Key to Solar Power: "We Have to be Cheaper"

Financial Post "Questions & Answers"

Wednesday, July 6, 2005

Art Aylesworth, CEO of Carmanah Technologies

Art Aylesworth, Chief Executive of Carmanah, says 20% of its solar technology is sold at the retail level.

With crude oil prices hovering at all-time record highs and Ottawa pledging to meet Kyoto targets, interest in renewable energy is heating up.

Alternative methods of generating electricity or fuelling vehicles has been prohibitively expensive to date, stalling any meaningful adoption. But for those in the solar industry, like Art Aylesworth of TSX Venture Exchange-listed Carmanah Technologies Inc., things are looking brighter by the day, as seen in a 72% increase in the firm's 2004 sales to $15-million. Financial Post reporter Peter Evans spoke with Mr. Aylesworth to discuss the rocky road solar power has travelled and its future.

Q: How far away are we from solar power having a major impact in Canada?

A: If you're a province that's getting its electricity through fossil fuels, within 10 years this will become cost effective without subsidy. For inexpensive hydro, it could take 15 -- and that's without the government helping it. Our business case is based around being cheaper either in capital costs or cheaper by the time it's installed, with maintenance, power saving, all the upside. Our smaller systems are dependent on being straight up comparable to traditional sources and the only place you can fight with that is if there's a serious reliability or availability problem which some provinces could be facing soon. The closer that gets, the more people will compromise their math to accept this as viable.

Q: What are some of the primary customer concerns?

A: Reliability, but it needn't be. Our customers, they can't have it not work. At this point, as long as it's sold correctly and the right product is going to the right user, we're down to well under 1% problems. And all of those tend to be out-of-the-box problems. Once they're deployed properly, there's never any problems.

The other factor that's more intense is the pressure for it to be high quality. We've built our expertise around the efficiency of the systems - trying to get as much as you can out of the size that you have. With some solar systems, if they work 90% of the time, a lot of people would think that's OK, but our customers wouldn't. Our products are the first line of defence.

Q: The majority of your customers tend to be large transit concerns, and government contracts. What can solar power do for average users?

A: Take me, for example. I have the world's most expensive garden lights, as opposed to cheap little Chinese ones that aren't too bright. I have ones that are two-mile marine lights that light it up perfectly. Of course, I know where to get a deal on them.

Before, only about 1% to 2% of our business went to non-industrial uses. But now, about 20% of our products are going to consumers on the retail level.

Q: Much has been made of the potential for solar power to actually pay for itself not only in energy savings, but by literally drawing rebates from putting money back into the grid. Is it really possible?

A: We're just starting to get into that. If there's a grid there, all you need is a metre that can handle reverse flow, and, theoretically, you can do it.

Q: Is Canada a leader in solar technology?

A: I would say it feels to me like Canada is a bit of a contradiction. As a people, we're very inclined towards it -- better than the world average for sure. But in terms of actions, we're not quite there yet. Although the noises are being made, we don't have the same pressure as, say, California does. I think Kyoto is forcing us to stand up and be counted.

Q: Who's leading the way, then, and why?

A: If you look at places in the world where solar is having the most usage, such as Germany and Japan, it's fully supported `by government`. Predominantly, as much as 50% of the capital costs. So if you're going out to buy $20,000 worth of solar panels and you look at the payout that pays you out over 18-20 years, it might not work. But if the government will pay you half up front, now your payout is over eight-nine years and you don't plan to move, so you say 'Oh, now it's OK' and that's the driver. The government is just accelerating that timeline to affordability.

Q: What is government's role in making this happen?

A: By nature I'm entrepreneurial enough that I can't in good conscience support the government doling money out recklessly. But there's a balance point. They could build a case to partially support a system where it's cost-justifiable to them over 20 years. It will accelerate the payback for the homeowner to rationalize this.

For medium to large systems in other places, governments are definitely funding some percentage of the capital costs. Somebody smarter than me will have to sit down and do the math on it, but the government is facing Kyoto commitments, and some part of those commitments could be met through encouraging more solar usage. I think you're going to see a bunch of this happening, just because Canada wants to show its partners it's doing something visible and aggressive. It's not like we'll be the first people to jump in the water.

Q: Are we heading in the right direction?

A: There is no question that it's definitely on the move. I akin it to this: You're a high jumper, and you're trained to jump 5'6" and then 5'8". And if the people that are running the games continually lower the bar for you, it's encouraging. The technology is jumping higher and higher, but less and less is being asked of it on a systemic level `because the government isn't committed to it.`

Q: You liken the technology to a high jumper. But what are some of the major hurdles?

A: You could talk about 20 or 30 different technical things, but at the end of the day, it's all about economics. I always joke, "When there's money to be made saving the planet, we'll get around to it," because it's economics that drive everything. For people who buy our products, as much as I'd like to think they do because they like me personally, or they like the colour we make our lights, I don't think so. I think they're buying economics - it's just a better deal. With all of our products, our agenda is that we have to be cheaper or it's not going to happen. Our whole business case is built around economics, and everything else is a throw-in.

In terms of running a house, for example, it flat-out takes a lot of solar panels, and that's a hard cost to get around. The panels are not getting more efficient by 20% per year, they're sneaking up by 0.5% per year. And the costs are dropping by 2% to 3% per year. And that's great, it's all trending correctly. But we're not there yet.