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Small Towns Chase America’s $3 Trillion Climate Gold Rush
The Inflation Reduction Act demands a leap of faith from communities around the country that are committing significant local resources in hopes of attracting new industry
By Phred Dvorak and Amrith Ramkumar, WSJ
April 23, 2023 12:03 pm ET
WALTERBORO, S.C.—Colleton County in South Carolina is a quiet rural district best known for its hunting, fishing and, recently, a sensational murder trial.
Now it is also a player in America’s new gold rush: a scramble for $1 trillion in federal tax incentives and loans for green energy that is fueling a flood of corporate investments and reshaping local economies.
The spending is one of the biggest outlays of taxpayer-financed industrial stimulus since Franklin D. Roosevelt’s New Deal. If successful, it could transform the nation’s economy by creating millions of jobs and driving up to $3 trillion in total clean-energy investments during the next decade.
The made-in-Washington initiative also demands a leap of faith from small communities around the country that are committing significant local resources to attract businesses, sometimes in unproven industries. Some have been burned before.
In December, Colleton snagged a $279 million investment from Kontrolmatik Technologies Energy and Engineering, a Turkish firm that is hoping to get nearly $1 billion in federal tax credits over the next decade by building a battery-making plant in the U.S. Kontrolmatik wants to tap into the renewable-energy sector’s need to store electricity for release onto the grid when the sun isn’t shining or the wind isn’t blowing.
The Colleton facility plans to produce three gigawatt-hours’ worth of batteries each year—enough to power 540,000 homes for an hour. It promises to employ 575 people at some of the highest wages around. In return, the state and county are offering land, grants and local tax breaks.
“I’ll be honest, I have no idea what a gigawatt-hour is,” Colleton County Council Chairman Steven D. Murdaugh told local leaders at a February groundbreaking ceremony. “But I do know what a $279 million investment will do for our county, and I know what impact 575 jobs will have on our community.”
Mr. Murdaugh is a cousin of Alex Murdaugh, who was recently convicted on charges of double homicide here, and the groundbreaking provided a rare break from that news.
Kontrolmatik Chief Executive Sami Aslanhan traveled to the ceremony from Turkey, conspicuous with a diamond stud in one ear and long hair pulled back in a bun. Locating the facility in rural South Carolina was “a surprise for me,” he said. Kontrolmatik had considered sites in Europe and the Middle East for its second plant, he said, noting that the U.S. law that introduced the tax credits “was an important point to shift our investments to here,” he said.
State and local authorities chipped in incentives to attract Turkey’s Kontrolmatik to Colleton County. Photo: Michael Wiser For The Wall Street Journal
The federal laws, most notably the Inflation Reduction Act passed in August, offer huge subsidies aimed at shifting the nation to renewables and building new industries to compete with clean-energy powerhouse China. They sparked about $150 billion in investment announcements in renewables and battery storage in the eight months after the act passed, according to the American Clean Power Association, a clean-energy industry group.
Tens of billions of dollars more have been announced for electric-car batteries, clean hydrogen and carbon capture. The 2021 infrastructure law provides billions on top of that in federal grants and direct spending.
Estimates of the total private-sector and public spending over the next decade driven by the Inflation Reduction Act alone range from several hundred billion to about $3 trillion.
“This is massive and unprecedented investment,” said Philip Jordan, vice president at BW Research, which studies how policies impact the workforce and economy. “It will reshape some local economies and it will revitalize and strengthen others.”
Companies such as chemical-maker Air Products and Chemicals Inc. have said they will invest billions of dollars in plants that produce hydrogen, a potential alternative to fossil fuels for transportation and industrial processes. Auto makers and battery manufacturers are announcing multi-billion-dollar factories to produce the parts needed for an expected surge in electric vehicles.
Energy giants are planning to partake in the subsidy bonanza as well. “This is not a game for startups,” Exxon Mobil Corp. CEO Darren Woods told investors in January.
More investments will come after the Treasury Department clarifies the fine print of how the tax credits will work. SolarEdge Technologies Inc., which makes equipment that converts energy from the sun into electricity, will invest between $125 million and $250 million in its first factory in the U.S., depending on how Treasury characterizes its devices, chief financial officer Ronen Faier said. The company previously built plants in cheaper countries such as China, Mexico and Vietnam.
Mr. Faier recently toured several potential sites in southern states and was shown old factory locations that used to house electronics or medical-device manufacturing that could be repurposed.
Large swaths of the investment so far are flowing to southern, Republican-leaning states such as South Carolina, Georgia and Tennessee that generally have lower labor costs and taxes.
Skeptics warn the subsidies could stoke already high inflation and waste money without creating lasting economic benefits. Some of the proposed investments will flop or never materialize as financiers balk at funding them or business models fail to pencil out—particularly for new technologies such as clean-hydrogen production. When projects fail, they could leave taxpayers in some communities with little to show.
In West Virginia, some state senators recently opposed the state contributing funding to a manufacturing facility for a new energy-storage technology: iron-air batteries that could store clean power for several days.
The state is expected to contribute a total of about $290 million to the roughly $750 million cost of the facility located at an old steel mill near the Ohio River. The factory will be the first big production site for startup Form Energy, which is backed by investors including steelmaker ArcelorMittal SA.
“We’ve got a battery company that’s never made a battery. I don’t know how you can call that anything other than a wild gamble,” West Virginia Republican State Sen. Robert Karnes said at a February legislature meeting.
The state legislature and Republican Gov. Jim Justice eventually approved the funding, citing the roughly 750 jobs the plant would bring. The state will own the land and building and some of its investment is contingent on the jobs being created and other conditions. Form Energy declined to comment.
In August, Republican South Carolina Gov. Henry McMaster joined Sen. Lindsey Graham for a press conference at the state’s legislature building where Sen. Graham called the Inflation Reduction Act a “nightmare” for the state and a “power grab in the name of climate change.”
Still, South Carolina last year scored a record $10.3 billion in proposed capital investment, mostly for clean-energy-related facilities. In October, Mr. McMaster signed an executive order aimed at attracting EV-related businesses to the state.
At an address in January, he thanked Bahadir Yetki, the chief executive of Kontrolmatik’s U.S. unit, and representatives from BMW AG, battery-recycling company Redwood Materials Inc. and electric-vehicle battery maker Envision AESC Group Ltd. The companies had pledged to invest about $6 billion in the state in recent months and stand to benefit from the new federal tax credits.
At Kontrolmatik’s groundbreaking ceremony, Mr. McMaster said in an interview that the Inflation Reduction Act, which also includes provisions to raise some corporate taxes, would hurt businesses and could end up increasing inflation. But he said “if the companies can get through all that,” the incentives could help. As for clean energy, Mr. McMaster said he was all in. “That’s the way the world is going now,” he said.
Kontrolmatik, which is listed on the Istanbul Stock Exchange, was founded in 2008 as an engineering firm but has branched into software and electrical equipment for power projects. The company plans to open its first battery-making factory in Turkey in the next few months.
After the passage of the Inflation Reduction Act, Kontrolmatik decided to build its second battery plant in the U.S. The company started looking at more than 200 potential sites in 20 states. By December, the company had winnowed the candidates down to Oklahoma, Arizona and two sites in South Carolina.
From the start, Colleton stood out for how eager it was, Mr. Yetki said.
Most of the county’s land is undeveloped and more than 60% of Colleton’s roughly 17,000 workers end up heading to other counties in search of better pay, according to a county-planning document published in 2020. Wages are 25% lower than the state average and 40% lower than the national average, according to the Bureau of Labor Statistics.
The local Colleton utility spent several million dollars to set up an industrial park but for two years had failed to land a tenant. Photo: Michael Wiser For The Wall Street Journal
Colleton has a handful of manufacturers, ranging from makers of ball-bearings to mattresses. One, which made drive belts for motors, had struggled and eventually moved away as the market shriveled.
The competition among local communities to attract investments is intense, said Heyward Horton, Colleton’s economic-development executive director. The local utility had spent several million dollars over six years to set up an industrial park complete with a power hookup ready to go, but for two years had failed to land a tenant.
When South Carolina’s Commerce Department told Mr. Horton’s office about Kontrolmatik’s search for a site, he jumped at it.
The county and state rolled out an incentive package worth an estimated $127 million, according to public documents filed in Turkey. That includes a potential $11.5 million in tax credits for jobs created, other tax breaks, a parcel of free land and a million-dollar grant from the local utility to help build out infrastructure needed for the project.
“It’s the largest [investment] announcement in Colleton County history,” said Mark Walling, CEO of the utility, Coastal Electric Cooperative Inc. “We went after it. We were aggressive.”
Other small communities, which have been through booms and busts caused by fickle federal incentives, aren’t betting the farm this time. In 2007, state and local leaders offered millions of dollars in loans and tax credits to attract TPI Composites Inc., a wind-turbine blade maker, to Newton, Iowa, to make up for the closure of a big Maytag appliances plant. The next year they offered more than a million dollars to a manufacturer of wind towers that was the predecessor of Texas-based Arcosa Inc.
But by 2021, TPI’s Newton plant was struggling from the high costs of U.S. manufacturing and the looming expiration of a federal tax-credit program. That December, TPI closed the plant. Meanwhile, the expiring tax credits also hit Arcosa’s sales, and the Iowa factory laid off more than 80 workers.
Now that wind developers are again able to get tax credits, Arcosa said it is hoping for a bump in orders that will let it ramp up production. The company is posting ads for welders and a recruiter in Newton.
At TPI, CEO Bill Siwek said his company could get tax credits totaling around $80,000 per blade—enough to wipe out the labor cost differential with other countries “and then some.” He hopes that he can rehire many of the plant’s roughly 1,000 former workers, although he said it’s still unclear what will happen when federal subsidies go away in around 10 years.
Newton economic development specialist Craig Armstrong said the city isn’t offering any incentives this time. The wind companies are a welcome boost, Mr. Armstrong said, but if things go south, “they’re not the Maytag of Newton.”
In Lincoln, Neb., hydrogen startup Monolith was eyeing about 40 sites around the world for its future plants but is now only considering domestic locations while it builds its first big facility in the cornfields of nearby Hallam.
Monolith is developing a new process that uses natural gas to produce hydrogen—a key ingredient in fertilizer—then captures the associated carbon emissions and turns them into a material that can be used in products such as tires. Founded over a decade ago, the company expects to receive a $1 billion loan from the Energy Department.
“There’s going to be a whole bunch of development in parts of the country that weren’t traditional energy centers,” CEO Rob Hanson said.
Sheila Taylor, a member of the Village of Hallam board, said locals mostly support the Monolith project after the company addressed their worries about the plant’s high water consumption and possible noise. She can see the plant from her house.
“It’s an exciting thing for the town,” she said. If Monolith failed or left for any reason, “there’d be massive disappointment across the board.”
Write to Phred Dvorak at phred.dvorak@wsj.com and Amrith Ramkumar at amrith.ramkumar@wsj.com
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