Carmanah Technologies Inc.’s acquisition of Soltek Powersource is already showing signs of paying off. As I wrote in today’s Toronto Star, the Victoria-based company won the contract for a $1 million pilot project at Toronto’s Exhibition Place, which wants to install a 100-kilowatt solar PV system atop its historic Horse Palace in 2006. Once complete, experts say it will be the largest solar PV installation in Canada (which isn’t a major feat, considering how far behind Canada is to the rest of the world when it comes to solar).

If happy with the one-year trial Exhibition Place plans to expand the system to 1 megawatt or more, a contract that Carmanah would also get a chance to bid on. The company, which specializes in solar-powered LED lighting systems for the marine, aviation and transporation markets, would never have been able to participate in this solar PV project if it weren’t for its acquisition of Soltek.

CEO Art Aylesworth told me his challenge is to find the right balance between Carmanah’s core business, which deals with more sophisticated higher-margin products, and the Soltek business, which brings in large grid-tie projects that can contribute significantly to top-line growth. But that business comes with much lower margins.

“They’ll grow like stink,” said Aylesworth, referring to the Soltek integration, distribution and manufacturing business. “The question for us is what will our business look like in three years.”

He called 2006 a “pivotol” year for the company in a market that’s growing like gangbusters.

Carmanah’s edge in the market is that it has become an expert in energy management — that is, getting the most from a tightly integrated solar-LED-battery combination. Aylesworth hopes to transfer that expertise to the larger grid-tie projects. In other words, the company can win more projects and command a higher premium if it can convince customers that they’ll be getting more energy bang from their solar buck.

“The idea of buying Soltek is we wanted to open up the broader solar industry for our expertise,” he said, adding that he also wants to attach the Carmanah brand to every component of a PV system it designs, with the exception of inverters. “We’ll try to remove elements that are off-the-shelf products (so) we can then peel out the margin that some other company is already making.”

He also won’t be sacrificing the LED component of the business. In fact, he’s made a decision to invest more in innovation in this area. “The combination is what makes us so unique,” he said.

Finally, he confirmed that the company is going through the motions to move from the TSX Venture exchange to the more senior Toronto Stock Exchange, where the company will get added exposure to institutional investors.

Asked whether he feels his company, which is profitable and trading at about three times revenues, is overvalued or undervalued, he leaned toward the latter.

“I think by standard metrics people might think we’re highly valued, but relative to the space we’re in — you do your own homework with respect to SunPower — we’re softly valued,” he replied.

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