Following the money in a tough market

contractors and manufacturers engaged in energy-saving, water-saving and alternative energy technologies are doing well.

It became pretty clear as we were conducting our interviews for the forecast stories in this issue that contractors and manufacturers that are trying to sell the same old thing that they were selling a couple years ago are going to have a difficult year. In many ways, the list of markets to avoid is longer than the list of good ones — anything to do with the automakers, condos in Florida, housing in Las Vegas, much of retail.

I received a press release recently that said that one of our electrical contractor brethren just won a contract with a major national homebuilder in Florida, a homebuilder that already has a reputation for abusing its subcontractors. My first thought was, “Why?” My second thought was that they better get paid up front. With a certified check. I guess desperate times sometimes call for desperate measures.

Yet there's no need to be desperate. As Associate Editor Candace Roulo and I explain in our 2009 forecast stories on pages 1 and 3, and in our Contractor of the Year coverage of L.J. Kruse Co., contractors and manufacturers engaged in energy-saving, water-saving and alternative energy technologies are doing well.

Dave Kruse has remade a century-old company into a model for the 21st century, selling modulating-condensing boilers, high-efficiency HVAC equipment and high efficiency toilets.

CONTRACTOR's plumbing columnist Dave Yates, an advocate of solar thermal and inverter heat pump technologies, among others, says he's so busy that he's turning away business.

“This will be a real transition change for companies,” comments Derek Kirkpatrick, North American general manager for Australia's Caroma, the originator of dual-flush toilets. The companies with green technologies will find themselves in a good position. Consumers are also smart and want products that will help them conserve energy and water, ultimately saving them money.

That applies to radiant heating and cooling as well.

“Despite the current economic challenges, tremendous opportunities continue to grow in the residential and commercial radiant heating and cooling industry,” says Mark Hudoba, senior product manager for heating at Uponor. “This is largely due to a radiant system's ability to address customers' needs for improved energy efficiency.”

The solar market is, pun intended, hot.

“Industry-wide, solar is growing at a rate of greater than 40%,” says Rich Corcoran, general manager of Viessmann Mfg. Co.'s U.S. operations. “I think it will accelerate. The solar thermal market has much better payback scenario than solar electric in the absence of rebates … Any house in the nation can use solar thermal unless it's surrounded by high trees. You're looking at a $12,000-$15,000 investment to offset the majority of your hot water needs and some of your space heating.”

And then there's the headline on a press release that came across the wires in early January that really stunned me:

“McKinstry wins $5 billion Department of Energy contract,” it read. That's billion with a B. We ranked Seattle-based mechanical contractor McKinstry Co., last year as the nation's 18th largest mechanical contractor in our annual Book of Giants (May 2008, p. 32). They'll undoubtedly get bigger.

McKinstry was one of 16 energy service firms, including the likes of Trane and Johnson Controls, that won Indefinite Delivery Indefinite Quantity Energy Savings Performance Contracts that could result in up to $80 billion in energy efficiency, renewable energy, and water conservation projects at federally-owned buildings and facilities.

The IDIQ Award comes on the heels of McKinstry's moment in the national spotlight precipitated by comments from President Barack Obama's citing the company as a “model for the nation” for its leadership in energy efficiency.

Under an ESPC, a contractor such as McKinstry designs, constructs and obtains all financing for a project, and the agency pays for the work over time from the savings reduction in the utility bills, paided by the agency's appropriated funds over time. The contractor guarantees the improvements will generate savings. The aggregate annual amount of payments to the contractor and for utilities cannot exceed the amount that the agency would have paid for utilities without an ESPC. After the contract ends, all continuing cost savings accrue to the agency.

Energy saving, water saving and money saving. This is where you'll find profits in an otherwise tough 2009.