solar energy is about the same as one generated by any other fuel source. Grid parity: It obsesses solar executives like a grail, rolls off their lips like a forceful boast or a solemn promise. Grid parity: not if, no longer if. Only when.

Under Werner, SunPower has rapidly reinvented itself, catapulting from the lab to the center of an exploding global market. At every turn, he and his team uncovered the weaknesses and irrationalities of an immature industry, particularly at the postproduction end, where installation costs often represent 50% of the total price of a PV system. In response, the company simply expanded into those markets. SunPower is unique in the business today in that it manages essentially its entire supply chain, from silicon ingot to installation. "We've industrialized this industry," says vice president Julie Blunden.

The company's timing has been impeccable. Every year since Werner's arrival, the global solar industry has grown by at least 40%. It has jumped from humble residential roofs to the wide, flat expanses of big-box stores and office parks, and graduated from rooftop array to greenfield power plant. Solar power was the planet's fastest growing energy source in 2007, and in recent years, demand has outpaced supply and given rise to the industrial-scale solar business's enviable lament: No company could seem to manufacture PV panels fast enough to meet demand. Today, solar is a $13 billion global industry, and it'll hit $40 billion by 2012 (unless it exceeds forecasts for the next five years as it has for the past five). Gigawatt-scale "fabs" -- that is, single production lines capable of producing enough panels every year to add 1,000 megawatts of installed capacity to the global energy mix -- are in the works in Germany, China, and Japan, while several American companies are poised to soon reach similar levels of production. SunPower's 2007 revenue came in at $775 million, triple the 2006 figure. The company estimates it will clear $1 billion -- with $90 million in profit -- in 2008.

Solar is a $13 billion industry today. It will hit $40 billion by 2012, unless it continues to exceed forecasts, as it has over the past five years.
Critics of crystalline PV -- particularly the heads of newfangled thin-film solar companies eyeing crystalline's 86% market share -- continue to suggest that it might never be produced cheaply or quickly enough to compete with other power sources in the long term. But when I present this critique to Werner, he responds with a sotto voce dismissal -- "Well, it's ridiculous" -- and then bullet-points me through SunPower's bona fides: that record 22% efficiency (against thin film's paltry 8% to 12%), its reductions in hardware and installation costs, its rapid expansion to 400-plus megawatts of production capacity. The thin-film startups can wave around all the jaw-dropping cost-per-watt estimates they want (some claiming production costs as low as $1 per watt, versus crystalline PV's average of $3 or more per watt), but Werner just points to SunPower's completed projects. Its recent installation at Nellis Air Force Base in Nevada was the largest PV plant in North America when it was completed last April: 70,000 panels mounted on 5,300 of SunPower's new tracking racks, which use GPS to adjust the panels' positions minute by minute, improving efficiency up to 30% all by themselves. (At least six much larger projects, including two by SunPower, are now in the works.) The tracking system, Werner tells me, is just one of the 185 patented technologies by which SunPower intends to stay well ahead of the thin-film arrivistes. As for nuke, with its 10-year-minimum lead times? "One nice way to get out of a nuclear argument is to say, 'Well, I'm worried about the next decade.' " And what about coal, trying to reverse the tide as more than 60 proposed plants are denied permits in the United States in the last year alone? "Fighting gravity."

Of course, there are caveats. Disclaimers and indemnities and asterisks. As Neal Dikeman, a partner at clean-tech investment firm Jane Capital Partners, argues, the variables built into the cost of a kilowatt-hour of electricity are so numerous and byzantine that grid parity itself may be an illusory near-term goal. The sunniest estimates of that blessed event, Dikeman notes, are based on the cost of generating more power when the demand is highest. But this peak-demand power -- the kind required by millions of air-conditioners at midday in California -- is only a single-digit percentage of the total generating capacity on most electricity grids, and the cost of producing the juice is just one of many line items on the average power bill, alongside transmission, distribution, and maintenance costs. And in solar's case, there's also the cost of reconfiguring the grid to account for hundreds of thousands of small-scale installations. So what does the version of grid parity touted by solar boosters amount to? "A legitimate sales tactic," Dikeman suggests, which "takes the best case to justify a subsidy to get down the cost curve." He says true grid parity is "still close to a decade down that curve."

Dikeman's guess is probably as good as any on that score, and he's certainly right that the solar industry's rise has depended on subsidies. Solar's growth has been largely driven by legislators, goosed along by various tariffs and tax incentives. But the energy business has long been a lonely place for free marketeers: According to British investment firm Ambrian Capital, the global renewable-energy industry receives about $11 billion in subsidies each year, versus $200 billion for fossil fuels, already a wildly profitable industry. So what's a clean, limitless power source worth? And what scale could solar reach if there were a similar national investment behind it? If U.S. capacity ramped up to equal the 10 gigawatts expected to come online worldwide in 2010, that would be enough to power 3 million homes and reduce greenhouse-gas emissions equivalent to taking 22 million cars off the road. As BP likes to say, it's a start.

The global renewable-energy industry receives about $11 billion in subsidies each year, versus more than $200 billion for fossil fuels.
Oil companies might greet such numbers with an eye roll, but solar execs are quick to point out how far the industry has come. They like to quote solar's emerging corollary to Moore's Law, that digital-age observation that a semiconductor's processing power doubles every two years, even as prices plummet: The cost of solar, they'll tell you, drops by 20% every time volume doubles, and the market of the past 10 years has borne this out. The idea of industrial-scale solar power seems even less naive and futuristic when you look at California, which has become the main production hub and primary market in the United States. True, the state is riding a $3.3 billion earmark package from Arnold Schwarzenegger's administration, but the impact of those incentives is impressive. One installer, Solar City, has grown from nothing to $29 million in annual sales in just two years. Another, Akeena Solar, has moved out of its founder's garage to 12 offices nationwide.

Then there's Applied Materials, a $10 billion Silicon Valley giant that built its fortune by producing manufacturing equipment for computer chips and flat-panel displays. Back in 2004, while it was struggling to recover from the dotcom bust, Applied went looking for new markets and quickly discovered that the cost of a solar panel was dropping with almost semiconductor quickness and that its manufacture looked quite a bit like making computer chips or giant LCD screens. That was more than enough to spur the company to a substantial expansion into the solar market. "When I went to the board in 2005, we said, 'This looks like it'll be a $500 million business in 2010,' " says Mark Pinto, Applied's chief technology officer. "And people said, 'Wow, you know, that's pretty good.' Now we're talking about $3 billion -- plus." A single Chinese startup, Best Solar, accounts for $1.9 billion of those sales; it plans to have Applied's thin-film SunFab machinery driving its production line by early 2009 -- and to reach 1 gigawatt of annual capacity by 2011. "Thin film is more utility scale," says Chris Beitel, who oversees Applied's solar operations. "It's not about the residential rooftop. It's about larger commercial rooftop areas, it's about office parks -- those are the areas where we're going to succeed."

But try telling that to Tom Werner. Under one recent contract, SunPower blanketed the roofs of 28 California Macy's stores in PV, the majority of them under a "power purchase agreement" that is quickly becoming the commercial-roofing standard. Under the deal, Macy's leases the rooftop space to SunPower for free and agrees to buy the panels' output at a fixed rate for the next 10 years. Macy's gets a competitive and stable electricity price in a volatile market, and SunPower simply gets a market. (Maryland-based SunEdison, which closed a $131 million round of venture funding in May, has solar-tiled the big-box tops of hundreds of Staples, Kohl's, U-Store-It, and Whole Foods stores in California and beyond under the same kind of arrangement.) In mid-August, SunPower announced the biggest deal in its history, a contract to supply California utility giant PG&E with 250 megawatts of PV. This comes as part of a commitment by PG&E to construct two mammoth solar farms by 2011, capable of generating 800 megawatts of power -- significantly more than the entire existing PV capacity nationwide. "This pair of deals actually changes the landscape of the solar PV industry," says Roy Kuga, vice president of energy supply at PG&E. SunPower's Blunden is even more ecstatic: "This is historic, monumental, tectonic -- those are superlatives that are fair to apply to the announcement."

It just might be, in other words, the solar industry's very own Hoover Dam -- the birth of the utility-scale solar industry in the United States. Which, by the way, is nowhere near the global industry's epicenter.

Solar power's rise has been fueled by sporadic bursts of political vision and courage. The ascent begins in Japan, where in 1994 the government introduced an incentive package in which it agreed to pick up fully half the cost of every installed panel for 10 years, spurring a handful of old-guard electronics firms to go industrial -- Sharp, in particular, still the No. 2 global producer. The recent and much more robust solar boom, however, began with Germany's Renewable Energy Sources Act. The German law, passed in 2000 (and since copied from China to California), is a "feed-in tariff" that obliges electricity retailers to buy power from renewable sources at above-market rates. The rates decline by a certain percentage each year for 20 years, depending on the source, at which point grid parity is presumed to carry on the work. An overhaul in 2004 placed particular emphasis on solar: Small, rooftop installations, for example, sell electricity back to the German grid at about six times baseline prices.

The German solar business promptly went supernova, precipitating a global polysilicon shortage from which the industry has only just recovered. (Silicon is the second-most-abundant element in the earth's crust and a chief ingredient in much of the world's sand, but silicon-processing companies were slow to realize they had an entirely new class of customer.) More than 100 solar companies have since set up shop in Germany -- more than half of them in the former East Germany (GDR) -- and now employ 57,000 workers and generate $7.3 billion in annual revenues. Seven of these firms have already vaulted onto the TecDAX 30, the technology index on Germany's stock exchange, now sometimes jokingly referred to as the "solar DAX."

The geographic center of the rapidly expanding German solar business is a decaying industrial belt south of Berlin, an East German reliquary that had been trapped in a seemingly terminal decline since the fall of the Berlin Wall. The world's first solar heartland has emerged literally in the shadow of communism's ruin, a place kissed by about as much sunlight each year as southern Alaska. A place with a name that sounds like a bad-weather curse: Bitterfeld.

Back in the days before the Wall tumbled, there was a German saying that went something like this: If we don't meet in this world, we'll meet in Bitterfeld. A once-proud little industrial burgh -- Agfa developed the first color photographic film in the area in the years before World War II -- Bitterfeld had been buried under an industrial blight so savage it seemed otherworldly. It had been turned into the Eastern Bloc's chemical and pharmaceutical workhorse after the war, dooming it to half a century of sloppy Soviet-style industrialization and a flagrant disregard for the environment. When the Wall finally fell, 55,000 of the 60,000 jobs in Bitterfeld's outmoded factories promptly evaporated.

The scars are still plainly visible in the boarded windows fronting the sturdy old brick buildings downtown and the industrial detritus beneath the rail-yard overpass, but I sweep past them in a smart new Mercedes taxi, bound for the site of Bitterfeld's startling renaissance. Out beyond the befouled chemical plants, on the edge of a village called Thalheim, I find a gentle hollow rapidly filling up with low warehouses; construction cranes and wind turbines stand against the gray horizon. This out-of-the-way industrial park has come to be known as Solar Valley, and the sprawling complex at its center houses the operations of Q-Cells, the biggest company by market cap on the TecDAX and, since mid-2007, the world's largest manufacturer of crystalline PV cells.

"We liken it to the car industry and say the status we're now at -- the cells you see out there -- that's kind of Tin Lizzy," Stefan Dietrich, the company's head of public relations, tells me. "That's the T-Model Ford. That's where we're standing."

Dietrich means it metaphorically -- that the whole industry stands at that birth-of-an-industrial-age spot -- but he could just as accurately make the case that solar's industrial age was born here, in this cafeteria, with the stern chemical industry vets in coveralls on one side, chain-smoking through their lunch hour, and the business-casual crowd from Berlin and beyond munching salads on the other.

One of the curious things about the GDR's chemical business, Dietrich explains, is that it bred workers skilled at applying chemical sealants to glass, an essential step in the production of a solar cell. So a trio of Berlin scientists and their partner, drawn by this skilled workforce and the ample subsidies available to any enterprise willing to relocate to the former GDR, began production in Thalheim in 2001. Having started in the cottage-scale solar business, they knew how hard it was to find a reliable supplier of PV cells, so they focused exclusively on making those. (This is like making engines instead of cars.) A staff of 19, including the founders, ran that first Q-Cells production line out of a quaint little wooden building. The company's payroll now numbers more than 2,000; annual revenue topped $1 billion in 2007 and will verge on $2 billion for 2008. The old wooden factory is all but smothered by the sleek, mirrored-glass facility in which Dietrich and I sit.

Dietrich mentions sort of offhandedly that Q-Cells might soon, by virtue of raw revenue alone, become the first TecDAX company ever to jump to the main stock exchange's DAX 30 -- alongside BMW and Deutsche Bank and ThyssenKrupp. "That really feels a bit strange," he says in his lightly accented English, his tone almost self-deprecating, like it can't quite be true.

After lunch, Dietrich and I don lab coats and booties to inspect the driver of this miraculous performance -- one of the five industrial-scale Q-Cells production lines up and running in Thalheim (two more are under construction). Dietrich leads me to a wide space filled with labyrinthine snakes of gleaming white metal and smoked glass linked together by robotic appendages and conveyor belts. "It looks like some '70s science-fiction movie," he tells me, hollering a bit over the machinery's hum as we watch flat squares of gray silicon cycle briskly through the system. These wafers, Dietrich notes, are barely half as thick as the ones used in 2003, and they come from REC, a Norwegian company that set up the first wafer plant dedicated solely to the solar industry. We follow along as the wafers pass through furnaces and chemical baths, get smeared with silver-aluminum paste and "printed" with electrical contacts. They turn deep blue and develop a mirror's sheen. In the final leg of the labyrinth, they are tested for efficiency (generally between 15% and 16.6%), stacked in cubes of 100, and packed in logoed boxes for worldwide shipment. The lines run three shifts a day, 24/7, churning out about 150 million cells per year -- 585 megawatts' worth this year, scaling up to a full gigawatt by the end of 2009. The foundation of a new German industrial powerhouse.

As the solar industry reaches maturity and expands into new markets, specialization has fast become the preferred business strategy. Highly efficient but relatively expensive crystalline PV cells such as Q-Cells' or SunPower's make sense if you're trying to power a home with limited roof area, but their efficiency comes at a lofty price. If you have an acre of rooftop (or a 100-acre field), then thin-film cells, which use nano-size layers of silicon or futuristic metal alloys -- either cadmium telluride (CdTe) or copper-indium-gallium-diselenide (CIGS) -- promise to do the job for a fraction of the cost. The thin-film game is dominated by ambitious startups, but Q-Cells, unique among first-generation solar companies, has jumped into the fray as well, launching a spin-off CdTe producer called Calyxo.

Unfortunately for the Germans, second-generation solar already has a superstar: Arizona-based First Solar, which has developed a CdTe panel for a production cost of an astounding $1.14 per watt, less than half the cost of its nearest rival at its debut. And by the end of 2009, the company plans to manufacture its revolutionary panels at gigawatt scale. CNBC's Jim Cramer has dubbed First Solar the "Intel of solar," helping to inflate its stock 1,000% over the course of 2007, peaking at 253 times earnings. The company's name now rolls off the tongues of even its most combative competitors with naked admiration.

Thanks largely to First Solar, second-generation thin-film technologies are now expected to grow even faster than the crystalline industry and to move from about a 14% market share to as much as 28% by 2010. That kind of growth attracts a crowd, of course, and already a would-be usurper claims to have bested First Solar's vertiginous dive down the cost curve with a rival technology. Nanosolar, based in San Jose, produced new CIGS panels for a test project last December that it claims will sell for 99 cents per watt -- 80% below the average for crystalline PV and more than 10% less than the production cost of First Solar's thin-film panels. That's low enough to flirt with grid parity in many markets even without a feed-in tariff. Nanosolar has secured $500 million in venture funding, $300 million of which it claims is still in the bank. That includes a $50 million deal with EDF of France, one of the world's largest utility companies -- just the sort of partnership that lends instant credibility to a risky new technology like CIGS.

Nanosolar's numbers have attracted such skepticism that its CEO, Martin Roscheisen, felt compelled to post a video clip to his blog demonstrating his company's new production tool in action. The video (which has drawn nearly 100,000 viewers since it was posted to YouTube in June) is a minute long and completely silent, with home-movie production values. Its sole subject is a large white chamber, which houses a machine capable of spreading Nanosolar's patented "nanoparticle ink" (CIGS semiconductor material in liquid form) onto a roll of flexible backing at the rate of a gigawatt per year.

According to Roscheisen's blog, the tool set the company back all of $1.65 million, which in this capital-intensive business is the equivalent of buying a license to print money. In fact, Roscheisen's revolutionary PV machine has more in common with a printer than it does with anything you'd find on the factory floor at Q-Cells. And if all goes according to plan, by early 2009 the machine will be the centerpiece of two up-and-running production lines, including a 500-megawatt facility located in -- naturlich -- a down-at-heel East German industrial town not far from Berlin.

In Nanosolar's repurposed beer-crate factory on the outskirts of Luckenwalde, I find Erik Oldekop, head of German operations. Oldekop offers me a tour of the half-empty factory floor, which is quickly filling with a range of conveyor-belted equipment and white robot arms to swish the cells from stage to stage in the production process. Oldekop points out a laminating machine that stacks 16 of the industry's standard laminators on top of each other -- a sixteenfold amplification, in other words, of a standard production line's throughput. "There's no reason why you couldn't have 100% of electricity generated by renewables," he tells me. "I'm not saying by solar, but by renewables, and solar is going to make a large contribution."

Anticipating my skepticism, Oldekop then draws an analogy between the energy business and the '80s-era conventional wisdom about mainframe computers. Nanosolar, he tells me, intends to begin by selling to Europe's myriad municipal utilities, small operations that can wire a 1-to-10-megawatt solar farm directly into the local grid, bypassing the costly national-grid transmission apparatus entirely. "Isn't the electricity company that actually uses central power plants -- isn't that the mainframe?" he suggests. "And we have very small power plants, 1 to 10 megawatts. Isn't that the PC?"

Radically distributed power production. That's the kind of talk that gets pulses racing, and I have to admit mine's doing exactly that as I follow Oldekop across the factory floor. Is this a Gatesian figure I've found here in the sleepy Saxon countryside? Could the solar skeptics be akin to the experts who reckoned, just 30 years ago, that computers would always be great whirring beasts that could never become more numerous than, say, power plants? Just 10 years ago -- maybe as recently as five -- I'm sure I could've filled Nanosolar's conference room with energy wonks who would have sworn I wouldn't be touring the nearly operational factory floor of a thin-film PV plant in eastern Germany in 2008. Of course, not even the Oldekops of the solar business think little sun-fueled power plants will be as ubiquitous as laptops a decade from now. But beyond that? The sky's the limit.

As persuasive as I find Oldekop's analogy, I still haven't laid eyes on a thin-film solar panel actually pumping out power by the kilowatt-hour. Fortunately, although First Solar is headquartered in Tempe, it too has a major manufacturing facility in eastern Germany. And so on one uncharacteristically bright morning, I take two trains and three buses out of Leipzig, then hike the last mile or so down a country road until I come, finally, to the site of First Solar's -- and the world's -- first industrial-scale thin-film power plant.

Maybe it's the Kremlinesque veil of silence around First Solar -- the unanswered emails and voice mails, the word from its local installation partner that there was "no chance" of a tour -- but as I trek up a dusty side lane, I half expect a Stasi jeep to come reeling around the corner. I slip past a low concrete restraining wall to find a high chain-link fence stretching away in either direction to points far over the horizon. Through the crosshatch I can see aluminum frames lined up row on row over an undulating pasture, filled to varying degrees with First Solar's thin-film panels.

So it exists. And it's growing: I can hear tools pounding on metal in the distance, and my six-month-old press release tells me at least 12.7 megawatts of thin-film solar produced here is powering German homes as I watch. When it's done, it will be, at 40 megawatts, Germany's largest solar installation, marking the commercial debut, after decades of lab-rat tinkering, of a second generation of solar power.

I have no direct experience with the wilds of Silicon Valley circa 1980, but I wonder if it felt about the same as this desultory industrial park in suburban Canberra, Australia. There's one of these, at any rate, on the outskirts of every city in the industrialized world -- a bland agglomeration of welding shops and fencing suppliers and landscaping companies housed in aluminum sheds in a dozen shades of beige. On one corner of this one, there's a small, single-story brick building with a couple of loading bays. Inside, I find an engineer hunched over a standard screen-printing machine, more or less identical to the ones they use to print Your Name Here on T-shirts down at the mall. He's using it to make solar cells.

The engineer's name is Graeme Evans, and he works for a small startup called Dyesol. He's dressed in a slightly ratty golf shirt, and if not for his blue surgical gloves, he could be working the drill press in his suburban garage. He's using the screen printer to spread a thin layer of yellowy goo on the surface of a rectangle of glass the size of a postcard, smearing it through a sort of stencil that divides it into six smaller strips in two rows.

The goo is titania -- titanium dioxide, more precisely, a plentiful, electricity-conducting material commonly used in toothpaste and paint -- and once it has dried, it leaves a porous coating of nanoparticles with an extraordinarily large surface area for such small strips. The glass panes will then be dipped in a rust-hued dye consisting most notably of a little-known metal called ruthenium and then fused to a second piece of glass coated in electrolyte. And that's how Dyesol makes its photovoltaics -- "dye solar cells" by name, a technology based on a breakthrough that emerged from a Swiss university in the late 1980s. The ruthenium dye absorbs available solar energy the way chlorophyll does, taking in electrons and transferring them to the titania layer to create electricity.

"The principle is just like a leaf," explains Sylvia Tulloch, cofounder of Dyesol. We're around the corner from the R&D building in a little green structure that looks like it should belong to a screen-door wholesaler. She points to a coaster on the conference-room table and to a patch of red berries in the festive scene it depicts. "As long as you can see that that's red, you know that it's absorbing light. And so it's not dependent on how much light is hitting it."

To her left, a handful of Dyesol cells have been mounted in a trade-show display stand. There are six small fans affixed to the sides of the stand, and they whir quietly as we talk. It's only when I stare down at the red berries on the coaster in the shadowy light that I get what's odd about that: We're indoors, and the room's windows are half-shaded by Venetian blinds. Dyesol's cells are spinning those fans with essentially no direct sunlight at all.

"That's one of the key advantages of dye-solar-cell technology," Tulloch explains. "It accepts light from all directions; it accepts light in all light conditions. And the other key advantage is its manufacturing process. You need very sophisticated equipment for either the first or the second generation, but for dye solar cells, there are kits sold for children. My son, when he was 9, made one and did a demonstration at school."

Dyesol is one of a rapidly expanding roster of firms worldwide experimenting with this third generation of solar technology -- a subsection of the lab usually referred to as "organic PV." Dyesol's key distinction, though, is its startling proximity to market readiness and the name of the business partner intending to bring it there: Corus, the industrial behemoth formerly known as British Steel. In early 2007, Dyesol signed a $1 million contract with Corus to assess the feasibility of incorporating dye solar cells into its prefinished-steel-roofing materials. Corus churns out 100 million square meters of this Colorcoat roofing for use in factories and warehouses each year -- more than enough to reroof every Wal-Mart in America -- and the process already involves applying layers of paint. Replace some random decorator color with the ability to generate clean power and the appeal would be obvious and enormous -- particularly in Europe, where makers and buyers of building materials are increasingly required to account for the emissions involved in producing them.

By the end of 2007, the project had cleared what Tulloch calls "the area of highest technical risk," in which it was determined that Dyesol's cells could in fact feasibly be printed on a massive unspooling roll of steel as it zooms down a production line at 3 to 5 meters per second. The government of Wales has since invested in the project, and Corus has converted one of its Welsh production lines into a demonstration facility for solar-coated steel roofing. The test phase continues through 2009, and there's little chance the product could be on the open market before 2011 -- which is likely why Corus is declining comment on the technology's potential for now "as a way of managing expectations."

Fair enough. After all, the prospect of Europe's second-largest steel producer integrating solar cells into 100 million square meters of roofing per year might set certain fevered minds racing.

"Can you imagine metal roofs all around the world that are power generators?" Dyesol COO Ross MacDiarmid asks me.

The truth is, I can. It doesn't even seem like an act of imagination anymore.



Chris Turner is the author of Geography of Hope, a global survey of sustainable technology.

A System's Approach to Sustainable Development

. . . "an era dominated by industry, in which the right to make money, at whatever cost to others, is seldom challenged."
~Rachel Carson

“Eradicating poverty is the greatest global challenge facing the world today and an indispensable requirement for sustainable development" . . .
~ A quote from the Plan of Implementation of the Johannesburg World Summit on Sustainable Development in 2002, cited by Ms Hilde Frafjord Johnson, Norway’s Minister of International Development on the GRID-Arendal website. GRID-Arendal is a collaborating centre of the United Nations Environment Programme (UNEP)



This post is about the connections between poverty, social justice and building a sustainable future. Dr. Warren Flint, internationally-recognized expert on sustainable development, wrote a very insightful commentary on his website Five E's Unlimited titled, A System's Approach to Sustainable Development and can be found here.

"Sustainability is about a transformation of human consciousness. Social and economic systems that force people to live in ecologically degraded places or choose between rent and food are not sustainable."
~R. Warren Flint, Ph.D., Principal of Five E’s Unlimited

Sustainability is much more than being “Green”

In 1962, Rachel Carson published the book “Silent Spring,” which exposed the dangers of insecticides and inspired the environmental movement. Sadly, as E. O. Wilson observed in 2002, "we are still poisoning the air and water and eroding the biosphere"40 years after Rachel Carson started us thinking about these things. Society’s present situation can be summed up by human disregard of natural laws, which is having disastrous consequences for the future of all life on Earth. Along with the possibility of the extinction of mankind by nuclear war, the central problem of our age has become the contamination of human's total environment with such substances of incredible potential for harm — substances that accumulate in the tissues of plants and animals, in the atmosphere, and even penetrate the germ cells to shatter or alter the very material of heredity upon which the shape of the future depends. A world without plants, animals, birds and fish is not sustainable.

And a global society that is driven by the emotion of fear cannot find the answers. Sustainability is about a transformation of human consciousness that will allow our small, endangered planet and its interdependent species of plant and animal life to survive, endure, and thrive. Fear, anxiety and denial are not sustainable. Only hope and the courage to act decisively are sustainable. And this action for global change begins on the local level because we must take drastic action to reduce the depletion of resources, carbon emissions, and other pollutants, which includes educating for sustainability.

Unfortunately, most people think sustainability implies converting SUVs to run on salad oil, or heating our homes with cow chips instead of oil or gas. These actions could certainly help, but sustainability is not just about driving a hybrid car, recycling newspapers and cans, turning the thermostat down or replacing incandescent bulbs with compact fluorescents. It's also not only about putting up windmills and solar panels, although these are real money-savers for those who can afford them.

Sustainability implies informed civic engagement and working partnerships among diverse groups in the community systemically/simultaneously considering economic, social, and environmental needs so that all people can enjoy a decent quality of life. Social and economic systems that force people to live in ecologically degraded places or choose between rent and food are not sustainable. Poverty, illiteracy, and disease are not sustainable. Offering expensive catastrophic medical insurance in place of health care that supports wellness for every man, woman, and child is not sustainable. Racism, sexism and homophobia are not sustainable. Hatred, violence and war are not sustainable.

Sustainability is about cherishing biodiversity and human wellness, equity, and freedom. It means maintaining economic security without contaminating the water, soil, and air. It requires creating economic and social systems that concurrently meet human physical needs, such as adequate clothing and shelter, nutritious food, a good job, and affordable health care, along with needs of the spirit like music and laughter, family and friends, and enjoying the wonders of nature.

Modern agribusiness is not sustainable when we ship fresh food 1,500 miles in gas-guzzling trucks instead of supporting local family-owned organic farms. Profit-based corporate practices such as injecting carbon monoxide into beef to make it look fresh and adding high fructose corn syrup to a wide variety of foods and beverages to save money, in defiance of studies that show they cause brain damage, diabetes and cancer, are not sustainable. Strip malls and mega-chains that depend on cheap, dirty energy and exploited workers are not sustainable.

A sustainable society needs an educated workforce comprised of people who work with their hands — farmers, fishermen and skilled craft and trades people — as well as teachers, doctors, and business managers. Sustainable education is interdisciplinary, multicultural, and holistic. Sustainable schools teach critical thinking and conflict resolution skills along with mathematical and scientific literacy. Schools without music, arts and real physical education are not sustainable. Ignorance of history, philosophy, world religions, and literature is not sustainable.

In a world desperately in need of compassionate problem-solvers who have imagination and creativity, inordinate emphasis on teaching to standardized tests is not sustainable. Sustainable schools encourage intellectual curiosity and empower children to be life-long learners and wise human beings.

Oral storytelling and written literature, philosophy, theology, science, and the arts have given us diverse visions of the interconnectedness of all creatures, great and small, which cling to the web of life. Even before Aristotle argued that beauty has an ethical dimension, the spider's web was admired by Native American and African storytellers as a shimmering symbol of the strength and fragility of life.

Sustainability is about stewardship, cooperation and moral responsibility — about treating all living creatures as embodiments of a universal spirit. It means learning from our mistakes and correcting them, as well as regaining a sense of proportion and caring about the world we live in enough to reduce needless acquisition of extravagant consumer goods that end up as mountains of garbage that leach toxins into the soil.

FSU Energy and Sustainability Center

Innovative Alternative Energy Solutions

The Energy and Sustainability Center (formerly Sustainable Energy Science and Engineering Center) addresses challenging alternative energy issues through innovative solutions for consumers and industry. The need for energy systems that have lower emissions of CO 2 and other greenhouse materials is of paramount importance.

Off-Grid Zero Emission Buildings (OGZEB)

ESC is almost finished with the first phase off-grid platinum LEED certified house/office, on FSU's main campus. This house illustrates cutting edge technologies for power systems and appliances. The house also demonstrates environmentally friendly building procedures. From material selection, site selection to clean site requirements and recycling leftover materials, this house rivals the top environmentally friendly buildings in the world.

OGZEB Documentation:

Follow the design and construction of the house
Current Design
OGZEB Features
Who's talking about the OGZEB??
Who is the USGBC??
What is LEED Certification??
Where are LEED Buildings Located??
Initial Proposal
Meet the OGZEB Design Team

The OGZEB team is a group of people from various engineering and architectural firms in Tallahassee that have donated their time and expertise to make the OGZEB. Without their help ESC would never have been able to get this project off the ground.

Meet the OGZEBs Donors

This group has donated several crucial systems and design concepts to the house. These companies have the foresight required to make the dream of this house a reality. Please visit their sites and learn more about how there technologies can help save you money and perserve our environment in the process.

The OGZEB is finishing up its last punch lists making sure everything is up to the standards of the design team. ESC is excited to add the OGZEB to the ranks of our facilities providing a test bed for our technology in a manner that we can not only test but also use. Two offices are planned to reside in the solar house so we can not only test our technology but also live it.
http://esc.fsu.edu/ogzeb.html