'Green bubble' bursts, yet North San Diego County solar firms buck recession

The large up-front costs of solar power are a prime reason why it generates less than 1 percent of California's electricity, people in the industry say: A full system for a typical suburban home costs $20,000 to $50,000, and it's usually eight to 15 years before homeowners recoup that cost through savings on their monthly electricity bills.

The other 99 percent represents an untapped market, in the view of solar entrepreneurs and clean-energy advocates. Manufacturers have aimed to reach that market by driving down the costs. Equipment such as photovoltaic panels, wiring and batteries or inverters composes nearly half of what a homeowner pays for.

Photovoltaic panels capture sunlight first as direct-current electricity. Some systems store that juice in a battery; more often, it's fed through an inverter, and the resulting alternating current goes into the local utility's grid.

Optimism for the solar industry's future triggered a flood of investment in 2006 and 2007, driving up share prices for manufacturers. Mehdi Hosseini, a financial analyst with Friedman, Billings, Ramsey Group Inc., attributed much of the optimism to manufacturers' promises that he said remain largely unfulfilled. Many companies have lost more than half their market value in the last two years.

"It had become a bubble, just like the dot-coms," Hosseini said.

Open Energy Corp., a Solana Beach company that builds solar panels into aesthetically styled roof tiles, has fallen from $2 a share in early 2006 to 9 cents this week.

After more than three years in the industry, the company has not reported an annual profit. It has been bleeding cash at about $2 million a quarter, putting it on track to run out within a few months unless it gets additional financing.

The company's major shareholder gained a controlling interest last fall. It renamed itself Applied Solar Inc. earlier this month, a move that new chief executive David Field said reflects an exit from manufacturing and an increased focus on technology and design for residential rooftops. Field said he's confident that the new focus will help ensure new financing.

Bubble or no bubble, one entrepreneur in Vista said her solar company has consistently drawn the interest of venture capitalists.

"There are a lot of people who are independently wealthy, and they hear the word 'solar' and they want to invest," said Melanie Cullen, who co-owns Blue Sky Energy Inc. with her husband, Richard Cullen. She said the couple don't plan to sell off a stake.

Blue Sky makes devices that regulate the flow of electricity from solar panels into batteries, where it's stored overnight for use at parking garages, cabins, traffic signals and a variety of other structures that aren't connected to electrical grids. The company's annual revenue continues to grow by 10 percent to 15 percent a year, Cullen said.

Local installers said tax credits that took effect Jan. 1 have encouraged several residential customers to take the plunge and invest in their homes, though a sales manager at one large regional installer said his business had taken a small hit because plummeting housing prices have kept some customers from qualifying for home-equity loans.

Kelly Barber, marketing manager for Natural Energy USA Inc. in Escondido, broke down the rebates for a typical two-kilowatt system that covers most of a home's power needs during sunny weather: State-funded rebates cover $3,800 of the $20,000 cost, and the 30 percent federal tax credit can bring the cost down to $11,340, compared with an after-tax cost of $14,200 under the former credit, she said.

Cullen, whose company employs 10 people, said one of the industry's biggest headaches is getting hold of the silicon photovoltaic panels. Manufacturers simply haven't been able to put out enough of them, she said.

Several people in the industry said they expect the tight supply to loosen over the next year as the industry begins to process a glut of solar panels on the European market.

Hosseini, the financial analyst, said reduced subsidies in Europe had left that continent with large inventories of solar panels, and left solar-panel manufacturers around the world with somewhat dim prospects for the next year. At the same time, the manufacturers are struggling with high prices for key silicon compounds used in the panels, analysts wrote earlier this month in research reports as manufacturers prepared to publish quarterly financial reports.

The glut from Europe stands to help solar-power installers in the United States by making the end product more affordable to consumers, said Sue Kateley, executive director of the California Solar Energy Industries Association.

Still, mainstream America probably won't adopt solar panels on a much wider scale either until manufacturers start churning them out more cheaply or until federal and state governments provide more incentives, said Kateley and others in the industry.

It isn't yet clear how President Barack Obama's policies might spur the process, though the initial signs are positive, Kateley said.

"The president's power to use the bully pulpit certainly creates a sense of opportunity," Kateley said.

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