Elon Musk and his co-founders say that “SolarCity was founded to accelerate mass adoption of sustainable energy. The sun, that highly convenient and free fusion reactor in the sky, radiates more energy to the Earth in a few hours than the entire human population consumes from all sources in a year….We absolutely believe that solar power can and will become the world’s predominant source of energy within our lifetimes, but there are obviously a lot of panels that have to be manufactured and installed in order for that to happen.”
Founded in 2006 by Musk and his cousins Peter and Lyndon Rive in 2006, SolarCity is a provider of solar energy systems to customers in the United States. While the high profile collapse of government-funded Solyndra in 2011 had brought public skepticism towards the solar panel industry, SolarCity has quickly risen to become the largest installer of solar panels in the United States. The company’s vision is to speed the adoption of solar power by offering products to consumers that are ultimately less money that standard utility rates. The company serves about 298,000 customers in the residential, commercial, and government markets and have grown cumulative customers at a 94% compounded annual rate since the end of 2012. The company has over 14,000 employees with over 80 operations centers in 19 states.
SolarCity’s business strategy involves selling renewable energy at prices below utility rates with de minimis upfront costs while allowing customers to enter long-term contracts that shield customers from rising energy costs. Whereby an average customer would pay 18 cents/kWh for electricity, SolarCity decreases this amount to 15 cents/kWh. When all the customer has to do is order the panels and then have SolarCity finance and install them, making the switch to solar energy becomes a lot simpler.
Operating Model through Vertical Integration
The operating model works due to vertical integration of processes, starting from sales of the panels, moving to financing them, installing them, and finally monitoring and maintaining them as they produce energy.
Solar City sells its products through a direct outsourced sales force, call centers, door-to-door sales teams, and a channel partner network.
The company’s financing model is a key element to its operating model. Customers will agree to install SolarCity’s panels for little to no upfront cost in exchange for signing up for a long-term (20+ year) contract whose pricing include a fixed monthly fee or a variable fee based on the amount of energy produced. The company will in turn securitize these cash flow streams and sell them to investors. These cash flow streams are high quality (average FICO score of customers is 750).
Engineering and Installation
An in-house engineering team uses software to analyze the building’s structural features and subsequently creates a customized system for each customer that optimizes the system’s energy production. After the design of the system, SolarCity will coordinate the installation process, which includes using a general contractor, construction manager, installer, and scheduling inspections with local building departments. Managing the logistics of installation significantly simplifies the process for customers.
Monitoring and Maintenance
After installation, SolarCity then provides a proprietary monitoring software to customers that gives them real-time viewing of their energy generation and consumption. Customers can either use an app on their smartphones or a web browser to view an easy-to-read graphical display of these metrics. These monitoring systems allow the company to monitor and maintain the energy system while educating the customer on their energy usage.
SolarCity has become the clear market leader in US residential installations with 36% market share, the company expects to grow MW installed by 41% in 2016. Driving customer uptake are growing retail electricity prices and decreasing costs to develop and install solar panels with economies of scale. SolarCity estimates the total addressable opportunity in the US as over $60 billion and plans to continue to grow with its strong value proposition to customers.
With one of the largest obstacles to solar energy adoption being the acceptance of solar energy by the consumer, SolarCity has effectively implemented a business model whereby the customer simply has to agree to a contract in exchange for SolarCity installing and financing the solar panel with the added benefit of a lower energy bill.
- SolarCity Blog: “Solar at Scale.” <http://blog.solarcity.com/silevo>
- SolarCity Corp: Form 10K (Dec. 2014)
- SolarCity Investor Presentation: “Delivering Better Energy.” (Feb. 2014)
- SolarCity Investor Presentation: “Q3 2015.” (Nov. 2015)
- Fast Company: “SolarCity’s Rooftop Panels are About to Get Way, Way Better.” <http://www.fastcompany.com/3051844/tech-forecast/solar-panels-are-about-to-get-way-way-better>
- The Week: “Elon Musk lays out his vision for a solar energy future.” <http://theweek.com/speedreads/451481/elon-musk-lays-vision-solar-energy-future>
- Inc.: “What Solar City’s CEO Really Thinks About Climate Change and His Cousin Elon Musk.” <http://www.inc.com/christine-lagorio/what-solar-citys-ceo-really-thinks-about-climate-change-and-his-cousin-elon-musk.html>