Five ways to make money in renewable energy
4/20/2006-5/3/2006
By Keith DuBay
Boy, do we love (the idea of) renewable energy in Colorado.
We』re home to the National Renewable Energy Institute and the Leeds School of Business at CU that has developed a whole renewable entrepreneurship program. Colorado is is the address of numerous renewable start-ups. There』s enough green-loving people in this state to damn near peddle our way to power generation (except we』d have to drive our gas-guzzling SUVs to get to the bike path).
Recently, oil prices surged to more than $75 per barrel. As each precious barrel of former carbon deposits gets used up and the rest of the supply becomes dearer, the cost of renewable energy becomes more 「affordable」 by comparison.
The gig is up and we all know it. As one expert, Thomas Dean at CU』s Leeds School, put it at a recent conference: 「Our present means of production and business are simply not sustainable in the future …One estimate suggests that it would require the resources of three earths to allow our global population to achieve the western world』s level of consumption and material wealth without substantial changes.」
The government and the academic world are throwing money and effort into the green industry. Not only are CU and the NREL big into renewable entrepreneurship, a business group called CORE promotes environmental and socially responsible practices and has a renewable energy effort that major employers take part in. The Governor』s Office of Energy Management and Conservation is into the act. There』s even a Denver-based venture capital firm – Altira that focuses on energy in general and renewable as well.
「There』s something in it for everybody,」 said Paul Jerde, executive director of the Deming Center for Entrepreneurship at the University of Colorado-Boulder. 「It』s real and it』s not just a money pit.」
All that is well and good for government (which already has a paycheck) and trade groups who specialize on the warm and fuzzies for public relations purposes, but what entrepreneurs really want to know is, "Where and what are the business opportunities in renewable energy?"I set out on a quest to answer this question. Can Colorado small business people get involved with this industry, or would investing time and money in renewable business ideas turn them into modern-day versions of Don Quixote, tilting at windmills in Lamar, Colorado, and being gouged on the bleeding edge of technology?
To wit, Marty Murphy, manager of enterprise development programs at NREL, said he has worked with dozens of start-up companies in the renewable area, all of them exciting, but he could not identify a true renewable that was profitable. It doesn』t mean they aren』t promising companies. It just means the cash flow isn』t there, yet.
On the other hand, Altira partner Peter Edwards, whose venture capital firm has been investing in green companies for 10 years, said all of the firm』s portfolio companies are either profitable or near profitable. A scan of the portfolio shows a heavy emphasis on supply and service companies that feed the industry, a standard VC practice and a good lesson for entrepreneurs.
「If I were an entrepreneur, I』d focus on dealerships, sales and servicing in anyone of those categories (see below) or all of them,」 he said. 「Right now there』s still plenty of room in the marketplace and in the economy.」
Five immediate areas of opportunity
Murphy and other experts helped us identify five immediate areas of business opportunity in the energy and renewable fields:
Energy efficiency and conservation: This is already a billion-dollar industry and touches every aspect of residential and industrial use, from more efficient cars to better insulation and windows on your home to more efficient washing machines. If there isn』t an energy conservation aspect to your business, regardless of what it is, you can』t compete. As Murphy puts it, 「It all starts there.」
For example, Boulder-based EnergyWindow Inc. was founded in 1999 by Jack Mason to take advantage of natural gas and electricity supply deregulation. Mason』s small consulting shop helps companies such as Johns Mansville buy natural gas independently. He also works in electricity, but not in Colorado as it is not one of 12 states that have active open electricity brokering.
Companies want to buy so-called 「green power,」 that has been generated by wind or other renewable techniques, but the cost is still pretty high, Mason said. Green power will get less expensive as the supply increases and companies shop and compare in the open markets, he added.
Another service company that is capitalizing on conservation is EcoHandyman of Boulder, which remodels homes in an energy efficient way and will dispose of refuse in the same way. Another group, LEED Building Services, is an industry group that promotes 「green」 building practices.
In the end, however, energy conservation is solidly in the service industry. There are few monster breakthrough patented technologies, therefore the big returns sought by investors aren』t here, despite its widespread application and depth.
Photovoltaics: Photovoltaics (literally capable of producing electricity after being exposed to energy, especially light) are the cells in solar systems used in residential and commercial applications, such as the little systems that power stoplights.
Today there are no fewer than 20 Denver-based installers of solar to electricity and solar water heaters in the Dex phone book. The recent availability of tax credits and the Xcel Energy subsidy has cut the price dramatically to numbers that can pay off in as little as three years. Also, massive research is ongoing to produce more efficient photovoltaics, all in an effort to get energy to the 50 cents per watt cost, compared with the $10 per watt it costs now.
Besides the sales, service and installer levels, there are opportunities for wholesaler dealers in all of those categories.
Eric Wahl sells both wholesale and does solar installations for electricity production out of Glenwood Springs. His company, Colorado Solar Electric, is four years old.
He calls the Xcel Energy subsidy – Xcel will pay half the cost of a new solar electric system, about $15,000 – 「a fantastic development.」
「There』s two sides to the coin, though,」 Wahl told CoBizMag.com. 「Getting into the business on a national level is a little harder because there is so much activity and demand. You can』t just start a Web site anymore.」
Although you need a few tools, a truck and probably some shop space, it is more important to have the installation knowledge – you still need to know basic electricity – than money to start a service business. And now that the industry is out of the back woods, Wahl said, you have to meet the challenge of marketing.
Solar thermal: This category also falls under photovoltaics, but uses them to heat water, such as your home hot water heater or an industrial plant. Wahl, owner of Colorado Solar, does not install solar thermal, but says that has the biggest demand from homeowners, and therefore represents the largest opportunity for business owners. Although Xcel』s subsidy does not extend to a thermal system that takes care of most of your hot water needs, a $4,000 typical homeowner system can qualify for a $1,000 federal tax break.
Thermal systems also need a bit more of maintenance than electric (solar electric cells are guaranteed for 25 years) because of the fluids involved, therefore there』s an added need for maintenance companies.
Small wind turbines: In order to make small wind turbines viable, you have to live in a place that averages about 9 miles per hour wind speed, such as in Southeastern Colorado or the in places near the foothills and mountains. It』s not for the Front Range homeowner.
For example, one of Altira』s portfolio companies, Southwest Windpower of Flagstaff, Ariz., has an opening for a "small wind" power dealership in Colorado. No dealership is listed on its Web site. That may be because Southwest』s small wind turbine only produces 400 watts of power, enough to light a few light bulbs. The company is working on a 2-kilowatt "Energy Appliance" that will power a lot more in a home. This area of the economy is in its infant stages, but that also spells opportunity.
Fuel cell companies. Fuel cells are electrochemical devices that combine hydrogen with oxygen to produce electricity, heat and water. One company turns biomass to diesel fuel and eventually electricity using algae, Murphy said. Another, Versa Power Systems Inc., recently won part of an $85 million Department of Energy contract to build fuel cells for power plants. This is extreme 「out there」 technology for engineers and chemists who can attract funding, but will turn into a real industry in the not-so-distant future.