New Capital to Energize a Solar Survivor : Bloom Is Off Industry, but Oil Price Rebound Could Heat It Up Again

Back in 1974, the year Jerry Brown was elected California’s governor, solar energy was a hip issue. A horde of companies got into the business of designing and building solar-power systems, including one called Conserdyne, an offshoot of an electrical contracting firm.

Today, the Valencia-based company is among a handful of survivors from the original pack, which has been depleted by falling oil prices and changing public commitments. Conserdyne has done relatively well for itself, in fact, operating as a “microutility,” providing discount-rate power supplementing that of the major power companies.

Generating most of its power through “photovoltaic” panels on rooftops, the company has won contracts to provide electricity for government buildings, fast food restaurants and apartment complexes.

But tough times may be ahead for Conserdyne and other corporate children of the solar-energy craze.

No Longer Glamorous

The trouble is that to many, solar energy is about as hot as, well, mood rings. Not only has cheap oil subdued solar passions, but a new cloud hangs on the horizon. Federal and state tax reform has reduced energy tax credits, probably killing much of the independent investment in the field, the lifeblood of alternate energy development.

Into this bleak picture comes Hughes Capital Corp. of Boca Raton, Fla., a 4-month-old publicly held company that promises to bring major financing to Conserdyne when it acquires the firm in a deal scheduled to be completed this week. Company officials would not disclose the terms of the deal. Hughes and Conserdyne are betting that increases in oil prices, which they forecast over the next several years, will fuel the Santa Clarita Valley company’s growth. Moreover, the companies say, Conserdyne can operate at a profit without the tax breaks.

“People who have weathered the storm are in good positions to keep going at a good clip,” said Howard Kraye, president and sole owner of Conserdyne at present. “The people who got in the business to make a fast buck are long gone.”

Others in the industry have doubts about the immediate prospects of energy from photovoltaic panels, in which photon energy particles in sunlight hit solar cells, releasing electrons and generating a flow of electricity.

Differ From Home Models

In that way, the photovoltaic panels are different from the solar panels many people have on the rooftops of their homes; those usually just heat water. Moreover, Conserdyne does not sell the photovoltaic panels to customers, but installs and maintains them, selling only the electricity they produce.

“It’s a real tough go for Howard,” said Jerry Yudelson, a Costa Mesa market research consultant who specializes in solar energy. He cited the relative inefficiency of solar cells, saying that without tax incentives, solar electricity is “really expensive to generate.”

Yudelson and Kraye met while working on then-Governor Jerry Brown’s SolarCal Council, appointed in 1978 to make recommendations to the state on ways to implement solar energy.

Kraye, 45, a bearded, bearish engineer and environmentalist, was chairman of SolarCal from 1979 to 1983. Earlier, he had headed a committee set up by Mayor Tom Bradley in 1975 to “solarize” Los Angeles.

Conserdyne was a spinoff of Plast-Alum Manufacturing Inc. of Glendale, which Kraye sold in 1982 to concentrate exclusively on the solar unit.

Conserdyne’s net income tripled to $1.2 million last year, and sales were $5 million, up from $1.7 million in 1984. The company, which employs a lean staff of 18, attributed much of the growth to the new systems at fast food restaurants.

Kraye said big power companies don’t mind the microutilities because they help fill the gaps during peak hours. “I’m skimming the cream,” he said. “Until we’re able to do more than that, we don’t bother them.”

Steve Hansen, a spokesman for Southern California Edison, said simply, “microutilities aren’t nuisances, but they’re not our partners, either.”

Conserdyne’s clients include the City of Oceanside, San Bernardino County and nine McDonald’s franchises. But the company is not an exclusive provider to anyone, because the sun does not shine all day every day.

For example, the main public library in Oceanside gets up to 90% of its electricity from Conserdyne’s solar panels during peak daylight hours. Over an entire week, however, only 22% of the library’s power comes from the panels.

San Diego Gas & Electric, the main electric utility in the area, charges 10 cents for every kilowatt hour of electricity it sends to the library, about 20% higher than Conserdyne’s price. The city pays for nothing but the power it uses.

During those days that the library is closed and the panels are still producing power, Conserdyne sells San Diego Gas & Electric the electricity it produces at full retail value--10 cents per kilowatt.

Investors Own Equipment

Independent investors own Conserdyne’s panels and electrical equipment. The backers, usually high-tax-bracket professionals such as doctors and lawyers, can depreciate their equipment and receive dividends, usually around 6% of their capital per year.

Under existing tax law, in exchange for their financing, usually around $50,000, most get a 25% state tax credit, and a 15% federal credit. After Jan. 1, however, the state credit is eliminated, and the federal credit drops to 12%, then 10% in 1988.

As a result, Conserdyne’s prospective buyer does not expect investors to finance the equipment installed beginning next year, said Hughes President John L. Knoblauch. He says that Conserdyne can make money, however, without the outside investors.

Richard H. Beguelin, a Ventura investor in the Oceanside library project, said he initially looked at the project as a tax break, but has since been satisfied with the income he receives from it.

“It’s one of the soundest investments I’ve ever made,” Beguelin said.

Joan Clark, one of nine McDonald’s franchisees in Southern California with Conserdyne solar panels by their golden arches, said that particular restaurant is saving $1,000 a month on its electric bill because of the solar energy.

Kraye said he is hoping that in the period after tax reform he will get more customers in rural areas that can’t get electricity from big utilities.

San Bernardino County System

Last year, Conserdyne installed a photovoltaic system for San Bernardino County on Onyx Peak, 20 miles southeast of Big Bear Lake, to provide power for emergency communications for county, state and federal authorities in the area.

The county used to get power from a diesel generator, but it was noisy and gave off a bad odor, said Mary Hartman, county energy resources development manager. The solar system, financed by private investors, has saved the county $15,000 so far this year, she said.

Another threat to the solar power business is a method called co-generation, which is based on heat from turbines. In that system, byproduct heat from turbines that a client already is using is stolen away by a heat exchanger. The heat is transferred to water ducts or air ducts, or used to generate electricity.

Mark Frauman, vice president of the Sacramento-based California Solar Energy Industry Assn., who owns a microutility in Laguna Hills, said he is promoting co-generation systems.

“After tax reform kicks in, I won’t be able to recommend a photovoltaic microutility system to anyone in good conscience,” Frauman said.