SolarCity: Powering the Climate Change Revolution?

SolarCity promises to revolutionize the way we power our homes, businesses, and communities, but can it it alone deliver a sustainable and sufficient energy solution that will significantly reduce the human imprint on our planet's climate?

The Solar City Promise

As a key player in the U.S. solar panel and alternative energy sector, SolarCity aims to convince U.S. consumers that solar power is a viable alternative to traditional energy sources.  Through products like the Powerwall and Solar Roof, SolarCity aims to reduce the U.S. household carbon dioxide footprint from 7.43 to 1.41 metric tons within one year of transition to a “SolarCity home.” [1]  According to its 2015 Impact Report, the “solar systems deployed by SolarCity produced over 1.7 billion kilowatt-hours of electricity…that if produced instead at a conventional power plant, would have released 2.38 million pounds of nitrogen oxide, 2.58 million pounds of ozone, and 5.82 million pounds of sulfur dioxide.” [1]  While this reduction appears promising, SolarCity faces two significant obstacles moving forward if they want to have a tangible impact on global anthropogenic climate change through their closed system.  First, in order to achieve globally scaled results, they must make the “SolarCity home” or business a ubiquitous presence.  This will likely be difficult to achieve given the price sensitivities of U.S. and global consumers and the high upfront installation costs associated with SolarCity systems.  Additionally, the pushback they are likely to receive from utility companies who strongly want to dis-incentivize consumers from going “off the grid” will present a significant challenge.  So how can these obstacles be overcome?  I posit it lies in SolarCity’s ability to integrate with other sustainability and alternative energy companies.  Apparently they are on the same page, given the Tesla vehicle that is depicted in the SolarCity home above.

Is it a Worthy Endeavor?

While energy consumption is the greatest anthropogenic contributor to greenhouse gas emissions [1], this must be broken down further to understand the individual impact SolarCity might have in reducing the greenhouse gasses (GHG) in our atmosphere.  According to the U.S. Environmental Protection Agency, carbon dioxide made up 82% of total U.S. GHG emissions in 2014, while U.S. commercial and residential made up only 12% of total GHG. [2]  If we look solely at the carbon dioxide aspect of emissions, this means that if SolarCity were somehow able to convince every U.S. household and business to become a “SolarCity home” or business, this would result in only an average 14.7% yearly reduction [3] in total U.S. carbon dioxide emission.  Now, 5,633 million metric tons of carbon dioxide reduction over 20 years would be an incredible feat, but this is an important revelation.  It shows that even an ambitious company like SolarCity cannot solve the anthropogenic climate change problem by itself.  So it needs collaborators, both in the U.S. and abroad, to move towards a fully integrated “climate solution.”

Synergies with Other Solutions

A promising development that could drive SolarCity towards achieving a “climate solution” model, is its pending merger with Tesla.  As SolarCity’s chairman, Elon Musk stated, the new goal of the merged company would be to “[create] a seamlessly integrated Tesla battery & solar power product that looks beautiful.” [5]  Given the hypothesis discussed above, this appears to be a step in the right direction.  But this decision to synergize the sustainability efforts of these two companies is not just one grounded in a desire to overcome anthropogenic climate change; it is also an excellent business operations model.  By combining the manufacturing efforts of both companies, vertically integrating their supply chains, and increasing demand visibility, both companies will be able to find operational synergies that will result in a more cost efficient business structure.  For example, once Tesla’s Gigafactory in Nevada is operating at full capacity, it will likely manufacture lithium ion batteries not just for Tesla vehicles, but also SolarCity Powerwalls.  As demand ramps up for both products, the opportunities for operational synergies will be replete.  Tesla could create design symmetries between their batteries in both products, thereby reducing the number of SKUs produced and reducing production variability.  The idea here is that the synergies created will fuel the growth of both companies to the point they have the scaled impact on both household and transportation energy consumption our world so badly needs.

The Business Model of a Sustainability Company

The pending merger of Tesla and SolarCity presents a promising opportunity to begin consolidating renewable energy, transportation solution, and other climate-conscious companies into a unified front, geared towards achieving sustainability and reducing human greenhouse gas emissions.  Until now, the private sector effort to do this has been piecemeal, as smaller companies focused on singular projects with uncertain net present values.  But this pending merger presents an opportunity for two of the most promising players in the sustainability arena to forge ahead together, cumulatively impact GHG emissions across two different sectors, and create value for shareholders, consumers, businesses, industry, and ultimately the human race. (789 words)


References

[1] http://www.solarcity.com/sites/default/files/SolarCity_Impact_Report_2015.pdf

[2] https://www.epa.gov/ghgemissions/us-greenhouse-gas-inventory-report-1990-2014

[3] Assumed 1% annual growth of total U.S. households over 20 years, starting at 124.59 million in 2014 [4] and modeling from 2015 to 2034. Utilized SolarCity’s household reduction estimate as stated in [1] and calculated the projected difference between current household CO2 and reduced household CO2 footprint. Found average yearly difference of 829 million metric tons of CO2 and total projected reduction of 1.576 billion metric tons over 20 years.  Given 82% of 6,870 million metric tons (2014 U.S. GHG emission, footnote 2) consisted of CO2 (5,633 million metric tons CO2): 829 million/5,633 million metric tons = 14.7% average yearly reduction.

[4] https://www.statista.com/statistics/183635/number-of-households-in-the-us/

[5] https://twitter.com/elonmusk/status/752218264499949568

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9 thoughts on “SolarCity: Powering the Climate Change Revolution?

  1. Great post, ConcernedCitizen. I definitely agree with you that SolarCity’s merger with Tesla can yield operational synergies, especially with regards to the development of complementary battery storage technology, but I think it will not clear some of the greatest hurdles ahead–grid management and utility regulations. One of the technical issues with distributed solar (like rooftop solar installed by SolarCity) is that the vagaries in solar generation strain base load power generation. If a cloud passes overhead, and all of a sudden power demand spikes because rooftop solar is not generating as much, power companies have a difficult time instantly matching power output at the plant, potentially leading to power brown outs or worse. That’s one reason why some solar-heavy states like Hawaii have begun to deny permits allowing homeowners to install anymore rooftop solar.

    Another issue is regulatory. Many utilities argue that rooftop solar allows consumer-generators to freeload on the grid, reaping the benefits of cheap power when the sun is out, and paying only for grid upkeep through energy charges when the sun is obscured. But the grid must be available for use 24 hrs a day, hence the argument for freeloading. I think SolarCity needs to find a solution to the regulatory issue, which may include designing systems that can provide enough power to completely remove someone from the grid, and thus avoid any responsibility for grid upkeep.

  2. Yes, good post! While I agree that value can definitely be created by mergers through enhanced capabilities such as economies of scale, I can’t help but consider the opportunities at a more grass-roots level. I wonder how Tesla and SolarCity could use their size and other strengths to reach people in remote communities that might not otherwise be tuned in to the benefits of these companies. The reach and target market of companies is often a difficult thing to address as we have already seen in many of our cases. Fortunately it looks like SolarCity is being proactive in this regard:

  3. Really enjoyed this post. It’s interesting to me that for R&D Tesla and Solar City operated separately, and now that product development has revealed synergies they are looking to merge. I wonder if this model applies to other sectors, too, in which initial investments in innovation and technology are not only extremely high but also highly specialized, yet production and manufacturing has key synergies. Other sectors that come to mind are pharma/biotech and high technology (e.g. robotics, VR/AR). A slightly more different area with similar research/production dynamics may be heath service delivery for specialized rare diseases, e.g. sleeping sickness, dengue, polio. For each of these services, service-development is highly specialized and involves understanding the details of the particular disease and the medical properties of the treatment. However, further downstream the manufacturing, distribution, and patient (consumer) components of the supply chain look extremely similar, and there could be cost/effectiveness synergies to consolidating deployment of the treatments themselves.

  4. Interesting post, thanks Concerned Citizen.

    I agree that the manufacturing / R&D synergies between the vehicle and home battery products will be substantial. Both products are actually manufactured by Tesla at the Gigafactory today. I think the most interesting new synergy may come from combining the existing retail footprint of Tesla with the existing distribution/installation network of SolarCity. If the merger happens, you will now be able to walk to your nearest mall, go to a Tesla store and learn about putting solar panels on your home- currently not something available anywhere in the consumer solar industry. Additionally, if you are in a Tesla store today, looking to buy a powerwall, there is no straightforward way to get it delivered and professionally installed- you have to find a 3rd party provider, the solarcity merger could solve this.

    I think the biggest problem however, is that cost is still prohibitively high and payback periods for installing one of these systems are still longer than most consumers (and institutional investors) are willing to accept. Will the new Tesla plant in Reno and the new Solar City plant in Buffalo be able to achieve sufficient scale to reduce cost to a point where we can get institutional capital to finance solar+battery systems across the country? That would be exciting!

  5. Thanks for sharing this! I really like how SolarCity and Tesla are collaborating to push the solar industry forward, especially on such attractive consumer applications of the technology. I think what’s really compelling is not any one of the technologies proposed by the two but the combined appeal of the full package of products. For instance, the solar roof in isolation is not overly appealing since often times more power can be generated than is consumable during the day, resulting in some states “abandoning payments for daytime rooftop solar” [1]. That said, when you introduce the Powerwall, which can serve as a battery pack, this becomes appealing since you can store excess power from peak times to use during offpeak hours. I’m curious though how these technologies become mainstream successes. Despite rapidly decreasing technology costs, the upfront costs for solar installations (and likely the Solar Roof) and home batter packs are still very high and this is only from a US perspective. Looking more broadly, you end up with a bit of a chicken and egg situation where you need enough scale to bring prices down but until prices are lower you can’t get sufficient adoption. I wonder how these technologies are brought down to an even lower price point so they can be adopted in developing countries.

    Source:
    [1] https://www.bloomberg.com/news/articles/2016-10-31/no-one-saw-tesla-s-solar-roof-coming

  6. I really enjoyed reading your post! The SolarCity proposal not only increases the percentage of solar energy as an energy source but also limits energy consumption from the grid, where two thirds of the energy comes from non-renewables. However, I think that this business model can only be successful in places were energy prices from the grid reach certain threshold and therefore the monthly savings for the end-user make up for the monthly payments for the solar panels and the respective maintenance. SolarCity must find a way to lower costs so that it can expand to regions with lower utility prices and maintain their value proposition. Still, with prices for solar prices dropping at an staggering rate (11x in the last decade) this could be a reality in the short-term.

  7. Interesting post, ConcernedCitizen. I wanted to flag the below article that I read some months ago, in agreement with your point about SolarCity coming up against utilities that want to disincentivise customers from going off grid:
    http://www.bloomberg.com/features/2016-solar-power-buffett-vs-musk/.
    The article and video are a must read/view. They outline SolarCity’s quest for residential rooftop solar panel installations, through net metering struvtures. At the time of writing, SolarCity have come up against NV Energy, the state of Nevada’s largest utility. Incidentally, NV Energy’s owner is no other than Berkshire Hathaway, owned by Warren Buffett.

  8. Thanks for the post. I think Tesla’s newly introduced Solar Rooftop (conveniently placed right before the shareholders vote on whether to approve Tesla´s and Solarcity´s merger) is the final piece that was missing from the complete, off-the-grid renewable energy for every household. Besides its solid technical specifications (eg. 98% efficiency as a regular solar panel), the Solar Rooftop seems like a very convenient, beautiful addition that could be massively adopted by millions of household in the US and the rest of the world. Following Tesla´s tradition, this roof tiles will pack outstanding performance in a great design. The key remaining question, for me, will be the product´s price point. Will it be accessible enough to fuel this market´s exponential growth? (1)

    (1) Bloomberg, “No One Saw Tesla’s Solar Roof Coming,” October 31, 2016 retrieved on November 7, 2016, from https://www.bloomberg.com/news/articles/2016-10-31/no-one-saw-tesla-s-solar-roof-coming

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