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Making renewables pay

While many alternative energy startups struggle to turn a profit, diversified firms on the periphery are cashing in.

By Steve Hargreaves, CNNMoney.com staff writer

LAS VEGAS (CNNMoney.com) -- Wind. Biomass. Solar.

Companies directly involved in this space are the alternative energy big boys, the ones betting big, making headlines and charged with shepherding a new energy era.

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But a subset of firms, selling everything from simple parts to complex conservation systems, provide materials and support for these companies.

And, unlike many of the firms directly selling the power, they're making money doing it.

Take Johnson Controls (Charts).

Like a lot of firms in this subsector, Johnson isn't a "pure play." Originally it was a thermostat maker and now a leading supplier of car seats and cockpit interiors; the majority of its $32 billion in annual sales comes from activities unrelated to energy.

But the company takes in a tidy $800 million a year helping others cut their electric bill.

Johnson targets organizations that want to start conservation programs or adopt clean-energy technologies.

But instead of the client paying up front, Johnson brings in a third-party financier. The client takes out a loan from the financier, much like a mortgage.

Johnson goes in and retrofits the client's buildings with the latest in conservation techniques, such as low-energy lighting, insulation and climate control systems. If the client wants renewable sources, it'll outsource for windmills, bio generators or solar panels. Johnson handles all the maintenance and operational issues for the life of the equipment.

The client repays the financier, which has paid Johnson up front, on an incremental basis using the money it saved on power.

What's more, Johnson guarantees that the amount of savings will cover the loan.

"Johnson Controls will put our balance sheet behind the project," Michael Loth, Johnson's director of solutions marketing, said Wednesday at the Power-Gen renewable energy conference in Las Vegas. "But we don't write too many checks."

The company recently outfitted a marine base in the Southern California with 1.2 megawatts of solar power, air conditioning upgrades, a 7-megawatt natural gas generator, and a variety of conservation measures.

Loth said the $67 million the military spent on the project should pay for itself over the next 20 years.

A Midwest school district also got a good deal, according to Loth.

The school system spent between $3 and $4 million on conservation measures, new air conditioners and an industrial-sized wind turbine for four buildings.

The estimated savings, said Loth, is $4 million over the next 20 to 30 years. Plus, the district can generate an estimated $3 million over the same time period selling power generated by the wind turbine back to the local utility.

"Once the contract is paid off, then that money is free for something else," he said, speaking of the initial investment.

Loth expects double-digit growth in his unit in the years to come.

He said that growth should happen even if oil prices fall dramatically, citing energy security and a desire to cut greenhouse gas emissions as other reasons people might want to undertake such a project.

One thing that could derail enthusiasm: If the government cut subsidies for renewable energy.

"If wind and solar aren't subsidized somehow, it makes the business case much harder to make," Loth said.

Another company cashing in on the renewable boom is California-based Ameron International (Charts), a diversified manufacturer of everything from concrete to specialty pipes used to move water or petrochemicals.

But more than $100 million of its 2005 revenue of nearly $550 million came from selling the giant towers that support big wind turbines, said a company representative at the trade show.

The company has only been in the wind tower market for two years, but it has spent more than $20 million on a new plant to build the massive steel tubes, which rise to more than 250 feet, have a diameter of 15 feet at the base and cost upward of $250,000 apiece.

Ameron sells to several of the big wind turbine makers, which include General Electric (Charts) as well as Spain's Gamesa, Denmark's Vestas, Germany's Nordex and India's Suzlon, although the representative wouldn't say exactly who are the clients.

He said challenges in the market include reducing the cost of shipping, which can account for 25 to 40 percent of the total price tag, and simply keeping up with industry demand.

Managing demand (electricity demand) is the domain of Itron (Charts), a maker of electric and natural gas meters based in Washington state.

A small but growing segment of Itron's $52 million in net income is the so-called smart meter.

The smart meter not only measures electric usage but can do it by the hour, as well as communicate with home appliances.

The hourly readings help utilities manage consumer demand by enabling them to price power according to when people use it, charging more for peak times. The higher prices will, if all goes well, cut demand at peak times, eliminating the need to build costly new power plants.

When electricity prices are high, as during the late afternoon, the smart meter could shut off nonessential appliances such as pool filters or air conditioners if the customer so chooses.

"The utilities have these assets, they just don't know what to do with them," said Itron manager George Simons, speaking of the flexibility possible on the demand side of power consumption. "It's going to help enable advanced energy efficiency."

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