Sluggish economy? You should be in the alternative-energy business. Take PowerLight Corp., a $10-million company in Berkeley, Calif., that designs and manufactures photovoltaic arrays -- solar-electric panels -- and installs them on commercial and industrial rooftops. Its annual sales jumped 1,271% from 1995 to 1999, landing the company at #186 on last year's Inc 500, and jumped another 67% in 2000. This year executive vice-president Daniel Shugar expects revenues to double. One of the causes of the company's growth: widespread nervousness about the price and reliability of conventional-energy supplies. If you lived in blackout-plagued California, you'd be nervous too.
But is this a growth market that a company builder can count on? Back in the petroleum-challenged 1970s, alternative energy of all sorts -- solar, wind, geothermal, and anything cleaner and environmentally friendlier than fossil fuels -- was the wave of the future and hence the stuff of entrepreneurial dreams. Then the price of oil dropped back to normal, and alternative-energy providers quietly shut up shop. This time around things may or may not be different. For entrepreneurs who are eyeing the energy market, I count a minus, a maybe, a plus, and one big wild card:
COST OF CONVENTIONAL ENERGY: In the '70s the price of electricity nearly tripled, so alternatives were correspondingly more attractive. Today -- outside of California, with its botched energy deregulation -- the cost of electrical power is only a little higher than historic norms. Nor will we run out of fossil fuels for feeding generating plants anytime soon. Proven reserves of petroleum are higher today than they were in the '70s. Supplies of natural gas are adequate at least through 2020. We're still awash in coal. So any price spikes are likely to be temporary and local.
DIRECT COST OF ALTERNATIVE ENERGY: The price of a solar cell has dropped about 90% in 25 years -- one reason that companies like PowerLight are in business at all. Still, neither photovoltaics nor any other alternative can yet compete with traditional grid power in ordinary applications. The future? Stay tuned. Bob Johnson, director of photovoltaics at research firm Strategies Unlimited, in Mountain View, Calif., says PV cells may drop below their current price by 30% or more by 2010, even without big technological advances, making the cost of solar energy competitive with conventional sources. But nobody really knows.
POLITICAL AND CULTURAL CLIMATE: It isn't easy being green, sang Kermit the Frog, but for alternative-energy customers it's easier than it once was. Install solar-power panels on your home in California, and the state will pick up as much as half the tab. Other states also provide aid, and Congress is considering a national subsidy. Another plus: the introduction of so-called net metering, unknown in the '70s, which allows power-generating home owners and businesses to feed unneeded electricity back into the grid and thus run their meters backward. Some 34 states now have net-metering laws.
DEREGULATION: Depending on how it's implemented, deregulation may push power prices down or up. It may lead to more outages, scaring people into installing alternative systems, or it may reduce blackouts. One possible plus: deregulated markets are likely to rely more heavily on variable pricing, thereby giving customers an incentive to avoid costly peak-load usage -- often when the sun is shining brightest.
But energy is a treacherous business. You can't build a company purely on the basis of the market's sudden growth, because it could reverse itself next year. What you can do is worm your way into existing niches and see if things break right. That's how PowerLight got where it is today. Long before today's perceived energy crisis, PowerLight was perfecting its patented system -- an array of panels that sit on top of a roof, thereby protecting and insulating it -- to the point where the company now offers a 20-year warranty. PowerLight gained installation experience, garnered some satisfied customers, and put a little cash in the bank.
Now sales are booming. But if the market turns down, PowerLight probably won't go broke; it can always go back to the one-roof-at-a-time growth of its earlier days. In the alternative-energy business, as in so many turbulent growth markets, you always need a contingency plan.
John Case is a contributing editor at Inc.
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