As told to Adam Bluestein

Industry: Energy

2007 Inc. 500 Ranking: 312

Three-Year Growth: 846%

If the world finally is taking solar power seriously, it's just catching up with AEE Solar, which has been selling alternative energy products since 1979. David Katz, an electrical engineer whose first job was with the Defense Department, started AEE when he moved to the coastal redwoods region of northern California, built a house off the grid, and began selling solar gear to neighbors. The company is still in Redway (population 1,200), but the once-sleepy business has exploded. Revenue was $28.2 million last year.

In the late 1970s, some friends were moving to northern California, about 200 miles north of San Francisco. Sort of a back-to-the-land movement. You could buy 40 acres for $300 or $400 an acre. I did and built a house, and figured out how to make electricity by putting extra batteries in the car. You drive into town to go shopping, and it charges the batteries. When you come home, you plug your house into the car.

I was at the Consumer Electronics Show in Las Vegas in 1980, and there was a guy selling solar toys. He had one solar panel in the booth. I bought 100 and went back to northern California and sold them all in a couple of days. Now you didn't have to have your car. For a couple thousand dollars, you could have lights and music in your house.

I put out my first catalog in 1981. The latest one is 192 pages. It's online too. It's a sales tool that a lot of dealers use, and it has a lot of design information, how to install, how to figure out loads. It's sort of an industry bible now.

In 1999, I sold the company to Idaho Power. They wanted to be in the wholesale business, so we gave up the mail-order retail. Idaho Power sold the business to Schott, a German glass manufacturer. After two years, Schott wanted to consolidate us all in Sacramento. Nobody from here wanted to move. Most of our employees either live off the grid or have grid-tied renewable energy systems in their homes.

Schott was very reasonable, though. In 2002 I paid $2,500 to get back the name of the company, which was then doing $8 million in sales, and started again. Our major growth has all happened since then. They let it go right at the wrong time.

I don't know about vindicated, but I feel really good about it. I'm seeing competitors now selling businesses for one to one and a half times revenue, so it's really gone mainstream. Incentives are what's growing the industry. Seventy percent of our business is selling to contractors putting in systems linked to the grid. People who use them can get rebates from the state, tax credits from the federal government, depreciation.

Two years ago, we brought in investors. Mainstream Energy, a group looking for ways to invest that help the environment, bought 80 percent of the business. That helped with money, of course, but we've also benefited from their influence with vendors. They had a good view of the big picture, and that's given me the freedom and the idea that we had to grow.

Right now, solar overall is such a small amount. That will grow with new technology. The big thing solar does is it puts out energy when the sun is shining and it's very hot, when utilities have to turn on natural-gas-powered peaking plants. So even with a little bit of solar you can eliminate a lot of power plants.