In the idyllic farming landscapes of the 1920s, small, solitary windmills were a common sight. But most wind turbines today dwarf their stand-alone predecessors, and cluster in their own farms by the dozens—or even hundreds. The average turbine is 300 feet tall and can produce 1.5 to 2 megawatts of electricity in ideal conditions, says Rona Fried, president of the green web community SustainableBusiness.com. That’s twice as much as the standard turbine a decade ago, and 200 times as much as those of the 1980s, she says. Wind turbines are growing ever bigger and more powerful, too, with some as large as 6 megawatts on the way.

One group of entrepreneurs is flying against the trend, applying new technology to make wind turbines smaller again, with output as little as 100 kilowatts or less. Why would someone want to make a less powerful turbine? At first, the idea seems to defy common sense because the more powerful the wind turbine, the lower the cost to produce each watt of electricity. Gargantuan wind farms may be ideal for utilities, but not for individual homes and businesses—the market these new companies are targeting. End users, not to mention their neighbors, don’t want or need giant windmills in their backyards.

But with high energy prices, environmental concerns, and security worries about the dependence on imported energy, a growing number of home and business owners do want to generate green electricity on their property. After all, solar power is booming. Small wind turbines, under ideal conditions, range from the size of a small television to something with 22-foot-diameter blades on a 100-foot pole.

The smallest ones, also called “mini” or “micro” turbines, can be used to power sailboats, RVs, cabins, or communication towers that are not connected to the electric grid, while those rated for 30 kilowatts and less can power a household, and 50- to 100-kilowatt turbines can power farms and small businesses. Some are installed on top of houses and office buildings, or even on top of skyscrapers in urban settings, while others stand apart from the buildings they power, looking like streetlamps or, of course, windmills.

Most today are not connected to the power grid, instead generating power in remote locations or in countries without reliable power. But some are grid-connected, enabling users to sell power back to utilities when wind is strong, and to use grid power in calmer weather.

The technology provides a hedge for soaring electricity prices, says Heather Rhoads-Weaver, a wind analyst with market research and public affairs consultancy eFormative Options. “If you have a good wind resource, the economics can be far more favorable than solar,” she says.

Tapping the Market

All those drivers, along with technology breakthroughs, are blowing new life into the old niche. Last month, Chicago Mayor Richard M. Daley announced that four wind turbines from local startup Aerotecture will be installed on the roof of the RichardJ.DaleyCenter by August. Aerotecture says it’s also negotiating the possibility of installing turbines under the Golden GateBridge in San Francisco.

Aerotecture is not the only company looking to tap the market for smaller turbines. Other companies include Norman, Oklahoma-based Bergey Windpower; Farmington Hills, Michigan-based McKenzieBay; Flagstaff, Arizona-based Southwest Windpower; Fullerton, California-based Selsam Superturbine; Kanata, Canada-based Magenn Power; Pihtipudas, Finland-based Windside; and Edinburgh, Scotland-based Renewable Devices.

North American small wind firms hold more than 80 percent of the market share. But sales are by no means restricted to the United States. Exports make up about half of Southwest Windpower’s business, and about 35 percent of Bergey Windpower’s business, the companies say. Ms. Rhoads-Weaver says some of the biggest growth is happening in China and countries in Africa. South America has also been a strong market, and demand in Europe is just beginning to emerge, says Mike Bergey, president of Bergey Windpower.

For the time being, the market for small wind turbines is still, well, small. At the end of 2004, small wind capacity in the U.S. totaled only 30 megawatts, compared with 6,725 megawatts of utility-scale wind power, according to the American Wind Energy Association (AWEA).

But the market for tiny turbines is growing, and startups say they see a potential billion-dollar market. Growth of total capacity has ranged from 14 to 25 percent over the past 15 years, and the AWEA expects an average annual growth rate of 32 percent between 2005 and 2020, based on companies’ sales projections. That’s less than the 45 percent growth in the global solar market last year, or the 47 percent growth in utility-scale wind, but it’s large enough to excite entrepreneurs.

Mr. Bergey says his company’s sales are up 25 percent this year, although he won’t name a figure. “Today, with oil prices back up, and with robust subsidies in a handful of states, we’re seeing growth in small wind,” he says.

Venture capital is also beginning to see the small wind potential. In April, Southwest Windpower raised $8 million from RockPort Capital, Altira Technology Fund IV, and CTTV Investments, the venture arm of Chevron Technology, bringing the company’s total funding to $11.2 million. “Led by Southwest, small wind is driving a lot of technology innovation that is going to reduce the cost to be at or better than existing utility pricing,” says Hap Ellis, a general partner with RockPort.

Small wind firms aren’t yet pounding down the doors of venture capitalists. Mr. Ellis says he’s only seen two or three small wind business plans, while he sees several solar opportunities every month. But that could change with the trend toward cleantech amid concerns about climate change and skyrocketing energy prices.

Matt Cheney, CEO of Renewable Ventures, a clean energy finance firm that has not invested in small wind turbines, agrees—but with some reservation. “They are small, have very light, flexible blades, are very quiet, and operate under many conditions,” says Mr. Cheney. Still, he adds, “Nobody really understands it.”

Turbulence Ahead

Even big believers in small wind admit there are challenges ahead. Mr. Bergey would know. When he co-founded Bergey Windpower in 1977, small wind turbines seemed poised for success. But soon enough, a federal tax cut that had spurred the market ended and in 1986, oil prices dropped below $10 a barrel. “It was hard to be in energy at that time,” says Mr. Bergey.

Mr. Bergey and other entrepreneurs hope it will be different this time. “The technology has been proving itself slowly, getting a bit better all the time,” says Doug Selsam, CEO of Selsam Superturbine. But they are also realistic. “You’ve got to have tenacity,” says Mr. Bergey.

Tenacity and a personality that thrives on challenge are certainly job requirements for small wind pioneers. For starters, there’s the political hurdle of getting government subsidies that match those for large wind and solar power. While small wind has the potential cost-reduction potential, it’s currently too expensive—Bergey’s system costs between $45,000 and $60,000 to generate 10 kilowatts, enough to power a typical all-electric home. Most observers say the market won’t take off until the price falls between $20,000 to $25,000.

Then there are the technical challenges, such as ruggedness and reliability. Wind systems need to be small enough to produce electricity in fairly light wind, but strong enough to survive extreme weather—including hurricanes, near hits by tornadoes, hail, and lightning.

New technologies could help solve many of those problems. Research has led to breakthroughs like smaller, lighter-weight, and more durable materials; manufacturing techniques that cut costs; and new designs that raise power output, lowering the cost per watt, says Ms. Rhoads-Weaver, who previously worked as a consultant for AWEA.

Southwest Windpower, for example, has developed a turbine that produces electricity at lower wind speeds, with blades that top out at only 300 rotations per minute to make it “virtually silent” and more durable, says CEO Frank Greco. Because of the lower wind speeds, the turbine only needs to be as tall as a street light, he says. “It’s a very graceful-looking machine,” he adds.

Other companies, including Charlottetown, Canada-based Entegrity and Bergey Windpower, are lowering cost per watt with better blades, and Hinesburg, Vermont-based Earth Turbines is developing cheaper, taller towers to get higher wind speeds for small turbines.

In the meantime, companies like Magenn Power and Ramona, California-based Sky WindPower are working on turbines that would look like airborne balloons or kites, tethered to the ground. The technology would get turbines to higher elevations so they could reach more wind, while eliminating the cost of expensive towers.

Getting on the Grid

Despite these advances, challenges remain. For one, small wind startups need to develop better distribution and marketing strategies, says Mr. Ellis. “People aren’t just going to say, ‘Gosh, I wish I had a small wind turbine to put up,’” he says.

So far, small wind turbines have not been widely used in grid-connected homes and businesses because the technology is both expensive and complicated, requiring inverters, controllers, and tricky installation, says Southwest Windpower’s Mr. Greco. His company is focusing on creating a new turbine that is more “user friendly,” with inverters, controllers, and other parts needed to connect to the grid all contained within the body of the turbine.

That could make wind energy prices competitive with regular electricity. The new turbines could also be marketed for buildings that are connected to the grid, allowing people not only to generate electricity when it’s windy, but also to buy power from the grid when it isn’t.

Others are even more skeptical. Walter Sass, president of Somerville, Massachusetts-based Second Wind, which makes wind electronics and software, says the company started out working in small wind, but gave it up. “It’s a niche that has some application if you’re really not grid-connected, but under no circumstances that I’ve seen does it make a hell of a lot of sense if you are,” he says.

The main problem, according to Mr. Sass, is that small wind turbines just don’t work as efficiently as their larger cousins. “Usually, if it’s a pleasant place to live, you don’t have enough wind,” he says.

But small wind doesn’t have to be competitive with large wind, because it’s not selling to utilities, advocates say. It only needs to be competitive with other distributed power, such as solar power and diesel generators, to find a market.

Entrepreneurs say they are profitable already. In the “off-grid” market alone, Southwest Windpower has sold 95,000 small wind turbines in more than 120 countries in the last seven years, says Mr. Greco. Sales have been growing at 25 to 28 percent annually, and the company made revenue of “just under” $10 million in 2005. By adding a more mainstream grid-connected product, Mr. Greco expects a 70 percent growth rate this year. “We will be extremely profitable next year,” he says.

Whether that turns out to be true or not, it’s clear that new ideas are blowing in the wind, inspiring innovation. This is a re-emerging area, and VCs should expect to see more business plans soon as technologies come out of the labs in the next two years, says Ms. Rhoads-Weaver. If funding and installations follow, small wind turbines could soon switch from rural relics to modern urban sights.