The industry is buzzing over Tesla's offer to purchase SolarCity, with most conversations focusing on the financial stakes. I'm not a money guy, so I'll leave that angle to someone else. Instead, let's look at what it could mean to the industry and the consumer.
A "Vertically Integrated Energy Company"
Tesla's blog post announcing the offer uses the phrase "vertically integrated energy company," which means that one company would provide a complete, integrated energy management system, including a solar array, energy storage, load management, electric vehicles, and associated hardware and software support. I doubt that the merger would have a dramatic impact on the cost of hardware, since most solar and battery companies are selling their products at a very slim profit margin. However, the "soft costs" associated with distributed energy production and storage represent the largest portion of a PV installation, and that's where the combination could prove beneficial.
Reducing the Cost of Solar
The National Renewable Energy Laboratory (NREL) did a thorough study that analyzed the costs associated with home solar installation and described several conditions that could lower the soft costs and encourage more market penetration. One item that relates directly to the Tesla/SolarCity merger is the need for off-the-shelf packages. Most PV systems are custom designed for the site. Some elements of the custom design - electrical use assessment, shading analysis, array size, and orientation - will still be manually completed. At that point, the designer may determine that a 5 kW system with 15 kWh of storage is the right size. Then she has to specify the PV panels, inverter, battery bank, charge controller, etc. This is where an integrated company that makes all of the components eases the design - all the components are built to work together, making it as close to "plug-and-play" as possible. Less human intervention means lower cost.
Another factor that causes headaches for PV system designers is the permitting, inspection, and interconnection (PII) process. Most PV companies navigate the PII labyrinth for the customer, which adds to their cost. As it stands now, the authority having jurisdiction (AHJ) analyzes at each design from scratch, since every system is unique. A fully-integrated system can be approved in advance, allowing the AHJ to rubber stamp a project. Likewise, authorities involved in the inspection and interconnection steps can have confidence that a pre-approved package will be safe, which streamlines that process as well.
Finally, a plug-and-play system is faster and easier to install, further reducing the soft costs associated with residential and commercial solar.
Patents
Tesla famously released all of its patents, hoping to create a larger market by allowing other companies to use Tesla's technology. SolarCity owns patents related to PV efficiency, PV mounting systems, grid-tied energy storage systems, and home energy auditing. Assuming those patents are also released to the public, other companies can use the processes and technologies to improve their products and reduce costs. Open standards tend to increase the size of the market, making the proverbial pie bigger for everyone, including the company that shares its secrets with the world.
Utility-Scale Solar?
Like him or not, Elon Musk is always looking to the future. His announcements tend to reveal only the tip of the iceberg, while the bulk of the message is hidden below the surface. When he released the patents for EV technology, I suspected that he was really looking to get into the battery business, not just for cars, but for residential and grid-level energy storage. Not long after, the Gigafactory was announced, followed by the introduction of the Powerwall. Tesla's Gigafactory will have a PV array that's over 100 MW; that's larger than many utility-scale solar farms. If my "NostraThomas" instincts are correct, this merger, assuming it goes through, will eventually be followed by an announcement that Tesla is getting into the electric utility business.
At this point it's up to the shareholders, but if this merger is approved, you can expect some very interesting times in the solar energy industry. Grab some popcorn!
Image courtesy of Tesla Motors
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