The clean-tech industry is booming in California, with more money being invested in solar and other alternative energy start-ups than anywhere else in the world.
But the state's dominant position is being threatened by competition from China and an upcoming ballot initiative that could undercut the industry's growth, according to two new studies unveiled Wednesday.
So far, the state's green-tech industry, which includes electric vehicles, eco-friendly buildings and solar energy projects, has provided California with a much-needed economic boost.
More than 40% of all clean-tech venture capital funding worldwide went to firms in California as investments in those companies more than tripled to $2.9 billion in the first half of 2010 compared with a year earlier, according to a study from nonprofit research group Next 10.
But California's lead could be precarious, the studies cautioned.
Proposition 23, a controversial initiative on the November ballot, would suspend a California law that requires utilities in the state to obtain a third of their power from renewable sources by 2020 until the state's unemployment rate drops to 5.5% for at least a year.
Opponents of the initiative contend that, if passed, the proposition could cause billions of dollars in investment and hundreds of thousands of jobs to evaporate as green-tech companies, uncertain that there would be demand from utilities without the renewable sources requirement, pull back or kill projects altogether.
Clean-tech companies in Los Angeles and the Bay Area together employ about 20,000 manufacturing workers, according to the Next 10 study, which was conducted by Collaborative Economics.
Competition from overseas is also intensifying. China's green industry has lower labor costs, higher productivity and better incentives, according to Clean Edge Inc., a Portland, Ore., research firm that also released a report Wednesday.
European powerhouses such as Germany and Denmark are eyeing the market, and Mexico's burgeoning green industry is being viewed as a cheaper alternative to doing business in Southern California.
Domestic threats are also looming. Boston, backed by academic brainpower at MIT and Harvard, placed third in a list of the nation's top 15 regions for green jobs and businesses compiled by Clean Edge. It was followed by New York, with its deep-pocketed financial firms.
The Bay Area topped the rankings and the Southland was in second place. The San Diego area, with its strong solar and biofuel presence, ranked seventh, and the Sacramento area claimed the 15th slot.
Still, some California companies say they are fed up with the state's notoriously labyrinthine permitting process and overlapping regulatory agencies.
"I don't see a real benefit to staying here," said Arnold Klann, chief executive of BlueFire Renewables of Irvine. "I'm dead serious — all the good boils down to the weather."
BlueFire ran into "a maelstrom of problems" while trying to build a cellulosic ethanol production plant in Lancaster. Development should have taken less than a year but instead required more than two years, Klann said. Then California raised its sales tax, adding more than a million dollars to the cost of the project and stalling the financing process.
The company is preparing to break ground in the next few months on a biofuel refinery in Mississippi. The project, which is four times the size of the Lancaster facility, cost the same amount to develop and permit — but took just nine months.
"This is unfortunately the reality of doing business in California — a state that takes extreme amounts of money and coddling to get everything put together," Klann said. "It's like night and day with other states."
For now though, many of the nation's biggest clean-tech projects are taking place in California.
The amount of solar energy that existing installations can generate has boomed to five times as much capacity in the state since 2007, according to Next 10, with solar power produced in residential neighborhoods exploding 42% last year alone.
The use of alternative fuels is stagnant around the country but is steadily increasing in California, where the number of alternative fuel cars as a percentage of all vehicles is more than double that of other states.
The Bay Area has become the "true epicenter" of the country's green market based on green jobs and companies as well as recent job postings, local investments and patent activity in several metropolitan areas, according to Clean Edge.
Silicon Valley companies alone grabbed $1.2 billion in clean-tech investments last year, or about half of the total spent in the state. And as most industries struggled to recover from the recession, green funding tripled last year in San Diego, Next 10 found.
Meanwhile, the Los Angeles region, with roughly triple the population of the Bay Area, is lagging behind its northern competitor with less than a quarter of its funding over a three-year period ending in mid-2010. The Southland had just 50 clean-tech deals compared with San Francisco's more than 230 investments, Clean Edge found.
And in all but one of the seven job-posting sources the research firm tracked, there were more listings in San Francisco than in Los Angeles.
But some companies say Los Angeles has advantages that could help it in the long run.
The region is teeming with tens of thousands of already trained and experienced crafters and technicians — surfboard shapers, welders, lens manufacturers — that clean-tech companies rely on to create their technology, company executives said.
"We love being in L.A.," said Riggs Eckelberry, chief executive of algae biofuel company OriginOil Inc. in Los Angeles. "With access to a huge infrastructure of resources in this town … there's not a single thing we can't get."