by Ryan Randazzo – Apr. 9, 2011 12:00 AM – The Arizona Republic
Economic-development leader Barry Broome answered a phone call in late January from Tempe-based First Solar Inc.
“You won,” said the voice on the other end. Broome sighed in relief. The good news delivered during the call was the culmination of more than three years of work by the Greater Phoenix Economic Council to land a major solar-manufacturing operation in Arizona. As negotiations had progressed, especially in the intense past few months, Broome saw the state’s reputation as the nation’s “solar capital” on the line.
The factory will employ 600 people in Mesa, but it signifies more than that. The facility, operated by an Arizona-based company that is a major international player in solar-panel production, will make Broome’s job of attracting more alternative-energy companies easier.
Had Arizona lost the factory to Austin or Albuquerque, it might have been impossible to attract other solar companies to Arizona, he said.
The intense, secretive negotiations that brought the $300 million factory reveal how much government and economic-development entities can be willing to offer up to attract major employers.
First Solar wrangled at least $51.5 million in potential incentives out of the state, county and city, bought its land at a steep discount, and – perhaps the clinching factor – scored a discount on its power bills.
Company officials declined requests to comment on specific subsidies, tax breaks and other perks they are likely to receive for the factory. Information was culled from the public bodies that made offers to help land the project.
Development officials contend that although First Solar got a variety of perks, the deal is good for the state because it will bring quality jobs and tax revenue.
“If these guys ended up in Austin, we’d be dead meat,” Broome said. “We felt we would lose the whole industry to Texas. We felt we would lose the Tempe headquarters, too, and lose the whole industry position.”
Landing the project also could benefit the region over time. Through expansions, it could one day represent a $1.6 billion investment where 4,800 people work. First Solar has not committed itself to building subsequent phases, but those figures are cited in public records related to the incentives.
The solar company, which grew out of an Ohio glass company launched in the 1980s, was tight-lipped about the deciding factors on the site selection.
But Broome said Mesa was able to land the factory without giving away as much as the competition had promised.
“The incentive from New Mexico was staggering. It was, like, hundreds of millions of dollars,” Broome said. “New Mexico was even offering to finance the construction of the building. Texas was a good $20 million less expensive than us.”
GPEC first got word that there was a large company sniffing for factory sites in the region in early 2010 and officially got a call from a global consulting firm called CH2M Hill in August.
Without disclosing the name of the company, CH2M Hill officials said several states were being evaluated for a massive factory and asked GPEC to put together its best site proposals.
First Solar President Bruce Sohn would later say that company executives “spent countless hours spanning the globe looking at many countries, many states, and many sites for exactly the right place that would fit our demanding manufacturing requirements.”
GPEC called the opportunity “Project Billion” because the mystery company wanted a site large enough to develop into a $1 billion factory through expansions.
Broome and other GPEC officials tried to determine what company it was so they could tailor their response, but with no luck. GPEC represents 20 communities, but because of the substantial acreage and power demands of the factory, there were few sites that could accommodate Project Billion’s specifications. GPEC presented the options to CH2M Hill and waited.
A month later, Heinrich Eichermueller, senior vice president for manufacturing expansion at First Solar, called Broome and told him that First Solar was the company behind Project Billion, and that metro Phoenix was one of 10 areas under consideration. GPEC officials were required to enter privacy agreements to protect the company’s identity. GPEC took to calling the factory “Project Cookie.”
“When these deals first come out, you don’t really even know who you are talking to because everything is on the QT,” Mesa Mayor Scott Smith said.
Mesa officials, also working under privacy agreements, showed First Solar the former General Motors Desert Proving Ground land near Phoenix-Mesa Gateway Airport, and the company was immediately interested because the zoning and planning already had been completed.
It was the only property in the region that would be able to meet the company’s short timeline.
But the negotiations hit several snags when the landowner, DMB Associates of Scottsdale, and First Solar’s consultants came to an impasse.
Meanwhile, First Solar was conducting similar negotiations in Texas and, at least initially, in New Mexico.
DMB officials had to go back and forth with First Solar’s consultants to negotiate what would be included in the price of the land and what would be purchased as options and what would be bought outright.
DMB officials only knew they were dealing with a manufacturer in the clean-technology sector.
DMB had assurances that whatever company it was, it would pay high wages and not generate any kind of noxious fumes or other emissions.
First Solar will use about 270 acres if it exercises all the options it purchased with DMB, which controls about 3,200 acres in the area.
“We were very aggressive in the pricing of this because having a major employer at the Mesa Proving Ground was important to the community and the region for a lot of reasons,” DMB Chief Operating Officer David Bruner said.
Bruner said DMB’s offer was revised several times.
“At end of the deal, when things weren’t going perfectly, we reached further into our pockets to make modifications to make sure the deal got done,” he said, declining to disclose the sale price.
Mesa also pitched in, agreeing to pay for as much as $10 million in infrastructure such as water and wastewater connections.
Smith said the negotiations showed how “hungry” Arizona was to make its name in solar and for Mesa to land an anchor tenant near the Phoenix-Mesa Gateway Airport to spur housing and other development.
It also showed that First Solar was not going to spend $300 million or more on a factory in Arizona simply because its executives are headquartered here.
“They made it clear this deal was done on its merits,” Smith said. “We had to win this contest. There were no gimmes because we were in Arizona.”
First Solar officials eventually came back to Broome at GPEC and said that of three final sites, which included Albuquerque and Austin, Mesa was ranked No. 2, because electricity prices in its No. 1 choice city were cheaper, Broome said.
GPEC and other development officials studied what power expenses would be for First Solar in Albuquerque and Austin and figured Austin must have been No. 1.
Salt River Project officials then made First Solar an offer to discount the factory’s electricity and to split the upfront cost of a $5 million substation the factory will need and allow First Solar to repay that expense over time, SRP Chief Financial Executive Mark Bonsall said.
SRP officials would not disclose the discount offered on electricity, except to say it was less than 10 percent. The Arizona Republic has requested the offer through the state’s public-records law because SRP is a political subdivision of the state. The utility declined the request.
Bonsall said that SRP officials evaluated the discount to First Solar and determined it would benefit all SRP customers.
The utility has extra power generation available because demand has slowed with the recession. It is more lucrative to sell that excess power at a discount to First Solar than to sell it on the market to other utilities, Bonsall said.
He said a similar deal was offered to Intel Corp. for its recently announced factory expansion in Chandler.
The SRP offer put Mesa over the top, and First Solar’s Eichermueller soon placed a call to Broome and other Arizona representatives.
‘Kudos’ to Mesa
An official at the Greater Austin Chamber of Commerce congratulated Mesa on landing First Solar but was surprised at the details Broome described.
“Industrial power rates here in Austin are substantially cheaper than in other parts of the country, so if Arizona was able to beat what we were offering, then kudos to them,” said Jose Beceiro, director for clean-energy programs at the chamber.
He said First Solar officials visited Austin and looked at various sites, but the city never got to the point of negotiating its various incentives with the company.
Beceiro said one of the important factors in First Solar’s decision was the renewable-energy standard that the Arizona Corporation Commission imposes on utilities, requiring them to get 15 percent of their energy from renewable sources like solar by 2025.
Personal touches helped Arizona, too, said Don Cardon, CEO of the Arizona Commerce Authority.
“Governor Brewer was engaged with (First Solar President) Bruce Sohn to pursue him, which you really can’t discount,” Cardon said. “Governor (Rick) Perry from Texas was doing similar things to recruit them to Austin.”
The Texas Economic Development Council did not respond to interview requests for this story.
Cardon, whose agency also is providing a $2 million incentive to First Solar, said that rather than one single incentive, it was the coordination of several entities in Arizona that won the deal.
“At the end of the day, it was having a variety of investment tools,” Cardon said.