Boardroom
Honeywell Building Solutions

In The Boardroom With...

Mr. Mike Taylor
Vice President of Americas Marketing
Honeywell Building Solutions
www.honeywell.com/buildingsolutions
NYSE:HON

SecurityStockWatch.com: Thank you for joining us again, Mike — this time to talk about Honeywell’s solar energy business. Please give us an overview Honeywell’s capabilities, services and products in this space.

Mike Taylor: Thanks for the opportunity to discuss this topic. Honeywell has a broad energy business focused on driving energy efficiency and leveraging renewable technology like solar. We’re helping organizations — both public and private — address global energy and environmental concerns by offering solutions that are both financially sound and green. Our customers turn to us as a source of control and predictability in an unstable energy landscape.

SecurityStockWatch.com: What is your perspective of the market drivers for solar at this time?

Mike Taylor: The market drivers for all energy efficiency and renewable energy technologies, including solar, are the same.

First, energy prices and volatility are a major concern. Depending on a customer’s location in the United States, we’ve seen the cost for traditional energy sources double or triple over the past five years. Meanwhile, the relative cost of renewable energy deployment has gone down, mainly because economies of scale are catching up, efficiencies are being realized in manufacturing, and competition has increased. All these factors allow organizations to use green energy sources to make a long-term hedge on rising energy prices.

Second, there is an increased focus on greenhouse gas emissions. The energy projects we’ve completed and continue to work on, have removed millions of pounds of carbon dioxide from the atmosphere per year. But that number could increase exponentially if solar and other renewable technologies were part of every project. Using these technologies not only provides a social value, but they also have an economic impact, which is only increasing over time with the rise of carbon credits and emissions trading.

Finally, organizations are increasingly interested in taking advantage of abundant domestic renewable energy resources to add another layer of energy price security. If you’re in California, it likely makes good economic sense to leverage the significant solar exposure your region enjoys. Likewise, if you’re in Michigan, access to biomass (wood chips) could make a biomass boiler an attractive renewable energy alternative. Using the resources around you also can have a positive impact through the creation of jobs, which strengthens the local economy.

SecurityStockWatch.com: You mentioned financial incentives. Solar technology is improving and costs are coming down, but tax incentives are still needed to develop solar projects. What are the current tax incentives in the U.S. market for solar projects?

Mike Taylor: It varies by state and some technologies are less sensitive to tax incentives than others. California has been very aggressive with its financial incentives for energy-related projects, as have Arizona, Connecticut and New Jersey. There also are temporary federal incentives, which are set to expire in 2008. To enable more organizations and communities to realize the environmental and financial benefits of these kinds of projects, the federal government needs to establish a clear, long-term national policy that puts those incentives in place for everyone.

SecurityStockWatch.com: Congratulations on the recent announcement regarding the Pleasanton Unified School District in the San Francisco Bay Area. Care to comment on this project and the broader market opportunity that it represents to Honeywell?

Mike Taylor: Almost all the available incentives for solar installations are tax based, which means that cities, schools, universities and other public entities can’t take advantage of them. In addition, high startup costs for solar can be a significant barrier to entry, as most organizations operate on a fixed budget with little room for capital expenditures. The Pleasanton project gave us an opportunity to develop a solution that addresses those issues.

Honeywell will install, own and maintain solar panels on seven district buildings, and sell the electricity the panels produce to the district through a power purchase agreement (PPA). With this structure, we’re able to use the available tax credits and share the financial benefits with Pleasanton in the form of a more attractive, fixed energy rate.

In addition, the school district is able to reap the environmental rewards of renewable energy without an upfront capital investment. It also ensures that a portion of the district’s budget is immune to energy price volatility. This type of arrangement has resonated well with customers in California and other states.

SecurityStockWatch.com: We also noticed Honeywell’s recent announcement regarding an energy and environmental conservation program for the City of Perris, CA that is expected to reduce the city’s energy use and significantly decrease greenhouse gas emissions via a large solar project, and a variety of upgrades, designed to increase energy efficiency and comfort across several city buildings. Care to elaborate?

Mike Taylor: The City of Perris project is a great example of how organizations can integrate energy efficiency and renewable energy technologies to gain the greatest environmental and financial benefit possible.

The entire program will reduce carbon dioxide emissions by 960,000 pounds per year, equivalent to removing more than 90 cars from the road. Like Pleasanton, the solar portion of the program is set up through a PPA. We also will improve city facilities with efficiency measures like lighting retrofits, high-efficiency heating and cooling units, and programmable thermostats. The energy savings the upgrades produce — projected to total more than $1.8 million over the life of the program — are guaranteed by Honeywell and expected to pay for the work.

This project has the optimum economic value as it not only switches some of the energy supply to a renewable resource, but reduces consumption as well — the best of both worlds.

There’s a significant community component as well. Residents will be able to monitor the solar production via the city’s Web site or kiosks located at the library and city hall, giving them a better understanding of how the program is benefiting the environment and bottom line.

SecurityStockWatch.com: What is Honeywell’s involvement with other renewable energy technologies like biomass, ethanol and wood chips, for example?

Mike Taylor: Most organizations we talk to are interested in renewable energy, and their initial inclination is “solar panels.” However, few know that a non-solar solution may make more economic sense and therefore be more sustainable in the long run. Creating islands of solar demonstration projects does not accomplish the goal of a significant move to green energy.

In response, we’ve developed tools that help us rapidly and accurately analyze the full spectrum of renewable technologies that are available in a specific location, and evaluate them based on economic and other criteria. Availability of renewable energy resources is a big one, as well as local utility rates, and heating and cooling loads.

It may not make economic sense to use solar in some areas, for example, because energy prices are significantly below the national average — regardless of the amount of sun exposure. As a result, we approach each project differently, taking all the variables into consideration to come up with the renewable technology that has the most significant environmental and economic drivers.

SecurityStockWatch.com: What about the international market? Germany and Japan seem to be two of the largest international markets for solar energy. Is Honeywell involved in any international solar projects?

Mike Taylor: Our initial focus has been in North America given the availability of renewable technology, as well our mature delivery platform here. However, we’re definitely moving forward to bring this expertise to other parts of the world. For example, with the recent announcement of the Clinton Climate Initiative, Honeywell is working hand-in-hand with the William J. Clinton Foundation, large financing organizations and 40 of the world’s largest cities to drive energy efficiency and fight climate change on a global scale.

SecurityStockWatch.com: What resources are available for end users on your Web site, www.honeywell.com/buildingsolutions/energy?

Mike Taylor: We have a portion of the site dedicated to our energy services, which includes a comprehensive overview of our capabilities, as well as case studies and article reprints.

SecurityStockWatch.com: Thanks again for joining us today, Mike. Are there any other subjects you’d like to discuss?

Mike Taylor: We’re all aware that increasing energy efficiency and leveraging renewable resources is the right thing to do ecologically. However, it’s important that environmental stewardship and conservation make good business sense too. And that’s our focus at Honeywell. With this approach, we will see the type of widespread adoption that will have a lasting impact on the reduction of greenhouse gas emissions.