The Next Energy Innovators

BusinessWeek and GreenBiz.com have assembled a list of 25 intriguing energy startups, including young companies that tap geothermal heat, turn waste into biodiesel, and more

By Pete Engardio and Adam Aston

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Like many eco-conscious homeowners, Darin Budwig and his wife had long wanted to put solar panels on their roof in suburban Glendale, Calif. What stopped them was the high price. "I wanted to do the right thing for the environment," says Budwig, a registered nurse, "but I really had to ask whether it was worth taking on $30,000 in debt."

Enter SolarCity. After the Budwigs put $1,000 down, the three-year-old startup installed panels on their modest ranch home that meet almost all the family's electricity needs. SolarCity also took care of the many complexities that make going solar such a hassle. The company designed and purchased the system and lined up building permits, financing, and government tax breaks. In return, the Budwigs agreed to lease the system for 15 years at $73 a month—$95 a month less than they pay, on average, for conventional power. They expect to recoup their $1,000 investment in less than a year. Since 2006, SolarCity says, it has struck similar deals with 3,500 homeowners, businesses, and schools in California, Arizona, and Oregon. The goal, says CEO Lyndon Rive, is "to create a multibillion-dollar company in clean power."

Say "energy company" to most people, and they'll probably think of an oil giant such as ExxonMobil (XOM)or their local utility. But, in a burst of innovation that could rival the info-tech revolution, global demand for alternative energy is spawning a broad and bewildering array of tiny companies with big ambitions. Many are now hitting the market with products and services—in the thick of the worst U.S. recession in decades.

To help readers get a handle on this fast-changing scene, BusinessWeek teamed up with GreenBiz.com, a green business information service. We don't promise any will blossom into the next Google (GOOG) or Cisco Systems (CSCO). And because they are private, there are no public data on cash flow or profits. But innovators on the list have the brainpower, intellectual property, and ambition to play a role in the coming energy revolution. Since the focus here is strictly under-the-radar, we have excluded famous green startups such as battery maker A123 and electric-car ventures Tesla Motors and Better Place. But like those well-publicized players, all the ones on this list have lined up significant venture backing. "These are companies that, so far, have survived the gauntlet of fund-raising, R&D, and the economic downturn," explains Joel Makower, executive editor of GreenBiz.com, a unit of Greener World Media.

Some of the outfits, such as Southwest Windpower, Solyndra, and Clean Current Power Systems, are chipping away at the technological obstacles that have made alternative energy systems—wind, solar, and hydro power—too costly. Others, such as SolarCity, are reinventing the business model behind alternative power. Still others, including SmartSynch, Verdiem, and Fat Spaniel Technologies, are harnessing the Internet to help utilities remotely manage the energy consumption of their customers' PCs, office air conditioners, and factory lights. In addition, we've identified a handful of companies selling gizmos and services that help slash power usage, from Bridgelux—which makes low-cost solid-state lighting—to GridPoint, whose smart grid software can track and control electrical devices in your home, from appliances to electric cars and solar panels.

For the founders of these startups, the usual path to personal wealth—an initial public offering—is blocked for now. But some will make their fortunes when large companies swallow the small. And although there is enormous risk, there also will be new ways for ordinary investors to profit in this sector when capital markets finally thaw out.

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