Navigant Research Blog

Tesla and SolarCity: Is Financing a Bundled Clean Energy and Transportation Service on the Horizon?

— July 8, 2016

Electric Vehicle 2Tesla’s recent announcement that it intends to acquire SolarCity was an unprecedented Energy Cloud trifecta. It’s not easy for a single release by one company to stir the interests of three separate sets of passionate stakeholders tracking transformative clean energy and transportation technologies and business models. And rightly so, as the potential for Tesla to pair vehicle electrification with solar and advanced battery energy storage as integrated distributed energy resources (DER) is an eye-opener to say the least.

Tesla’s vehicle and battery manufacturing businesses are very different than SolarCity’s solar business, both technically and revenue model-wise. It will likely be a challenge for the company to explain these separate businesses to its investors and manage expectations. One could argue that Tesla might be better off focusing 100% of its efforts on building out the Model 3 and Nevada Gigafactory battery manufacturing capacities in the short term.

The DER Standpoint

But from a DER technical standpoint, it’s intriguing to consider the possibility of what the new Tesla could do. For example, the new Tesla could couple the energy capacity of plug-in electric vehicle (PEV) batteries with solar, PEV charging infrastructure, and virtual power plant (VPP) software all at the home of a single customer. It’s not hard to envision how this type of arrangement could serve both as DER and an overnight revenue source to utilities. The new Tesla indicated that it plans to continue to partner with utilities, which are increasingly interested in aggregated behind-the-meter demand response capacity. And SolarCity’s recent efforts to partner with utilities in New York on a new program to eliminate net metering along with the company’s recent hiring of former Federal Energy Regulatory Commission (FERC) Chairman Jon Wellinghoff as Chief Policy Officer demonstrates a willingness to pursue such new and innovative business models.

Going to Market

But how might the new Tesla take this sort of concept to market? A key aspect of technology innovation in renewable energy has been financing innovation. The development of power purchase agreement financing has been instrumental in the growth of solar PV. Navigant Research believes that financing innovation will also drive energy storage markets over time, as well.

But the new Tesla could be uniquely positioned to apply financing innovation to an integrated solar battery PEV-based VPP while also providing consumers with the use of the vehicle. Imagine a homeowner entering into a 15-year financing agreement for solar, energy storage, and use of a Tesla Model 3 under a single contract. In this scenario, the new Tesla/utility partner manages the VPP asset while the customer gets access to, but not ownership of, a Tesla Model 3. If the new Tesla/utility partner decides to extensively use a Model 3 battery as part of the VPP, then the homeowners get a new Tesla battery. In this scenario, the long-term assumptions on VPP revenue, replacement batteries, or even new vehicles and solar storage benefits are bundled under one customer-facing agreement.

This type of integrated financing innovation might sound challenging. But I can guarantee that a trifecta (or more) of interested Navigant Research teams will be closely tracking if and how the new Tesla comes together.

 

SolarCity’s Silevo Buy Is About Efficiency…And Loan Guarantees

— June 20, 2014

SolarCity, the rooftop installer of solar panels that has revolutionized the photovoltaic industry through financial engineering, announced this week that it has purchased startup solar cell manufacturer Silevo for $200 million in stock.  After the announcement was made, SolarCity’s stock price increased enough to make the acquisition almost costless for SolarCity and its shareholders.

That doesn’t mean that the company gets free money for nothing, though.  In order to make the Silevo acquisition worthwhile, SolarCity has to actually succeed in building a factory and start making panels.  That will cost billions of dollars, as well as expose the installation company to all the risks that come along with becoming a manufacturer.

Or will it? SolarCity’s task is to succeed where Solyndra failed.  Ironically, Silevo’s value to SolarCity might have been about the same program that became a political whipping boy in the wake of Solyndra’s failure: the federal loan guarantee program.

Same Plan, Different Outcome

Loan guarantees allow companies to borrow money for high risk projects because the federal government will pay back borrowers for a big chunk of the lent money even if the enterprise fails.  Solyndra famously built a brand new manufacturing facility with federal loan guarantees and then proceeded to declare bankruptcy shortly thereafter, leaving the federal government with the bill.  SolarCity might have the same game plan for Silevo (without, you know, the failure part).

Building a factory that can build a gigawatt’s worth of photovoltaic panels is a multi-billion dollar endeavor.  Even with its newfound high-flying stock price, SolarCity’s resources will be stretched in trying to pay for that with cash.  It will also find it difficult to find investors who are willing to lend that much for factory that makes an untested technology.

Enter the Department of Energy.  Earlier this year, it re-launched its loan guarantee program for new projects that offer to bring jobs to the U.S. Silevo had already raised more than $225 million in New York state incentives for the construction of its facility.  Now you can expect that SolarCity will be applying for federal loan guarantees in order to get the financing it needs to reach its goal of becoming a manufacturer.

Seller and Buyer

If a loan guarantee is granted, does this mean that after all of the heartache of the Solyndra affair that the Department of Energy is backing another loser?  In a word, no.  The primary difference between SolarCity and Solyndra (and there are many) is that the former is now a company that is making panels for itself.  Solyndra simply couldn’t find buyers for its oddly shaped systems, which didn’t conform to the rest of the photovoltaic industry’s form factor standards.  SolarCity doesn’t need to find a buyer because it is buying the panels that it makes.  In other words, it’s a captive market for its own products.

Silevo’s fundamental technology advantage is that it promises to make higher-efficiency panels at a lower cost than other manufacturers.  That would be nice to achieve, but it’s not even necessary.  SolarCity’s primary goal is to make cheap panels for itself so it can reduce overall costs for its installation projects.  Even if the New York factory ends up making plain old crystalline cells like those being mass produced in China today, SolarCity will win.  Its only real challenge is to make them cheaply and efficiently.

 

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