SolarCity as an Agent of Change: Fasten Your Seat Belts, the Energy Transformation Is Coming

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Lyndon Rive, founder and CEO of SolarCity, is confident that a transformation is happening in how our energy is delivered. Distributed solar is that transformation. PV Solar Report spoke with Rive at the recent CleanTech Future II conference in San Francisco to get his take on the future of energy in the U.S.

 

 

A transformation is happening, whether we realize it or not. It’s a transformation in how our energy is delivered. And it can’t be stopped. That’s according to Lyndon Rive, founder and CEO of SolarCity (Nasdaq:SCTY), speaking at the recent CleanTech Future II conference in San Francisco.

Why are we headed toward this change? Because we need to, and because we can.

Drivers for the energy transformation

There was no need to convince attendees of a clean technology conference that we must change how we get our energy. The question is what will drive that change.

Resource and climate concerns alone are likely not enough to hasten the energy transformation. What’s key, Rive noted, is the ability of the average person to generate their own power — and to save money by doing so. Companies like SolarCity have contributed to an unprecedented spread of solar among even the middle-class, thanks to new financing options. The result? According to Rive, “Distributed solar is the transformation that’s happening.”

Driving this transformation are increasing utility costs coupled with decreasing costs of both solar and solar capital. 

Rive added, “We’ve seen this movie before.” While he acknowledged that it’s not 100%  equivalent to what happened in telecommunications, the similarities are striking. And utilities, like telecom companies, are likely to be caught off guard. Bell Atlantic predicted early on that cell phones could result in revenue loss for the company – but no one forecast the mass adoption that ensued.

Resistance to change

Although utilities may or may not get the magnitude and inevitability of the coming change, they are getting nervous. That’s why they’ve been fretting about a “death spiral,” in which costs of maintaining the grid get shifted from solar adopters to everyone else, leading to the utilities’ demise. But Rive claimed, “There is no death spiral.” Talk of one, he believes, is just a fear tactic.

There’s a real, fundamental problem, though: it comes down to the business model utilities have been enjoying for decades. No wonder they resist change. They’re privileged with the unusual situation of no competition, guaranteed, recession-proof profits, and no need to innovate or reduce costs. In fact, they have incentive not to reduce costs, given that investing in new infrastructure brings them a guaranteed return.

This business model not only goes against the grain of distributed solar, it also discourages energy efficiency. As Rive noted, the guaranteed profit afforded utilities means that if everyone in the U.S. cut their energy use in half today, tomorrow everyone’s bill would double.

Rive acknowledged that distributed solar means a revenue loss for utilities. But that doesn’t mean we should stop distributed solar. Instead, it means we need to change the way utilities operate.

The path forward

Rive is confident that this transformation will happen in the next 30 years. How will it happen, though, is still unclear. The hurdle won’t be technology — we have that, in the form of solutions like smart inverters, voltage control, energy use analysis and simulation, and real-time storage control. And competition will encourage more innovation.

What we lack is a “dynamic that forces change and delivering a better product.” Rive doesn’t see utilities going away, because we need them to maintain the grid. But their business model must change. His proposal: “Let’s come up with an incentive for utilities to reduce costs.”

Whatever happens, Rive is confident that local generation will force change and bring down consumer electricity costs.

Rive’s forecast for the next 30 years: with coal and petroleum production decreasing, and natural gas taking a small hit, renewables will make up the single largest source of our energy in the U.S.

The consumer factor

PV Solar Report caught up with Rive after his talk to get further insights on his vision of the energy transformation.

The question remains to what extent distributed solar can follow the same trajectory as cell phones. But in terms of taking solar to mass adoption, Rive said the issue is not lack of demand. “Consumers want cheaper, cleaner energy. And they want control of their own energy and energy costs.”

Still, cell phones offer consumers something they didn’t have before. While it’s easy to think that with solar they’re getting the same energy as before, Rive asserts, “It’s different energy in that it’s cleaner and cheaper. The legacy is that people think it’s expensive, but it’s free.”

So we need to convince people they can afford solar, and to do that, Rive believes we can’t rely on media like the Internet or radio. Nor can we expect solar companies to band together to educate the public, given advertising costs and competition in this volatile industry. The key, he says, is a face-to-face conversation with a solar provider, or better yet, a neighbor. Neighbors are still the largest source of referrals for SolarCity, attesting to the importance of social proof when it comes to solar.

Also making it hard to convey the message in broader forums is the fact that each person’s situation is different. And because of that, Rive doesn’t see loans becoming the next big thing and supplanting solar leases, though they are appealing for some consumers and will likely make inroads.  

A bright future for solar

One way or another, consumers will move to a new way of getting their energy. What will happen to utilities? “Their business model will change and they’ll make less money. But they can keep their profits higher by participating in the transformation, as a few are doing,” Rive said. Those that fight the coming change don’t always fare well. “They may slow things down, but consumers will force them to change.” Rive cited the example of Arizona, where polling for solar has gone up since the utilities began fighting it and inadvertently created more awareness of solar.

When asked what the biggest challenge is for SolarCity right now, Rive didn’t mention utilities. He pointed to the “natural challenge of growing a business: maintaining growth, doing a thousand things more efficiently — not any one thing.”

Whatever the challenges, he sees the coming transformation as inevitable. While a solar system on your roof may not be exactly the same as a cell phone, and solar hasn’t yet reached 1% adoption, he pointed out, “It’s rare to see industries growing as much as solar.”