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Solar Power Eclipse

A Startup Solar-Power Company in Baltimore Ponders its Murky Future in Maryland

Uli Loskot
WAITING FOR THE FORECAST: SunEdison Partner Claire Broido says Maryland needs to invest more resources to develop the solar-power market in the state.

By Ralph Brave | Posted 8/3/2005

If the next wave of the solar-energy revolution is in the works, its headquarters may very well turn out to be a one-room office on the second floor of the Latrobe building at 2 E. Read St. in Mount Vernon. There, operating from a few fold-out tables with diagrams and charts and notes taped to the walls, four partners have launched SunEdison LLC. The company has put together a financial formula for making solar power more affordable for commercial and nonprofit enterprises. So far, SunEdison has installed solar-panel systems for Whole Foods Market and has a project underway with Staples, and it recently secured $60 million for future projects from investment giants Goldman Sachs and Hudson United Bank.

But before breaking out the bubbly to celebrate another local business breakthrough, consider the following: as matters stand now, not a single cent of that solar largess will be spent in Maryland. And if the state’s energy policies aren’t corrected soon to encourage the growth of solar power in the state, Baltimore could lose this entrepreneurial firm.

The principals in SunEdison—chief executive officer Jigar Shah, President Claire Broido, chief financial officer Brian Robertson, and general counsel Christopher Cook—are not your stereotypical eco-warrior activists, pushing solar for communal cabins in the woods. Rather, the members of this quartet have backgrounds in engineering and environmental science, business, and law school. They have experience with Constellation Energy (BGE’s parent company), BP Solar, and the Maryland Energy Administration. One partner has a proven record in startups, one of which was purchased by Amazon.com. This is a new generation of the solar-power business—one that feels that the benefits of solar power are vastly underappreciated, especially in states like Maryland, where few incentives exist to encourage the installation of expensive solar-panel systems or incubate the solar-energy business.

For as long as modern solar technology has been around, the primary obstacle to its success has been the substantial up-front cost of a system. The fuel for these systems (sunlight) is free, but the price of the solar panels, which can range from $9,000 for a small system to more than $50,000 for a large one, is intimidating—in effect, the purchaser of a solar system must pay in advance for 20 years worth of electricity.

At least this is how Jigar Shah, the CEO of SunEdison, thought about it while getting his business master’s degree at the University of Maryland in 1999. Shah put together a business plan to finance solar power, but it attracted little attention.

“At that time, there was a fever around the stock market,” Shah recalls. “Even grandmothers were looking for IPO stocks. Nobody seemed interested in this stable, low-risk, medium-rate-of-return type of investment.”

Shah shelved his plan and 2000 went to work for BP Solar, a manufacturer of solar electric panels (known as photovoltaics or PVs) in Frederick. In 2001, the stock-market bubble burst and California’s electric crisis started to unfold. Shah decided it was time to take the business plan off the shelf.

He hooked up with lawyer and consultant Christopher Cook, who had recently left his job at the Maryland Energy Administration.

In 2003, Shah also recruited Claire Broido, who was working with Constellation Energy, but left when it became clear to her that renewable-energy sources were not a priority there.

The key to the SunEdison business plan is, as the company’s web site slogan explains, to “Simplify Solar.” The company targets commercial companies that wish to harness solar power and stabilize electric bills. SunEdison buys the solar equipment and has it installed, and the customers sign contracts agreeing to purchase the electricity generated from the solar panels at a set price for a set period of time. In effect, SunEdison serves as a solar utility, providing more than 10 percent of its customers’ electric needs.

With some private investment in 2004, SunEdison was able to get a couple of Whole Foods Markets in New Jersey and Rhode Island to sign contracts. The key to getting those contracts, the principals say, was the fact that New Jersey aggressively promotes solar energy, subsidizing 50 percent of the cost of solar-energy systems for companies or individuals who use them. That program made it possible for SunEdison to offer competitive electricity rates to Whole Foods, which it offered a 10-year locked-in electric rate with only a very modest rate increase over the course of the contract.

“You’re taking the volatility out of part of the utility bills,” Shah explains. “You’re providing them with a hedge against the increases in the electricity market. Last year alone, electric rates went up in Maryland 18 or 19 percent. And you can’t find any electric supplier that will guarantee prices more than three years out. . . . There is no other electric technology that will lock in rates for 10 years. SunEdison is providing a very unique product.”

The Staples chain has since signed up for some solar installations, and other corporate, university, and state hospital and prison accounts are being sought by the company. But none is in Maryland—instead, they are in the more solar-friendly states of California and New Jersey, and states with emerging solar programs such as Pennsylvania, Colorado, and Arizona.

While SunEdison has had some conversations with businesses and community groups in Baltimore, the company’s leaders are dubious about prospects here until Maryland builds a stronger base for solar installations.

“I think it’s a travesty for Maryland, which is one of the top five states in the nation for solar employment [due to BP Solar’s plant in Frederick], to not care about having an indigenous market in the state,” Shah says. “This does its residents a huge disservice.”

The head of the Maryland Energy Administration, Michael Richard, says he is confident about the future of solar energy here.

“The BP Solar plant is well-placed here to serve the Northeast and European markets,” he says. “I think we’re going at the right pace at this point.”

At the state level, the Maryland Public Service Commission, which oversees state utilities and the electric grid, has drafted regulations for “Renewable Energy Credits.” This is a complex system by which those who use solar power or other renewable-energy sources could obtain credits and sell them to firms like BGE that must show they are getting a certain percentage of their electricity from renewable sources. But the real value of these in Maryland is undetermined.

Some local governments are encouraging the solar market and renewable energy as well. Wealthy Montgomery County now offers a rebate on local utility taxes for those installing solar systems in their homes. Cash-strapped Baltimore City, which has successfully focused on energy-efficiency improvements in its municipal buildings, has no solar program or incentives for its residents and businesses at the moment. But Hatim Jabaji, an engineering supervisor in the energy conservation section of the city’s Department of Public Works, says it’s something the city is taking seriously.

“Solar energy is a dear subject to me,” Jabaji says. “We also care about the environment and reducing emissions. We know that recently solar technology has improved, and we are planning to look into it and see how best it can be implemented in city office buildings.”

The potential for the city is not small. Jabaji says that probably 80 percent of the city’s $38 million to $40 million dollar annual utility bill pays for electricity.

The newly deregulated electric power market may also play a role in developing solar in Maryland. In 2006, the caps come off electric rates for the state’s residents and some classes of commercial businesses. Energy experts believe that utility rates will immediately increase by another 15 percent to 20 percent, making solar investments that much more enticing and competitive.

SunEdison’s principals would like to see the state take an even more proactive approach to growing its solar industry. For example, they say, the state requires all utility companies to provide some amount of electricity from renewable sources beginning in 2006. SunEdison would like the state to guarantee that some percentage of that renewable energy comes from solar power. They also say they’d like more financial assistance for residents and businesses that decide to install solar-power systems. Most of all, the SunEdison principals say, Maryland needs “sustained orderly development” of its solar industry. Just as a fossil-fuel plant is built with the notion that it will be used for 20 or more years, the government should invest in solar for use over the long term.

“The start/stop, start/stop, start/stop history of the commitment to solar really hurts the industry,” Cook says. “No matter how well you do, you’re always having to start over.”

The key, Broido says, is to “have an internal champion” for solar power.

“When the environmental manager of all the Staples in the United States is pro-solar,” she says, “he’s able to be a cheerleader within Staples and get things done. We have the equivalent at Whole Foods, and we’ve got one at Estée Lauder who I’m talking to now.”

But in the state of Maryland, Cook says, there is no effective solar champion.

“There’s no one at the Public Service Commission saying this is something that needs to be done,” he says. “It’s not coming from the executive branch. Although there are a few legislators who are clearly solar advocates, there’s not the momentum to get the majority support that’s necessary.”

If Maryland’s solar program doesn’t improve, it could cost Baltimore a small business with a promising future.

“Unfortunately, as we grow, it doesn’t make sense for us to be in a state without a robust program,” Broido says. “Clearly there’s a motivation for us to be located where our installations are. That’s why, right now, I spend most of my time in New Jersey.”

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