CEO Art Aylesworth says solar LED company Carmanah is leaving its ‘comfort zone’ with so-called ‘solar engines’ able to power telecom towers, security and monitoring systems, and more.
Unlike most solar companies, Carmanah Technologies isn’t trying to turn your home or business into a power plant. Instead, it is making solar LED (light-emitting diode) lights for so-called “off-grid” applications unconnected to the electrical grid, such as ocean buoys, airport runways, pedestrian walkways, and more.
The Victoria, Canada-based company has grown sales from $9.2 million in Canadian dollars (about $7.9 million in U.S. dollars) in 2003 to $38.73 million in 2005 (about $33.35 million) and $46 million (about $39.6 million) in just the first three quarters of 2006.
It’s been successful, at least partly because it can offer these solar LEDs at competitive prices compared with regular solar lights for these higher-priced but lower-volume applications. It’s also riding on a wave of heightened solar and LED awareness.
Founded in 1998, Carmanah went public on the Canadian Venture Exchange in 2001, and listed on the Toronto Stock Exchange this year. Now, CEO Art Aylesworth says the company is taking “a step outside our comfort zone” to enter a new market.
In the second quarter of 2007, Carmanah is planning to introduce a line of “solar engines”-boxes that will include solar panels, a battery, and electronics-to power things like telecom towers, transmission monitoring equipment for oil and gas industries, and security systems, as well as lights, transmitters, and receivers, he said.
It’s a larger market, he said, because the engines can power many different devices. But it’s a step away from the company’s core focus and specialty, and there’s always the risk it could detract from the company’s unique fit in the industry.
The company isn’t changing focus entirely, though. Along with the engines, it’s also developing a family of outdoor light fixtures to work with the engines in industrial and commercial applications, including walkways, parkways, university campuses, and parking lots, Mr. Aylesworth said.
We met up with Mr. Aylesworth to discuss the solar industry and Carmanah’s place in it.
A: We want to design a product really carefully once, then resell it many times over. I think as things become more mainstream in solar, more can be ‘productized’ so it’s not so customized. These engines will come in different sizes, but they will be built in high volumes. It’s a much broader market.
Q: Are you saying you currently make products for each customer separately?
A: The heart of the business always has been about making products, but there’s no question that, while doing that, you tend to customize more than you plan to. The question from customers is, “Can you do this?” when the question for us should be, “Should we do this?”
Q: By entering this more general market, aren’t you stepping away from what differentiates Carmanah-solar LED lights for specific industrial applications?
A: Almost all `of the players in solar` are focused on replacing regular electricity with solar. We’re not. The potential to deliver solutions to the conventional grid are too costly. `The solar engines` are different because they’re not just about lights, but they are still off-grid. Rather than a bunch of different parts that get put together on site, this will look like one product. It’s a box and you mount it; it’s very simple. Because a hearty few go in when it’s very complicated, but the masses move in when it’s very simple. If you need an engineering degree to buy them, it’s not good.
Q: It doesn’t seem like the light technology you’ve been developing would transfer to solar engines in an obvious way. What would be Carmanah’s advantage in making solar engines?
A: It’s the electronics. We’ll bring a certain degree of energy management that we have from the solar lights, which could probably be replicated over time. We’ll count on branding and getting to the volume ramp-up quickly. We have a lot of experience around `energy management,` as well as how you transfer the electrons when you collect solar; optimizing the charging, storing, and battery cycling; and optimizing the life and efficiency of the battery.
Q: What’s to stop competitors from coming in?
A: I can’t imagine they won’t, but what I see is competitors entering one regional market and then trying to grow from there, while our idea is to launch in a large area so we can drive cost down. Each region has its own regulatory bodies and very different regulations, so it’s difficult to do. They are a few years behind us, and by the time they get to where we are, we shouldn’t be there anymore. I think if we play like we’re a step behind instead of a step ahead, and play as hard as we can toward the outcome of consistently leading, we’ll be successful.
Q: Others in the solar industry have said they are pursuing the grid-connected solar market, which aims to replace conventional electricity with solar power, because it’s a much bigger market than the “off-grid” market. What do you say to this?
A: There are six to eight vertical markets we’ve assembled to create a market for ourselves. It’s a higher-margin market that’s non-reliant on government subsidies. The market we’re already addressing with the stuff we have now is easily more than a $1-billion market. For GE, maybe it’s not big enough. But for a company that used to be $3 million five years ago, that’s great. (Now we’re about $60 million.) Most of the horsepower in solar is going into the grid business. They’re going to work in low margin, high volume, less defendable territory. That’s pretty neat and the market is much larger, but it’s very different than us. We both have “solar” in our business plans; other than that, we’re not much alike.
Q: Still, it sounds like you are reaching into higher-volume, lower-priced territory with the solar engines. Some companies have had trouble getting past the “chicken-and-egg” dilemma of how to get prices low enough to reach higher volumes, or volumes high enough to lower cost. How do you plan to clear this hurdle?
A: There comes a time when you have to stick your neck out. We’ll probably enter the market with lower volume, and won’t fuss too much about the margin in that phase, pricing it where we believe the market is going to land. We’ll see how it does and then increase margins Â… We can afford to invest in this for now.
Q: Are you planning to expand into consumer products?
A: The five-year plan doesn’t, at this point, address consumer markets at all. But I think what we’re doing is a precursor to making off-the-shelf solar products for retail. In the end, the brightest, most-efficient garden lights you could have would be LEDs. We’ll stay industrial for now, but this is where we’re headed one day. Somewhere down the path, we would probably license aspects of what we do, stripping out all the industrial-like applications and functionality.
Q: Have you benefited from all the attention solar power is getting, even though it is mostly around grid-connected uses?
A: Yes. I used to have to do a lot more explanation of LED and solar, and now people know. The story of where we’re going just gets easier to tell. We spent some time convincing investors there was a market for our product; now nobody questions that.
Q: In that case, are you at risk when the rest of the market dips, such as when oil prices fall?
A: When the solar market went up, we got a little boost, and when the solar stocks had a meltdown, we took a little hit. It’s fair; we’re not getting radical swings either way. But I think it means that people who are broad brushing don’t know much about us.