How to Break Into the Green Energy Business
As the international race to efficiently use renewable energy escalates, more money is being thrown at making green energy widely available. Here's how to break in and find your niche.
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Do your Homework: Renewable energy may evoke images of the wind farms spanning acres, but manufacturing those products requires serious capital investment
Nearly $50 billion of the federal stimulus package last year went to promoting energy efficiency and investments in renewable industry, according to the Center for American Progress. This year, President Barack Obama in his 2011 State of the Union address proposed a deadline of 2035 for 80 percent of America's energy to be supplied by clean or renewable sources. And it's becoming clear at state and local levels that more cash assistance and tax credits will become available as governments try to incentivize their constituents to go green.
"There's a lot of interest in green energy," says Al Titone, deputy district director of the Small Business Administration's New York District Office. "With the government putting money into it, that pretty much guarantees there's going to be more of a market for it in the future.
"It's the way of the future," he adds. "It's been bubbling for a number of years, and now it seems to be coming to a boil."
Nearly every state has programs incentivizing home- and business-owners to make their buildings more energy efficient. With ample grant money and tax incentives up for grabs (not to mention imminent new efficiency requirements), businesses and homeowners are turning to an array of businesses—contractors, landscapers, window and door manufacturers—to install changes. Here's how to do business in the growing field of renewable energy.
Breaking Into the Green Energy Business: Find Your Niche
The modern green energy industry covers myriad micro-sectors. "There's no one area," Titone says. "Everyday it's becoming more diverse, the things that can be done from a green standpoint." Titone says there is definite business to be had in green energy, but, he warns, "Don't just jump in. (Small businesses) need to do their research; otherwise they can get into trouble."
"One of the biggest barriers to entering the renewable energy industry is you have to know something about electricity," says Mark Holmes, co-founder of Green Wave Energy, a renewable-products manufacturer in Newport Beach, California. "Most people have no working knowledge of electricity."
Renewable energy may evoke images of the wind farms spanning acres, but manufacturing those products requires serious capital investment, Holmes says. "It's very hard to do," he says. "It takes lots and lots and lots of money and time and sweat going into it." Green Wave's products are essentially power generators that run on renewable sources. After $8 million in cash, personnel, and technology investments since October 2008, the company has some big prospects in the industrial sector. But, Holmes says, that's atypical. "You have to come up with something different, and something different that works."
The periphery of green energy has lower start-up costs for small business while keeping the profit potential. Holmes suggests businesses looking to get into renewable energy explore sales, installation, or research and development with the intent to sell an idea to a manufacturer. "We have over 100 people selling our stuff," Holmes said. "That's the fun part. We're the ones doing the hard part—manufacturing, service, making sure everything works."
Due to significant capital requirements, most renewable energy operations are supported by large companies, such as Pacific Power in the Northwest, that are expanding the green in their energy portfolio—but therein lies potential. Half of Pacific Power's portfolio is coal, and another third is hydroelectric. To make wind and solar part of its portfolio, it invests in the technology and also buys energy produced by renewable sources, even if it doesn't have infrastructure in place to sell that electricity to customers. That power becomes available wholesale. A company that has the infrastructure—or access to infrastructure—to transmit that power to a customer base could buy it wholesale and sell it for a profit.
For example, in Texas, the Public Utility Commission calls such operations Retail Electric Providers. It can buy excess power and resell it directly to customers. The top company on the 2010 Inc. 500 list, Ambit Energy, grew 20,369 percent in three years buying wholesale electricity and selling it direct to customers. Regardless of your approach, look to state and federal incentive programs that make renewable energy improvements widely accessible.
Dig Deeper: Bringing Power to the Poor
Breaking Into the Green Energy Business: Follow the Incentives
In an effort to seduce constituents to change, state governments are making grant money and tax incentives available to residents and business owners that shift to renewable or efficient energy. Last year's $50 billion in federal stimulus money went to bolster that cause. For businesses that are even loosely associated with "green," these incentives can create a customer base that, with a little help, will purchase and install big-ticket items.
For example, the Energy Trust of Oregon since 2002 has offered financial assistance for people who want to upgrade their energy efficiency. Through state law, the Oregon Public Utility Commission ordered its two largest public utilities to collect a 3 percent so-called public purpose charge from their customers; that steady source of revenue from power customers ultimately goes to home and business improvements that over eight years, the organization reports, have saved customers $600 million in energy costs. Residents have the option of cost-sharing or tax breaks for weatherization improvements; heating and cooling upgrades; water heating; transfer to solar power; and purchasing energy-efficient appliances.
Hammer and Hand, Inc., a contractor based in Portland, Oregon, that specializes in energy-efficient residential and commercial building, joined Energy Trust of Oregon last year once it started offering home-performance evaluations. The evaluation offers certified energy audits and retrofits, and helps find incentives to pay for them. "The expansion was a logical progression for us," says Zack Semke, Hammer and Hand's director of business development. "Because we're passionate about building science and about improving energy performance of a home environment, this is a way to get at a low-hanging fruit—building performance—as opposed to the more aggressive, comprehensive approach," such as the company's larger-scale passive house contracting. Passive houses use 90 percent less energy than typical construction. "We're busy with assessments all the time, we're doing lots of home energy retrofits, and that's all related to Energy Trust," Semke says.
North Carolina State University has a database—the Database of State Incentives for Renewables & Efficiency—of state-by-state energy efficient grant dollars and tax cuts available for renewable energy and energy efficiency improvements. For businesses, that means an easy way to see where profit potential lies. According to the database, all 50 states have financial incentives for renewable energy in the form of personal, corporate, sales or property tax incentives, rebates, grants, loans, or bonds. The database shows all 50 states and six U.S. colonies have 1,380 incentives—77 percent of those rebates—for energy efficiency. As far as renewable energy, 50 states and two colonies have 1,005 incentives—46 percent of those rebates—available.
