Solar Independence

Solar Independence

ENTREPRENEURS by Jean Gruss | Editor/Lee-Collier

Government subsidies for "green" energy may be generous, but don't bet your business on them. They might disappear when the hoopla over green building fades away.

The last time business went gaga over "green" energy, it ended badly.

Just ask the guys in the solar industry. The energy crisis of the 1970s produced a wave of tax incentives for solar energy. But hundreds of solar-energy companies subsequently went bust when those credits disappeared as energy prices inevitably dropped and Jimmy Carter got booted out of office.

"The industry just kind of collapsed when credits disappeared," recalls Brian Goldberg, president of Fort Myers-based Advance Solar, which bills itself as the state's largest solar-equipment contractor.

Advance Solar was one of the few survivors precisely because it hadn't become a tax-credit junkie. When Brian's father, Harold Goldberg, started Advance Solar in Fort Myers over 25 years ago, he focused on solar energy systems to heat swimming pools, which have never benefited from government's helping hand.

Because of that, there was little competition and the business had to stand on its own legs, which it did. The business grew as builders installed solar-powered heat pumps for pools and homeowners gradually switched to the technology that saved them money in the long run.

It took a lot of hard work. Brian Goldberg, now president of Advance Solar, joined his father in 1985 and was in charge of selling to pool contractors and homebuilders, knocking on doors and persuading builders to buy and install their solar products without the benefit of Uncle Sam's generosity.

"We're hustlers," Goldberg says. "We're out-on-the-street kind of people."

Of course, rich tax credits don't hurt now. Part of Advance Solar's business is the installation and maintenance of solar heating systems for water heaters inside homes. Unlike pool-heating systems, heaters inside homes are now eligible for big taxpayer subsidies.

For example, a $4,000 home solar-heating water system is eligible for a state rebate of $500 and a federal tax credit of $1,350, which lowers the cost to $2,150. The sales tax exemption on solar heaters results in another $270 in savings. Assuming the current tax credits it takes about three years to recoup the money spent for a new solar-powered hot water system for the home with four people. It's safe to say it would be nearly double without the tax credits.

In addition, the state is about to mandate that investor-owned utilities buy back any extra energy produced by solar power in a home. It's called "net metering" and it will take effect later this year.

Today, Advance Solar installs, maintains and distributes solar water-heating equipment throughout South Florida, the Caribbean and Latin America. The Goldberg family also has diversified into manufacturing and now builds and sells swimming-pool heat pumps under a new company called GulfStream, providing a new avenue outside Florida.

Growing with a manufacturer

Sometimes, one company's growth is directly tied to another. Such is the case with Advance Solar.

In the company's infancy, the distributor and installer of solar-heating equipment was missing an exclusive arrangement with a manufacturer that could give it an edge. All the manufacturers already had tied up distribution agreements.

In 1987, the Goldbergs found a small Israeli company called Heliocol that was interested in breaking into the U.S. market. The Goldbergs and Heliocol's president, Victor Eyal, struck a deal where Advance Solar would have exclusivity selling the solar pool-heating manufacturer's equipment on both coasts of South Florida. "There was no other manufacturer," Goldberg says. "I had no choice."

The relationship got off to a rocky start. The first shipment from Israel wasn't packed properly for the transatlantic trip and one third of the equipment was leaky or broken. "What did we get ourselves into?" Goldberg remembers asking himself.

But the damaged equipment could be repaired and Heliocol fixed the shipping problems. "They weren't walking away," Goldberg recalls. "Like us, they take care of problems."

Together, Goldberg and Eyal grew their business substantially as new-home construction provided opportunities for growth through the 1990s and early to mid-2000s. "Now they're number one in the nation and I'm their number one customer," Goldberg says. Over the years, Advance Solar has built a database of 20,000 customers.

Some of the high-profile solar pool-heating systems they've installed include those at the Olympic pool in Atlanta and at the Florida governor's mansion in Tallahassee. "The pool business never suffered because of new construction," Goldberg says.

Part of the success of Heliocol's solar pool-heating system is the engineering and design. Solar power is required in every new home in Israel, which means the technology developed there is more advanced. For example, the unit comes in one piece, which makes for easier and faster installation. It's also more aesthetically pleasing because there are no rubber hoses and straps like other systems.

No handouts, no debt

Advance Solar's reluctance to base their business model on tax breaks also extended to debt. "We don't owe anything to anybody," Goldberg says.

Brian Goldberg likes to quote his grandmother: "Don't run your business out of the till." Translation: You need to save for a rainy day. Time and again, the Goldbergs took advantage of downturns to acquire rivals and expand their market share during downturns.

For example, business is down 40% industry wide and some competitors reduced the warranty on their products to two years to save money. But Advance Solar has maintained the five-year warranty on its products. "I'm building market share," Goldberg says. "I'm investing in the future."

Goldberg declines to share annual revenues but says they've been flat recently because of the economic downturn. Still, with no debt, the company is well positioned to grow by acquisition and gaining market share. Memo to bankers: Don't bother calling.

"We're not in the business of borrowing money," he says.

To diversify, the Goldberg family started another complementary business manufacturing swimming-pool heat pumps five years ago. "My father said 'Don't do it'," recalls son Brian. "We don't know manufacturing."

But Brian and his two brothers started the manufacturing company anyway, calling it GulfStream. They hired a former nuclear engineer and started manufacturing high-quality swimming-pool heat pumps made with titanium parts because they saw an opportunity to displace cheaply made pumps on the market today.

In the last five years, sales of GulfStream pumps have tripled to 4,000 last year at retail prices that range from $3,200 to $3,800. A dozen employees assemble them in the company's plant in North Fort Myers.

Growth is expected to continue because Florida will soon be the first state to mandate energy standards similar to the ones required for air-conditioning units. "The industry will have a shake up," Goldberg says. "Florida is the testing ground for efficiency."

There are as many as 50 manufacturers selling swimming-pool heat pumps in Florida and Goldberg estimates only nine will be left after the energy standards are implemented later this year. That's because it costs thousands of dollars to get the pumps tested and approved.

What's more, only one large company - Siemens - has started manufacturing swimming-pool heat pumps. "The heat-pump industry is fairly young," Goldberg says. "The large players aren't building more than I am and they don't know what they're doing."

Goldberg is finding distributors overseas as the weak dollar helps his exports. "Germany's big," he says. Australia and New Zealand are promising markets too.

In the end, Goldberg says the diversification was a risk that has turned out to be successful, despite the family's previous lack of experience with manufacturing. "We got lucky," he says.

REVIEW SUMMARY

Company. Advance Solar

Industry. Solar water heaters

Key. Tax credits for solar energy won't last forever and businesses that depend on them may not survive.