As climate change moves to the forefront of global debate, reducing the 12% share of GHG emissions attributable to powering and heating buildings1 is becoming an increasingly appealing way to reduce global GHG emissions. In the United States, taking advantage of a 30% Solar Investment Tax Credit toward residential and commercial solar projects2, numerous firms have sprung up offering homeowners and businesses the chance to install solar panels on their roof, reducing their electricity intake and GHG emissions. One of these firms is SolarCity
The good – scaling quickly in response to an important problem
SolarCity has aggressively grown in response to this climate change opportunity to become the largest designer and installer of solar power systems in the United States, having installed over 280,000 solar systems representing ~2300 megawatts (MW) of capacity as of 6/30/163. For every hour these customers use electricity, this prevents ~1500 – 2500 tons of CO2 emissions4. Additionally, excess power generated is stored in onsite batteries for use at night, further reducing emissions
SolarCity continues to grow quickly, its total MW installed having increased 66% over the previous 12 months to June 2016. Given the rapid expected growth of this market5, and the fact that the US supplied almost 2.5 million MW of energy in 20101, this growth could continue unabated for a long period of time.
On the product development side, SolarCity’s pace of innovation has not slowed, with the firm recently introducing a “solar roof,” where instead of mounting solar panels on an existing roof, SolarCity will sell and install a roof made of thin solar panels that are invisible from street level6
Just as SolarCity’s willingness to expand can’t be doubted, nor can its willingness to embrace change. Pending a shareholder vote, SolarCity has agreed to be acquired by Tesla, in a move that some believe will dramatically expand SolarCity’s reach, provide a long term battery supplier for SolarCity and potentially create a “one-stop-shop” for all a customers sustainable needs, allowing customers to purchase an electric car and the means to sustainably charge it under one roof7.
The bad – how sustainable is this business?
SolarCity’s impressive growth notwithstanding, there remain some key questions surrounding its future. Primarily, SolarCity has never been profitable in 10 years of operation, burned ~$800M in operating cash in FY2015, and is in questionable financial health with over $1B in debt on its balance sheet8. Even as part of Tesla, these results do not bode well for SolarCity’s long-term viability.
Additionally, there are some questions regarding the quality of SolarCity’s latest products, with some questioning the potential quality and cost of the Solar Roof9 and SolarCity providing little in the way of supporting details.
Perhaps more worryingly, SolarCity has failed to reduce costs over time, the cost per installed watt having actually risen 2% in the past two years due to escalating sales costs10.
This is worrisome, since that SolarCity has set a target for itself of $2.30 / watt by 2017, and that residential solar is still uncompetitive with other sources of energy, costing at least 50% more on a levelized basis compared with conventional fuel sources11. Given that the Solar Investment Tax Credit is currently set to expire in 20232, SolarCity must continue to improve.
The future – a path toward sustainability
Going forward, SolarCity’s future potential is equaled only by challenges it faces validating its operating model. To ensure its success in its mission to provide renewable energy, two things must happen:
- SolarCity must continue to innovate to make its systems an economic, not just an environmental, choice for more Americans, and that means reducing costs and scaling responsibly
- One potential option is to explore partnership models with utilities, who currently have little incentive to support Solar City as it typically implies a reduced consumption base to amortize high fixed costs
- Another option is to begin using 3rd party installers in remote locations. While SolarCity has prided itself on being a full-service vertically integrated installer, this could allow them to achieve greater scale at lower fixed cost
- Additionally, SolarCity must continue to strive for a product that is minimally intrusive and easy to install to maximize uptake. Whether this is Solar Roof or a redesign of its traditional solar panels to improve their aesthetic, it is imperative that Solar City remove as many emotional or logistical barriers to installation as possible
The future is bright as SolarCity seeks to tackle an urgent problem with global implications, we can only hope no clouds are in the way
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Footnotes / Sources
 Climate Change in 2016: Implications for Business (HBS No. 317-032)
 http://www.seia.org/policy/finance-tax/solar-investment-tax-credit, 11/3/16
 SCTY Q2 2016 Form 10-Q, pg 36
 EIA FAQ’s. Analysis depends on choice of generation alternative, numbers taken from https://www.eia.gov/tools/faqs/faq.cfm?id=74&t=11 11/3/16
 GTM research, Solar Market Insight Report 2015 Year in Review, found at: http://www.seia.org/news/us-solar-market-set-grow-119-2016-installations-reach-16-gw
 SolarCity website
 Numbers taken from SCTY FY 2015 Form 10-K
 SCTY Q2 2016 Earnings Presentation, pg 6
 IEA, NEA joint report “Projecting Cost of Generating Electricity 2015”, assumes a 3% discount rate