Market Watch - Energy

A Primer On The Steadily-Growing Sector

Energy MarketIf you're a distributor looking for a new market to target, you'd be wise to consider the energy industry. Very wise. Take the growth of renewable energy, for example. In 2011, solar panel installations increased by 76% in the U.S., according to the Solar Energy Industries Association (SEIA), a Washington, D.C.-based trade group. At the same time, solar panel prices within the $11.5 billion industry fell by 27%.

"There will continue to be substantial growth, as the prices of components used to make solar installations continue to get cheaper," says Dan Bedell, vice president of Principal Solar Inc., a solar distribution company located in Dallas.

As solar energy gets less expensive, the installation of traditional utility energy is getting pricier, Bedell says. That's one big reason why 83,000 home panel installations were performed in the U.S. last year alone.

A National Solar Trend
Certainly the residential market for solar power is booming, but so is the commercial side, especially in sunny markets where energy prices are high, says Bedell. And therein lies the rub: "The trick with solar energy is there's kind of a conversion point" between "the amount of available sunshine combined with the local price of electricity," Bedell says.

Of course, that's not always an easy find, but it's why "California and Hawaii are very big solar markets," Bedell says. Some consumers pay as little as $0.07 a kilowatt, he says, but "if you go to California, there are times of the day when the price is upward of $0.35" a kilowatt, "so solar is instantly cheaper."

But even states that see their share of rain and snow – think New Jersey and Massachusetts – are seeing increasing solar potential, because traditional energy rates are rising sharply. Bedell predicts the solar market will continue to improve markedly for the next two years, adding that the industry in various regions has seen 20% to 50% growth for more than three straight years.

Case StudyOther Energy Sources
All of this good news regarding solar trends, experts say, is just the beginning of what's to come throughout the renewable energy marketplace. Energy sources like wind farms are also experiencing high growth in certain areas, up as much as 13% from February of 2012 to February of 2013, according to the U.S. Energy Information Administration.

And while there are dips in the consumption of certain energy sources, such as nuclear generation, perhaps the only areas that aren't expanding consistently are fringe fuels, like meat-processing plants that convert chicken bones and fat to oil. They're simply too difficult to sustain as more than a "one-off situation," says Michael Lorusso, managing director and group head for CIT Energy, an energy financing firm in New York. So far, investors are passing on this idea.

Still going strong along with renewable energy, though, are some standard energy sources, made more abundant thanks to things like fracking – last year's most talked about energy enhancement. Fracking helps oil and gas companies extract even more resources from beneath the earth. As part of fracking efforts, companies need pumping trucks, tanks for storage and other materials, all of which are supplied by a series of firms for a given oil or gas site.

Opportunities For Sales
How much do energy companies really need promotional products? It may seem like a market less ripe for the plucking, but experts say distributors should consider that it's not just energy companies that can be called on. The ancillary services and firms that surround energy production, installation and transportation offer seemingly endless opportunities. "To categorize energy, it's wide-ranging and enormous," says Lorusso, "but people really look at it in three categories: One, which we call upstream, is exploration and production of fuels. There's midstream, and that's the processing and transportation of those fuels, and then the third category is consumption and distribution of those fuels."

In each of those areas, there are an ever-increasing number of support agencies helping the energy industry expand, and they need safety awards, employee incentives and even community promotional products to build their brands. While the energy market, like the travel and hospitality sectors, is a cyclical business, according to Lorusso, "for now there seems to be a good runway for growth as the U.S. continues production of oil, and everyone expects that gas production will be increasing over time as well."

The same holds true for the ancillary service firms that go along with oil and gas production, Lorusso says, at least for the next three to five years. In general, power generation itself has seen fairly flat growth (about 1.5%) of late, generally fluctuating with the country's GDP. Lorusso notes, for instance, that power generation slipped in 2009 just like the economy did, falling 4%.

A Look Ahead
Even so, most energy companies are experiencing steady, if not surging growth – something Michelle Sheldon, president of Eco Promotional Products Inc. (asi/185797), says she's noticed among her firm's renewable energy clients. Echoing expert outlooks, Sheldon says "the number of local suppliers and installers has increased," driving up business opportunities along with it.

Lorusso is quick to warn that the industry's behemoths (the Haliburtons of the world) aren't likely to open their doors to new vendors, but "there are a lot of mid-size and smaller companies out there, newly formed, that have a lot of opportunity for growth," he says.

To that end, state mandates and federal tax incentives are helping to drive renewable energy growth, spurring more and more investments. As recently as 2011, renewable energy investments jumped 17%, to $257.5 billion, according to a report from the Worldwatch Institute, a renewable energy advocacy group, based in Washington, D.C.

So, armed with this information, what's the best way to tap potential customers in the near-term? For solar energy, Bedell suggests trade shows, of which there are at least one a month all year long, including regional shows that address topics like sustainable energy and energy industry support services. For oil and gas, Lorusso and others advise starting small – working with mid-size service support firms that might be more likely to place orders with a distributor than a giant corporation.

In addition, experts say it's important to connect thematically with energy companies, presenting a message that resonates with them. Not surprisingly, many are interested in environmentally-friendly products, says Sheldon. She points out that while these products "may seem ordinary by name – pens, pencils, awards, bags and bottles" – energy companies might request items that are domestically made and eco-sensitive, making their demands somewhat more specific than clients in other industries.