It’s official: Tesla shareholders approved a merger with SolarCity. Despite financial analysts’ concerns, the basic concept makes sense: electric vehicle drivers will want solar panels to make fueling the vehicle at home cheaper. Solar customers will be interested in electric vehicles because they already have cheap fuel at home. So there are big marketing/customer acquisition benefits.
But more importantly, as rooftop solar sales decline and state regulators pull back on incentives, batteries will be crucial to keep solar competitive. Why? Right now most rooftop solar customers use the grid as their battery. I have panels on my home, for example, and when I have surplus electricity in the summer, I export to the grid and get a retail credit for that surplus. I then apply that retail credit to my grid usage in the dark winter months, and “true up” after a full year accounting.
But regulators are doing away with that bargain already in places like Hawaii and Nevada. Soon new solar customers are going to need an actual battery to store their surplus solar. It would be the same model that I have, but you no longer need the grid to store your electricity, and you don’t need regulators requiring utilities to do so. Instead, with a big enough battery, you capture and use all your solar energy on site.
The one question I have is whether the economics are still good enough to encourage people to purchase both a battery and solar array. I doubt a typical Tesla home battery will be big enough to capture all the surplus energy in the summer months, meaning some power will be lost that the grid would otherwise have used. But as battery and solar prices decrease and electricity rates increase, the deal could be good enough.
Either way, the merger represents a sea change in our electricity system, packaging transportation and home energy use in a way we’ve never seen. If all goes well for the company, Tesla could one day become a monopoly like we’ve never seen, with a gas station, utility, and car company all rolled into one.
The proposed merger between Tesla and SolarCity has a lot of Wall Street types grumbling. But as I wrote a few weeks ago, the deal makes some sense in the short run and has the outside potential for major gains unlike anything we’ve seen in the energy space.
Now the Chicago Tribune spells out some of the specifics of the upside for the company, much of which is predicated on likely policy changes to solar policy in the U.S.:
Net metering rules, which require electric utilities to buy back rooftop solar from customers at retail rates, are the biggest U.S. subsidy for solar power. But as solar power spreads, the policy will begin to destabilize grid economics. Several states have reversed their rules already, most notably Nevada, where the abruptness of the turnabout left customers in the lurch with overbuilt solar systems and no way to recoup costs. Higher-capacity battery storage will eventually allow solar customers to profit from their solar systems with or without net metering. It’s investment security for the homeowner.
Essentially, Tesla is betting — with good reason — that states will likely start encouraging battery installation along with solar panels.
He may soon be drinking your energy milkshake
The article also notes that Tesla may be able to aggregate all of its customers’ battery power to sell this flexible resource to the wholesale electricity market to provide various grid services, distributing the revenue to its customers in the form of reduced energy bills or cash payments.
My only quibble is that the “frequency regulation” market that the article cites is lucrative but relatively small. So the company may have better success aggregating all this flexible demand to be responsive to grid needs (essentially to match renewable generation).
So in the near term, Tesla can benefit by selling solar panels in its showrooms. In the medium term, it can bet on battery incentives in many states and the possibility of aggregating all of its customers’ energy resources to sell to grid operators. And in the long run, as costs continue to decline and new technologies become available, the company could very well supplant traditional utilities by managing all of your energy — and transportation — needs.
Not a bad play, all in all.
Let’s play monopoly
As has been widely reported, Tesla is making moves to buy solar installer SolarCity. The two companies have family relations, with Elon Musk’s cousins running SolarCity and with Musk serving as chairman of the board, in addition to his role running Tesla.
Does the deal make sense? At a basic level, yes (although doubts persist about the short-term economics). Tesla is already distributing its batteries through SolarCity, and many Tesla customers will be interested in solar, once their electricity bill goes up as they charge at home. So there are obvious synergies: — Tesla can advertise for SolarCity in their showrooms for example, and SolarCity can promote Tesla vehicles and batteries.
But in the long term, Musk is aiming for a monopoly on a magnitude we’ve rarely if ever seen before, outside of the old company town. Essentially, Tesla seeks to own your transportation and home energy, all in one corporate clean energy “ecosystem.” It will become your utility, car company, and gas station, all in one — only without the emissions of our current system.
Musk is a friend and former business partner of Peter Thiel, the famed PayPal investor who preaches the virtues of such monopolies. Thiel essentially argues that if you’re an entrepreneur starting a business that isn’t aimed at becoming a monopoly, you’re basically wasting your time. Think Google and Amazon.
It’s hard to argue with the pure business logic of that approach (leaving aside the traditional arguments against monopolies). And now Musk seems to be following through on that approach with this takeover effort — a monopoly pattern that already started with Tesla’s decision to own its own charging network, rather than let third party companies take over, and to bypass auto dealers in favor of direct sales. At least from an environmental perspective, it would certainly herald a big win.
But will it work? Not in the short term. SolarCity will not be replacing electric utilities anytime soon. And batteries plus solar will not allow most people to leave the grid entirely. You simply can’t generate enough power or store it to cover most people’s needs throughout the year. And many people don’t own their own homes or have their own rooftops to make this possible.
But two trends could change that dynamic. First, technologies can improve, leading to more powerful solar panels and cheaper, bigger batteries. New technologies, such as cheap fuel cells, could also provide the additional generation needed to fill the solar gaps during the nighttime and winter. These developments could allow Tesla/SolarCity to become the ultimate monopoly it dreams of, particularly if it can operate at a neighborhood scale for those without dedicated rooftops.
Second, Tesla/SolarCity could buy up other companies to fill the gaps, such as energy efficiency companies and different renewable generators, like urban wind turbine manufacturers.
All in all, it’s a big gamble but with a very logical long-term goal. In the short term, the co-marketing and co-distribution opportunities could cover the costs of the merger. And in the long term, it has the outside chance of turning this country into the United States of Tesla, whether we like it or not.
Lyndon Rive, Elon Musk’s cousin, is planning it for SolarCity:
Economies of scale are part of SolarCity’s plan. The company will manufacture the modules at its new facility in Buffalo, which it hopes to have fully operational by the end of 2017, pumping out enough solar panels to supply 200,000 homes a year. Of course, to hear the CEO say it, we’re already in a pretty good place, cost-wise.
“Solar is not expensive; in fact, there is no cost at all,” SolarCity CEO Lyndon Rive told ThinkProgress. “There are savings on day one.”
This ongoing revolution in making solar panels affordable has made the transition to clean-generated electricity possible. Now if we could just do the same for batteries and other energy storage technologies, we could actually solve climate change — or at least minimize the damage to keep the planet livable in the coming centuries.
Today I heard a panel presentation at the California Public Utilities Commission (PUC) with Elon Musk, CEO of Tesla, and Lyndon Rive, Elon’s cousin and CEO of SolarCity. I deal with a lot of climate-friendly businesses in my line of work, but Elon Musk is the one business leader with products (electric vehicles and batteries) that actually have the capability of saving the world. Electric vehicles mean two things for fighting climate change: 1) they represent a switch from transportation fossil fuels to electricity and 2) they offer an investment in battery technology that could enable 100% clean, renewable electricity (for when the sun isn’t shining and the wind isn’t blowing). Global climate change solved!
So I was keen to hear Mr. Musk’s take on battery research and the future of EVs. Some highlights from the panel discussion, which also included PUC President Micheal Peevey:
- Musk noted that the raw material cost of batteries is about $60-$70 per kilowatt hour, and he believes his new battery “gigafactory” can get the price down to near that level. Right now batteries are about $400 per kilowatt hour, which for a 24 kilowatt Nissan LEAF means the battery alone costs $9,600. Bringing it down to $100/kwh means shaving $7,200 off the cost of the LEAF. Or perhaps more importantly, for the same cost you could get a 96 kilowatt battery in a LEAF, enabling a range of over 300 miles per charge. That’s a game-changer for EV adoption.
- Lyndon Rive complained that solar PV customers who have a battery pack for nighttime or backup energy are currently having to wait up to 8 months for the utility to connect the system. To which Musk commented in disbelief, “that’s crazy.” I guess utilities have no incentive to hasten their inevitable demise, but this needs to change.
- Musk envisions home battery packs to go with rooftop solar that would be maybe three inches thick and attach to a garage wall. Otherwise, he said, “they can’t take up the guest room.”
Overall, Musk and Rive noted that EVs and rooftop solar still represent a tiny fraction for consumers, with rooftop solar outpaced by new home construction nationwide and EVs less than .1% of new car sales right now. We have a long way to go, but it’s good to know we have dedicated business people working to solve these problems and export California technologies and innovation around the world.
