San Jose Aims to Be Home of ‘Clean Technology’

San Jose Aims to Be Home of 'Clean Technology'

By PUI-WING TAM and JIM CARLTON
From The Wall Street Journal Online

 

When solar-power-technology company Nanosolar Inc. was deciding last year where to put a new manufacturing facility, the Palo Alto, Calif., firm was courted by cities world-wide. But its most aggressive suitor was the nearby town of San Jose.

San Jose officials promised Nanosolar not only expedited business permits, as other cities did, but offered a $1.5 million grant and said it would help to retrain local workers in skills needed at the new plant. San Jose officials served as property brokers, identifying vacant industrial parks and showing Nanosolar executives around to spare the company the cost of a real-estate agent. During the months-long courtship, city officials met with Nanosolar executives more than a half-dozen times.

The big attraction? Nanosolar is part of the "clean tech" sector, which many see as a successor to high tech in driving growth in the coming years. While classic high-tech companies made computer servers, chips and PCs, many companies involved in clean tech — often small start-ups — focus on making alternative energy sources, such as solar panels, and products aimed at improving energy efficiency, like software that helps monitor water use.

San Jose, considered the capital of Silicon Valley as home to high-tech bellwethers such as Cisco Systems Inc., eBay Inc. and Adobe Inc., is trying to reinvent itself as a center for clean tech — and in the process is providing a glimpse of where the Silicon Valley economy may evolve next. While the region has long been a cradle for high tech, the area has in the past 18 months become fixated on investing in clean-tech companies. In 2006, North American venture-capital investment in this sector soared to $2.9 billion from $1.6 billion a year earlier, according to the Cleantech Venture Network, an industry group.

In December, Nanosolar announced it would take a 647,000-square-foot building in San Jose. The facility, which will create at least 200 new jobs, is set to open later this year. "We looked at virtually every city and had the mayors of every city calling us, but San Jose is shaping up as one of hottest spots for clean tech," says Martin Roscheisen, chief executive of Nanosolar, which has raised $100 million in venture capital and counts Google Inc. founders Sergey Brin and Larry Page among its backers.

San Jose wants a piece of this action because it needs to diversify its economic base, which has been reliant on companies that make traditional technology like software, routers and servers. That dependence hit the city of 954,000 hard during the tech bust earlier this decade. At the time, about one out of every 10 jobs in San Jose disappeared. Its tax revenues fell 27% during the 2002-2003 tax year. "The bursting of the dot-com bubble was a significant wake-up call," says Paul Krutko, San Jose's chief development officer, who calls the city's clean-tech push "one of our highest priorities."

But Silicon Valley's largest city faces plenty of competition — and hurdles — in trying to establish itself as a clean-tech destination. Besides Silicon Valley neighbors such as Santa Clara and Sunnyvale, big cities further afield including Austin, Texas, and Sacramento, Calif., are pursuing similar strategies. These are a particular challenge to San Jose, as it is more costly to do business in Silicon Valley than elsewhere in the nation. In 2006, wages in San Jose averaged $66,200, nearly twice the national average of $37,870, according to the Bureau of Labor Statistics and the California Employment Development Department.

Austin, for one, claims it already has the lead in clean tech. The Texas capital, which says it is home to more than 50 clean-tech companies, was recently ranked as having the most friendly conditions in the country for clean-tech companies by SustainLane, an independent research firm in San Francisco. San Jose was ranked second in the survey. "The edge Austin has over San Jose right now is the fact we have uniform support from the city, state and local utility," says Joel Serface, director of the Clean Energy Incubator, a nonprofit Austin group sponsored by the city of Austin, the state of Texas and the University of Texas.

San Jose officials acknowledge their push into clean tech is nascent but point to early successes such as the Nanosolar decision. Overall, the number of licensed businesses in San Jose involved in researching or producing clean tech jumped 83% last year to 22 firms, city officials say.

San Jose officials say they can draw from the overall clean-tech ferment in Silicon Valley, where local venture capitalists including Kleiner Perkins Caufield & Byers partner John Doerr are investing in local clean-tech firms. Warren Karlenzig, chief strategy officer for SustainLane, adds that "San Jose has a huge advantage because they've got [universities] Stanford and Berkeley nearby and there are a lot of companies with a lot of personnel in Silicon Valley."

To attract clean-tech firms, San Jose is pursuing a two-pronged strategy: Stoking local demand for clean-tech products and crafting economic incentives. In 2005, the city launched a fund to invest in local fast-growing tech companies, including clean-tech firms. In August, San Jose's economic-development agency hired a staffer dedicated to the clean-tech industry, who in June will present a tax-break plan to lure such companies into the city.

To spur demand for clean-tech products, San Jose in March adopted a "green" building policy requiring new municipal buildings to be water- and energy-efficient. In October, it launched an Electronic Transportation Development Center to promote vehicles such as buses using clean and renewable energy.

Policies such as free downtown parking for those with hybrid or electric vehicles bought in the city were a major attraction for Fat Spaniel Technologies Inc., a San Jose company that makes products to measure and monitor energy consumption, says company president Chris Beekhuis.

Still, San Jose can't yet claim to be a clean-tech capital. In late 2005, Miasole Inc., a maker of solar cells, left San Jose for nearby Santa Clara, where the company calculated lower electricity rates could cut nearly a third of its monthly $15,000 electric bill. NuEdison Inc., a four-person clean-tech start-up in San Jose that is considering where it should expand, says it has been wooed more assiduously by Sacramento and Marina, Calif., than San Jose.

San Jose-based solar-panel and cell maker SunPower Corp. says it plans to nearly double its 300-person work force in the city by the end of this year. As the company also considers other cities in further expansion plans, CEO Thomas Werner says San Jose is one of its most ardent suitors.The city's new mayor, Chuck Reed, paid a visit to SunPower after his election in November. In a speech in March, he proposed showcasing local solar technologies by installing solar-power panels on city buildings. "The tone at the top is very favorable," Mr. Werner says. "He totally gets it."

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