Thursday, July 24, 2014

SolarCity is trying to become the Apple of solar power

A SolarCity array in Meteor vineyard. Steve Jurvetson/Flickr

SolarCity is already the largest installer of residential solar panels in the United States. Now the company is going a step further, buying up solar manufacturer Silevo and planning to build one of the world's biggest solar-panel factories in upstate New York.

The immediate goal here is vertical integration. The company, which was co-founded by Tesla CEO Elon Musk, wants to handle all aspects of the solar supply chain, from design to manufacturing to sales to installation. It's basically the Apple model — only for solar panels.

But SolarCity's ultimate aspiration is to drive down prices dramatically. In a call on Tuesday, Musk said that the aim was "to have solar power compete on an unsubsidized basis with fossil-fuel energy from the grid." (The company was also founded by brothers Lyndon and Peter Rive, who currently run it.)

Is that doable? SolarCity has had success with its current business model — offering rooftop solar systems at no upfront cost to customers who make monthly payments spread out over many years. The company now handles 25 percent of all US residential solar installations — and is aiming for 1 million customers by 2018. This latest move means SolarCity will be able to produce its own panels for these systems and try to lower its costs even further.

Can solar ever be competitive with fossil fuels?

Trying to make solar power competitive with fossil fuels is certainly a difficult task.

Installing solar panels on your roof is still one of the most expensive ways to generate electricity — costing roughly twice as much per kilowatt-hour as building a new natural-gas plant, on average. (Federal subsidies bring the price of solar down, but those tax credits are at risk of expiring.) That's one reason why solar power generates just 0.2 percent of electricity in the United States.

The flip side, though, is that solar module prices have been plummeting over the years — driven by technical innovations and a recent frenzy of manufacturing in China. The cost of installing solar panels has also dropped:

Solar-panel-costs

GTM Research

Those trends have led some analysts to predict that solar could eventually become competitive with fossil fuels on the grid in many parts of the United States — even without government subsidies.

The Rocky Mountain Institute, for instance, has projected that tens of millions of households around the United States could find it cheaper to get some of their electricity from solar by 2030, or possibly even 2020. (This is known as "grid parity.")

But there are plenty of obstacles in the way here. First, solar prices might not fall as quickly in the future as they have in the past.

Second, there's still the problem of storage. As solar becomes more widespread, we'll likely need to figure out how to store electricity generated when the sun is shining for use during less-bright hours. (On that score, it's notable that Tesla is building a giant battery factory for its cars — and some of those batteries will be used by SolarCity.)

What's more, some electric utilities have been resistant to the solar boom, in part because it's a threat to their business model. Utilities make money by selling electricity to homes and businesses; it's bad news if those homes generate their own electricity. Some utilities have pushed to levy surcharges on solar-panel owners, so that they pay for grid maintenance. Fights like those are becoming more commonplace, and could well slow solar's growth.

Why SolarCity is turning to manufacturing

Those problems aren't all going to be solved at once. But in the meantime, SolarCity is trying to focus on the first issue — making solar panels cheaper and more efficient.

First, the company is acquiring Silevo for as much as $350 million in an all-stock deal. Silevo is known for its high-efficiency Triex modules, and SolarCity CEO Peter Rive said in a conference call that the company was eventually aiming to produce panels with 24 percent efficiency.

More efficient panels, in turn, would help cut down on the company's labor and installation costs — because there'd be fewer panels to install in the first place. That makes the systems cheaper:

Solarcity-silevo-graph-03.jpg.650x0_q85_crop-smart

SolarCity

Second, SolarCity said it was in talks to build a giant solar-panel factory near Buffalo, New York "At a targeted capacity greater than 1 GW within the next two years, it will be one of the single largest solar panel production plants in the world," the company said in a blog post.

And more may be in the works: "This will be followed in subsequent years by one or more significantly larger plants at an order of magnitude greater annual production capacity."

Why the factories? Musk noted that the company plans to install "tens of gigawatts per year" over the next decade and needs massive new manufacturing capacity to ensure there's a steady supply of panels. The company also hopes that economies of scale from its planned factories will continue to push down solar-panel prices.

It's also worth noting that, in the short term, this move will allow SolarCity to shift away from using imported Chinese solar panels, which are currently being targeted by a series of US tariffs in a steadily escalating trade war. In the call, Rive said that when those tariffs and other factors were taken into account, they expected US solar-panel manufacturing to be competitive with Chinese manufacturing — at least for advanced solar panels.

Further reading: You can read additional analyses of SolarCity's move from GTM Research and GigaOm and Business Insider.

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