NEWS New York Times: Testing the Clean-Energy Logic of a Tesla-SolarCity Merger
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Imagine a world in which every home and building is a miniature power plant, with solar panels on the roofs and electric vehicles and stationary battery banks in the garages.
Meters and software would manage the flow of power, allowing homeowners and businesses to seamlessly buy and sell electricity at the best prices, simultaneously lowering their costs and raising the amount of green energy on the grid.
That’s the long-term vision behind the plan that Elon Musk described late Tuesday, explaining the rationale for Tesla to acquire SolarCity and create the “world’s only vertically integrated energy company.’’And it may very well become reality, whether in years or decades, and whether Mr. Musk’s version of the vision is one that proves viable.
Still, if Mr. Musk and his cousins, Lyndon and Peter Rive, can trounce the competition and surmount their financial woes — and those are very big ifs — the integrated company they are trying to assemble could be in a position to dominate.
“This is an effort to build the Apple of clean energy,” said Daniel M. Kammen, the director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley. “That really is part of the new wave of companies that could make this decarbonization addressing climate change really work.”
Wall Street, at least for the moment, is not on board.
SolarCity’s stock, which has been trading at roughly a quarter of its peak value in recent months, rose after the announcement. But Tesla’s has tumbled. Several analysts and investors have questioned the wisdom of adding to both companies’ financial pressures — between them the companies lost more than $1.6 billion last year — and potentially distracting Tesla from building its enormous battery factory in Nevada and bringing its first moderately priced car to market next year.
Even some energy analysts say the proposed acquisition is at least as much about helping Mr. Musk’s personal investments as furthering his green agenda. But, some energy experts and investors say, there is logic in combining Tesla, where Mr. Musk is chief executive, and SolarCity, where he is chairman.
Describing Tesla automobiles as “batteries wrapped in a car,” Shawn Kravetz, founder of the solar power investment company Esplanade Capital, said that the energy storage business was likely to become colossal. “And so you can see,’’ he said, ‘‘how the electricity to power those batteries can be an essential part of this.”
The two companies have been moving toward a closer partnership for some time. SolarCity began installing Tesla batteries in pilot projects for residential and commercial customers about four years ago. Last year, Tesla announced its move to market rechargeable lithium-ion battery packs that could mount to a home garage wall, as well as battery blocks large enough to power commercial and industrial customers and serve in utility-scale installations to smooth out fluctuations in the grid.
At the same time, SolarCity, after years of challenging the utility industry to innovate or die, started acting more like a utility itself. It began a program aimed at cities, remote communities, campuses and military bases to design and operate small, independent power networks called microgrids. At the time, Peter Rive, one of the company’s founders and its chief technical officer, called the system “a template that can be scaled up to basically be the next-generation grid.”
As the leading rooftop solar provider in the country, SolarCity is thought to have the largest collection of data on how solar customers use energy at every minute of the day. With that data — especially if combined with information from electric cars, chargers and stationary batteries — the combined company could be well suited to creating products and services based on customer needs.
“They deeply understand what the customer’s usage patterns are,” said Swapnil Shah, chief executive of FirstFuel Software, which provides energy management services to buildings. He compared the potential to Amazon’s ability to adapt and customize online shopping to buyer’s behavior.
“They’re creating unique personalized profiles of your habits,’’ Mr. Shah said, “and they use that to identify what is the next click for the next product.”
And yet, while SolarCity was building the infrastructure for a new, decentralized approach to power production known as distributed generation, while earning a reputation for aggressive attacks on the old-school utility industry, Mr. Musk was turning Tesla into “the brand that everyone wants to buy,” Mr. Kammen said. That brand burnishing is something that could benefit SolarCity, he said.
But a big challenge for Tesla, said Shayle Kann of GTM Research, which focuses on clean energy industries, is that it is not the only company with such a grand vision. Utility industry stalwarts like Edison International and Con Edison are developing energy services and consulting divisions, while technology giants like General Electric, Oracle, Google and even Apple are getting into the business of providing or managing power.
Of course, the merger plan may not go through, if other investors balk and because of the corporate governance and other issues arising from Mr. Musk’s roles in both companies. He also owns more than 20 percent of each. But maybe a merger isn’t necessary to achieve the larger goals.
“Do you have to own things in order to leverage or even to a certain extent control them?” Mr. Kravetz of Esplanade Capital asked. “I think the answer is no. You don’t have to own the cow to get the milk.”