The Weekend Wonk: Thinking About Solar with Elon Musk
January 17, 2014
The new Steve Jobs, the most fantastically, ambitiously smart and successful business innovator (PayPal, SpaceX, Tesla, and now, SolarCity) of this generation, Elon Musk, has done a lot of thinking about Solar energy. Good God, turning away from the dopiness of climate deniers to this super smart visionary is like swigging pure Oxygen..
Dominic Basulto in the Washington Post:
So what does Elon Musk know about solar that the rest of us don’t?
1. Solar energy is inherently an exponential technology.
If there’s one thing Wall Street loves, it’s a good growth story, and that’s something that SolarCity has been careful to cultivate. The company already has 80,000 paying customers and expects to sign up 1 million customers within the next four years. That means the company will need to literally double in size every few months. Think about that for a minute: 1 million customers over four years means 250,000 new customers in 2014, or approximately 20,000 new customers each month. So the company will have doubled in size — from 80,000 to 160,000 customers — by Memorial Day weekend.
And then the company will double again, from 160,000 to 320,000; and then from 320,000 to 640,000; all the way to 4 million. That requires exponential growth to make possible in such a short time frame, so it’s no wonder that the godfather of exponential technological growth, Ray Kurzweil, has been quick to point out the remarkable growth that’s possible with solar technology. Just as computers benefit from the ability to cram a growing number of transistors on a chip (Moore’s Law), solar panels also benefit from being able to cram an ever-growing number of photovoltaic cells on them. According to Kurzweil’s calculations, we can expect to be energy independent within the next 20 years.
Note: Ray Kurzweil has sometimes been included on lists of “climate skeptics”, but apparently that is incorrect. Dr. Kurzweil grasps the climate issue, he just thinks that solar is going to take over so fast there will not be a problem. Coal Barons and Pension Funds be advised:
Currently, solar power supplies less than 1% of the world’s energy needs, which has led many to disregard its future significance. Where they’re wrong is that they fail to understand the exponential nature of technology, says eminent inventor and futurist Ray Kurzweil. Just like computer processing speed—which doubles every 18 months in accordance with Moore’s law—the nanotechnology that drives innovations in solar power progresses exponentially, he says.
During his latest Big Think interview, Kurweil explained:
“Solar panels are coming down dramatically in cost per watt. And as a result of that, the total amount of solar energy is growing, not linearly, but exponentially. It’s doubling every 2 years and has been for 20 years. And again, it’s a very smooth curve. There’s all these arguments, subsidies and political battles and companies going bankrupt, they’re raising billions of dollars, but behind all that chaos is this very smooth progression.”
So how far away is solar from meeting 100% of the world’s energy needs? Eight doublings, says Kurzweil, which will take just 16 years. And supply is not an issue either, he adds: “After we double eight more times and we’re meeting all of the world’s energy needs through solar, we’ll be using 1 part in 10,000 of the sunlight that falls on the earth. And we could put efficient solar farms on a few percent of the unused deserts of the world and meet all of our energy needs.”
Back to Musk and The Post:
2. Solar is a brand, not a utility.
Elon Musk thinks about solar energy the same way he thinks about electric cars — it’s easier to sell if it’s backed by a highly-recognizable brand such as Tesla. As a result, SolarCity feels more like a traditional consumer brand, less like a faceless utility. Think about it — there are Yelp reviews for SolarCity. The company has 30,000 fans on Facebook. That doesn’t sound like a utility. This is perhaps the most innovative part of what SolarCity is doing – it’s transforming a sleepy old utility business run by legacy companies into a new kind of energy start-up that has attracted the support of companies such as Google.
And once the customer begins to think of your company as a brand, it makes it easier to grab and maintain market share. While SolarCity may control nearly 25 percent of the U.S. solar energy market, that’s not to say there aren’t a lot of competitors. Going forward, dealing with competitors such as Sungevity or SunPower will be difficult, so having customers view you as the premier solar energy brand matters. That means continuing to innovate and bringing new products to market.
3. Solar is the rare business that can profit from cheap Chinese imports.
Most companies are running scared of China these days, thanks to the ability of the Chinese to out-compete on price on just about everything. The demise of any company usually contains a nightmare scenario of cheap Chinese imports or cheap Chinese labor. So Elon Musk figured out a way to make the Chinese threat work for him, not against him. He got SolarCity out of the business of just selling and installing solar panels, and into the business of selling long-term lease contracts.
Think about the role played by the cost of solar panels. If you’re just manufacturing, selling and installing panels, then the Chinese will be able to offer cheaper panels, and you lose money. However, if you’re offering the panels free to customers up-front, then you’ve just turned the business model upside down. The cheaper the panels are, in fact, the more attractive it will be for customers to consider solar energy as an option, and the more money SolarCity eventually makes. That’s what separates Elon Musk’s SolarCity from a company like Solyndra, which went belly-up once the Chinese started flooding the market with cheap solar panels.
4. Solar energy companies can tap into the power of the crowd.
Perhaps the single greatest change in the solar business that can really propel the business ahead is its ability to tap into the power of the crowd. Shifting from fossil fuels to renewable energy requires a massive change in preferences, habits and attitudes, and this is where the power of the crowd matters. That’s why you’re starting to see innovations like Mosaic’s unique crowdfunding initiative for solar energy projects.
SolarCity was already the first to market with bonds backed by the revenue from rooftop solar projects, making it possible for institutional investors to invest in the success of future solar projects. (It’s essentially the same logic that makes it possible for investors to buy mortgage-backed securities, thereby creating a robust housing market) SolarCity’s latest move, announced this week, is the ability for individual investors also to participate in this market. SolarCity is essentially creating a new Web-based platform to enable the crowd to make money off other people installing solar panels.
5. You won’t hear about “peak sun” for another 5 billion years.
Unlike a conventional fossil fuel utility, SolarCity doesn’t have to worry about running out of resources. We’ll never hear about “peak sun” the way we hear about “peak oil” because the sun isn’t scheduled to burn out for another five billion years. As long as the sun shines, customers can use solar panels to capture sunlight and transform it into electricity. Any excess electricity can then be transferred back to the grid for other customers. Theoretically, this excess electricity could be exchanged globally.
That’s perhaps why solar energy has such a loyal following in tech circles. In his 2012 book Abundance — which has been endorsed by the likes of Richard Branson, Kurzweil and Arianna Huffington — entrepreneur Peter Diamandis makes the most eloquent case for why the sun is such an important player in any future scenarios of energy self-sufficiency. Diamandis states that Africa has enough solar potential to supply the present world’s energy needs 40 times over.
Maybe the growth projections for SolarCity are too rosy. Maybe the cost savings for solar customers aren’t as high as SolarCity claims. Maybe we’re experiencing a Solar Energy Mania on par with the Tulip Mania hundreds of years ago. Maybe one day we all wake up and realize that Solarcity, with all of its talk of being a new kind of utility with fancy financing schemes, is the next Enron. All valid points.
But then again, would you really be willing to bet against Elon Musk?
SolarCity Corp. (SCTY), the first U.S. company to sell bonds backed by rooftop solar panels, plans to offer similar products to individual investors.
The company expects to introduce within six months an online system for retail investors to provide debt for SolarCity’s rooftop power plants, according to a statement today.
The system will provide one of the few opportunities for individuals to back renewable-energy projects, which generate steady revenue from selling electricity and may be less risky than equities. The arrangement also provides a new source of funding for San Mateo, California-based SolarCity, said Chief Executive Officer Lyndon Rive.
“The more sources of capital for solar investments, the more competition and hopefully it will lower financing costs,” Rive said in an interview. He didn’t provide details on the potential returns for investors.
The company is following Oakland, California-based Mosaic Inc. in offering retail investors a share of the revenue stream from financing solar-power systems. Mosaic was founded in April 2011 and has facilitated more than $5.6 million in funding.
“We expect billions of dollars of investment through this platform,” Rive said. He declined to provide a more precise amount or time frame. The company will use the funds to refinance its portfolio of completed solar projects.
The lending technology was developed by Common Assets LLC, which SolarCity bought. The company’s two employees have both joined the solar provider to manage the web-based investment system, according to the statement.
SolarCity installs rooftop solar systems for customers who typically pay little to nothing up front and sign long-term contracts to buy the power.
Shares of SolarCity Corp., the rooftop solar-panel installer backed by Elon Musk, rallied Thursday after analysts at Deutsche Bank rated the company’s stock a buy, saying that sinking costs will allow the technology to better compete with existing utility grids.
SolarCity SCTY -2.20%, based in San Mateo, Calif., has Musk, the co-founder of PayPal, co-founder and CEO Tesla Motors Inc. TSLA -0.71% and founder of SpaceX, as its chairman and largest shareholder. His cousins run the company.
The Deutsche Bank analysts predicted that more U.S. retail power customers will switch to solar as the country nears “grid parity,” which they predict will happen by 2016. At that point, solar power will cost as much as, or less than, power from the conventional electricity grid.
The analysts initiated the stock at buy and tacked on a price target of $90 a share. Shares of SolarCity have gained more than 400% since their December 2012 debut, and have rallied 43% in the past three months.
SolarCity popularized leasing, rather than buying, rooftop solar systems, removing one of the main obstacles to homeowners switching to solar: the upfront costs. The Deutsche Bank analysts called this a new, disruptive business model.
The analysts forecast that SolarCity’s customer base could roughly double by the end of 2014, and that growth will accelerate over the next two years.