Thoughts on the Future of the Solar Industry

//Update:  3/26/16

I've been thinking recently that the solar companies have to know that they can't compete against the utilities in all of these fights concurrently (  They can't be reactive against goliaths, they need to be proactive in the fight as any David should be.  The solar companies and their supporters need to get the American people to vote on a comprehensive, objective study of the impacts of distributed solar on the grid.  This will bring attention to the nation-wide issue (not just on the state level) and hold both sides accountable in the eyes of Americans.  If it is found that distributed solar will hurt other users of the grid, the solar side should pay more.  If it comes out that it won't hurt the other electricity users and only the utility will lose profit, these state level fights should cease.  There is risk for the solar companies to initiate this fight but I think the national exposure (and publicity) and potential rewards (these state-level, utility-backed current fights) warrant the big swing at the plate.



(Disclosure: I worked at SolarCity from 2010-14. I am still a shareholder. I am long SCTY)

Here are some thoughts I have on the future of the solar industry:

1.  Like Elon Musk has said before, solar will become the energy plurality in our lifetime, likely in the next 20-30 years.  We will still get plenty of energy from fossil fuels and nuclear but solar, both distributed and utility-scale, just makes too much sense to not win out over a long period of time.  Whether it's shorter than 20 years or longer than 30 is dependent on policy decisions but it's inevitable in the long run.  I for one would love to see it happen sooner since we could be saving 10+ years worth of not burning fossil fuels for those GWh.

2.  Think about the above point in terms of future value created for the industry.  Huge.  I think we'll see the solar industry to consolidate even more in the near future as economies of scale begin to act exponentially.  The big players will get bigger, there will be new market entrances from big companies in similar industries and more mom-and-pop operations will close shop.

3.  The cost of customer acquisition will be what separates the industry leaders from the rest of the pack.  Installation costs have come down and will level off but acquisition costs could get exponentially lower.  The biggest drop in costs will be because of the industry becoming more popular and accepted and will benefit the industry as a whole.  And the biggest brands will benefit the most from the name recognition.  Another way to drastically reduce costs is to democratize the sales process and let the customers do most of the work instead of internal sales teams.  Google's Project Sunroof is part of this process, as is SolarCity's Ambassador program.  I've already mentioned my thoughts on that : )

4.  Since almost all companies in a free market hate to lose money and investor-owned utilities (IOUs) stand to lose A LOT of future revenue from distributed solar, I'd expect their attacks on distributed solar to only increase in the future.  At the same time, they will trumpet every new solar plant they build.  The road will only get tougher in the near future for solar (think Big Tobacco type doubt created about the effect of distributed solar on the almighty yet purposely obfuscated "grid", as referenced here) but they're not at the big boss yet in the game.

5.  I think one positive that the pro-solar camp can take away from their fight with IOUs is that they're getting a lot of positive, cheap advertising. Solar is getting some love thrown around about it by the media and everybody from liberal tree-huggers to conservatives and libertarians.  Yeah there's doubt surrounding the solar industry right now (the constant fights with IOU-backed state regulators) but these fights will only last so long.  Pretty soon, it's going to be clear that distributed solar is actually helping the grid and these fights will almost disappear.  When the general public gets behind the logic and accepts distributed solar as not just an option but the no-brainer option then the universal love will be self-reinforcing.

6.  I hope SolarCity holds out and doesn't get gobbled up/run out. The Rives seem to be in it for the long haul, as does Chairman Musk. The company has and will make mistakes and has been given a lot of cushion since they're literally creating new processes as they go. Given their work thus far in building it and the long-term view of the market, the Rives should get the chance to turn it around in the near future. However, I can see investors getting impatient in the next year or two and voicing their opinion.  So a change at the top to a more proven, established CEO is possible.  I think there's enough smart people at SolarCity (and a big enough first-mover advantage) that they will figure it out, become more efficient, and prosper. 

7.  Even the most modest forecasts for the solar industry have it making up at least 10% of the electricity market that makes hundreds of billions of dollars each year in revenue. I don't expect them to hold a 34% market share forever, but even a part of that share is worth much, much more than the ~$2 billion SCTY market cap right now.  If the stock price is supposed to value a company on present and future value, I believe SCTY is very undervalued at it's current price.  That's mostly why I'm long SCTY, that and beginning to consider future company efficiency and industry-wide, mature-market gains.