The big playback: the green industry entrepreneurs a chance to thrive through innovation.
After establishing an electrical contracting business, Holston carved out a niche for himself by adding solar energy to his offerings and, in 2007, established Solar Electric Inc.
Industry studies show that green power companies like Holston's can expect to generate a lot of their own green in the coming years, says Chris Busch, policy director of the Center for Resource Solutions, a San Francisco-based environmental policy group that offers consumer protection services in markets for environmental commodities. 'There was $155 billion spent on everything from research and development of new clean energy technology to new clean energy projects in 2008," Busch says. "Revenue for clean energy is expected to grow to $325.1 billion in 2018, and that's just on the demand side for renewable energy technology. We're not even talking about the money for venture capital investments that goes along with that."
The solar electrical segment of the green power industry has grown 30% to 50% in the past 10 years, and the current credit crunch isn't likely to stop future growth, says Mark Burger, principal at Kestrel Development Co., an Oak Park, Illinois-based renewable energy policy and market development firm, and president of the Illinois Solar Energy Association, of which Holston is a member. "Because of very strong policy and incentive support from the Obama administration as well as the growth of the policy and incentive support in many states, I think the solar photovoltaic industry will continue to grow," says Burger.
The $789 billion American Recovery and Reinvestment Act signed by President Obama may help lower the cost barrier of renewable energy technology, keeping small green power businesses alive and the long-term outlook of the industry and the economy on track. The stimulus package extended the Production Tax Credit, a provision that gives a business a 1 to 1.5 cent premium for every kilowatt hour that its renewable energy system produces. (This provision does not apply to solar facilities.) In lieu of the Investment Tax Credit, developers can apply for grants that equal 30% of the cost of eligible projects that are started in 2009 or 2010, and the grants are applicable to all renewable energy, including solar. "The signals from the Obama administration are that policies to move the industry forward, both in the energy-specific and broader climate areas, have not been forgotten and that investing in the clean energy economy of the future is still a priority," says Busch. "Indeed, the recovery package is a down payment on this long-term goal and also shows that spurring clean energy investment is recognized as part of the larger effort to get the economy moving again."
As the money from the stimulus package makes its way through the economy and the cost of solar photovoltaic technology becomes cheaper, Burger says the technology will eventually become a standard item in residential and commercial construction, such as large installations on flat roofs or structures that shade parking lots. He says he also expects more electrical contractors to follow Holston's example by adding solar to their offerings.
"That you have electrical contractors like Erik and his company getting into the business is a very good sign because it shows that the construction and building trades, which have been rather conservative, are realizing the benefits and the opportunity in solar and other renewable technologies, and it becomes an important business line for them. It then becomes important for the public because this shows that this technology isn't something exotic or esoteric. It's very promising when somebody can look in the phone book or online and see there's someone in their community who can do this stuff," Burger says.
CONVERTING THE MASSES
Solar Electric Inc. provides renewable energy solutions to clients to create clean electricity using photovoltaic systems while reducing energy consumption and saving money; the company also offers a full array of electrical contracting services. The solar contracting side of the business handles solar installations for residential, commercial, institutional, and industrial entities. Last year, the company grossed more than $2.5 million, 20% of which was from the solar side of the business.
While Holston hopes to move forward on some of the large-scale projects he's been negotiating, he knows that his company's profitability depends on others seeing the need for green.
One project, unfortunately shelved because of a gap in funding, involved installing a solar energy system on Advocate Trinity Hospital's five-story northeast building in Chicago. The system was to be large enough to offset 100% of the building's energy usage. "I'm personally looking at tax credits and exploring funding options, because Advocate Health Care is a good client of ours. So right now, my job is helping them find the money to do this." Holston says.
Despite the sidetracked solar work, Holston projects that his business will gross $5 million this year, and that he'll double the amount of green business he did from last year. To help him reach his goal, he's establishing a "power purchase agreement" with a third-party lender that would allow him to install solar equipment on a commercial client's building without charging the client up front. Working with his attorney and ShoreBank in Chicago, Holston is developing a template for the agreement, which would work like this: Commercial clients would sign up for a term of 10 to 20 years; during the term, the bank would be eligible for applicable federal tax credits for the purchase of the equipment. At the end of the term, clients would have the option of purchasing the equipment at a deep discount. "We're targeting major retailers and manufacturers that have demonstrated an interest in utilizing renewable energy but are hesitant about the up-front costs. They're paying a little bit more for it initially, as electricity might be 12 cents a kilowatt hour and the client may pay 18 cents, but the client gets to claim the depreciation of the equipment on his taxes and reduce his carbon footprint." Clients also get to lock in their electricity costs at a fixed rate.
Thanks to the increased attention given to renewable energy, and the tax incentives and grants set aside in the $16.8 billion allotted for renewable energy funds in the American Recovery and Reinvestment Act, Holston says his company is getting more interest from a public that's largely still unsure what renewable energy is and whether or not it's a good investment. "Getting people to feel comfortable with solar energy is a big obstacle. People get hung up on kilowatts and kilowatt hours and how much they're paying out to the utility now, but don't yet see how they can benefit at the end or even midway through the service of this equipment," he says.
Although Holston doesn't have any black clients yet, black business owners have begun to approach him about photovoltaic systems. "In general the upfront costs, sluggish economy, and lack of knowledge about renewable energy are probably what hold back black business owners. But the word is getting out," he says.
SPREADING THE GREEN WORD
For Holston's clients, proving a need for clean, renewable energy involves an in-depth evaluation of electricity usage that includes an analysis of a year's worth of electricity bills, lighting, the hourly electricity usage of appliances as well as electrical wiring--"essentially your entire electrical infrastructure," Holston says. "We don't check the building envelope [the roof, exterior walls, and floor of a building] or water pipes. For that you need an energy auditor. But we do check everything electrical, which can help define the scale of the energy system you need and save you money in the process."
A client's energy usage history is integral to determining how much he or she can save with a solar energy system over a period of 30 years. The 30-year analysis is also key to showing clients how quickly the solar energy system pays for itself, and when they can expect a return on investment, he says. "I can show them the real raw data that proves that if they buy a four-kilowatt or a three-kilowatt system, it has a payback time of 15 years. Or I show them information about average power company increases and how that would impact them if they continue with the utility. Instead of paying an indefinite but increasing amount for power for the next 15 years, they can lock in their rate now and have 15 years of free electricity. Once they have saved enough money to equal the original cash outlay, all the electricity produced from that point on doesn't cost them anything. They will have recouped their investment and the photovoltaic system is producing clean electricity, essentially for free."
To date, Solar Electric's contracts are split 80% to 20% in favor of electrical contracting, and he makes "a decent profit" from electrical work with established clients. However, the time and energy he's putting into drumming up solar work is well worth it since there's less competition for solar contracting in his area and profit margins range between 15% and 20%, Holston says. "There's a greater volume of electrical work, but there's more competition for that work. I might have to bid against eight or nine contractors to get it. In that case, the client is willing to pay less for the job and the problem you run into is working on a contract at cost.
By summer, Holston hopes to see a 50-50 split between the electrical and solar work his company completes, but he has no plans to concentrate solely on solar. "In the next three to five years, maybe we can grow to 80% solar and 20% electric, and that would be nice, but we're a full-service electrical contracting company, too, so I don't think we'll ever go 100% solar. Putting in a solar energy system also entails working on the electrical system. However, we do plan to be the best at what we do."
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|Title Annotation:||BEING GREEN|
|Author:||Aaron, Letita M.|
|Date:||May 1, 2009|
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