Competition For Existing Utilities – It Is All About Price
A lot of people think of SolarCity as a solar company. According to their CEO, Lyndon Rive, that is a mistake. They are not a financing company, either, although many have called them that because they finance the installation of solar panels with no money down. They are, instead, an energy company, and one that has big plans to compete for the customer electricity dollar.
In an interview with Fortune Magazine, Mr. Rive talked about what SolarCity is trying to do and how. His statements in the interview indicate how focused the company is on (1) clean energy, (2) competing with electric utilities for customers, and (3) the huge potential for solar growth in the U.S.
Electric utilities need to gear up for competition at the point of use. They need to look at their prices and determine when they will be subject to retail competition from solar. They need to figure out the best ways to meet that competitive threat. Time is very short; the utilities need to act now.
Lyndon Rive on the type of company SolarCity is:
“You know, most of the taint is around solar manufacturing. Our business model is totally different. We’re an energy company. We install solar systems for free, and we sell the electricity at a lower rate than you can buy it from the utility. So given the option of paying more for dirty power or paying less for clean power, what would you take?”
“[O]ften people look at us and go, ‘are we a financing company or a solar installation company?’ No, we’re just an energy company. We sell you electricity. Your utility does exactly the same thing. What they do is they build that infrastructure, they go out and arrange financing beyond the infrastructure and then sell you per kilowatt hour. But you don’t think of your utility company as a financing company.
It’s just the phase of business that we’re in right now. In order to sell you electricity, we need to raise the financing. But we’re not the financing company. We just want to sell you cheaper, clean electricity.”
“Actually about half our customers look at doing a full energy evaluation of their home. They pay $300 for that, so they really are interested to see how their home is consuming energy. We don’t view it necessarily as upselling. We view it as what would you want your perfect energy company to do for you. You’d want them to sell you cheap electricity. You want the electricity to be clean. And then you’d want them to look at your house and say where can you consume [less] electricity. That’s the perfect energy company. So that’s why we do energy efficiency. Not only are we going to sell you cheaper electricity, but we’re going to go into your house and help you use less electricity.”
“[Before we went public,] We said, “Should we change the name? Because solar’s just the product today. If there was another magic product that we could just put in somebody’s house and it created clean energy, we’d absolutely deploy it.” So we wrestled [with] that. And energy efficiency is a big part of the business. We do batteries. We also do electric vehicle charging systems. So we really wrestled with the name. And then we actually had a strong conversation with Salesforce.com. They actually wrestled with the name many times. Eventually they just said, “Look, Salesforce.com is the brand, and we’ll add all the other services around it. People will get to know the other services.” So we settled on SolarCity, and we’ll add the other services. People will get to learn that SolarCity is an energy company that has a lot more than just solar to offer.
But [Salesforce.com] is a strong name and people know them. So SolarCity, we’re building our name, and it’s an easy name to remember. Consumers like it, and that’s why we kept it.”
On SolarCity’s price point:
“[We buy solar panels to install] So actually the pain that solar manufacturing has experienced, that has accrued 100% to our benefit. So it’s reduced our cost and has made it possible for us to provide more homeowners with cheaper electricity.”
“[W]hen we do our pricing, we price at roughly 10 to 15% less than the utility price.”
“We are competing against the local utility, and so we have to price below their price. So when we look at the markets, that’s what we look at and then we scale, and we only move into the space, into the new market, if we can save the customer money.”
“[W]e have a clear cost reduction map to make sure that by 2017 [when the federal renewable energy tax credit falls from 30% to 10%] we can continue to offer cheaper clean electricity without the 30% tax incentive.”
On the potential for solar in the United States alone:
‘[O]ne day we want to go international. But just in the [14 state] markets that we service today, it’s about half the U.S. population. If you look at the adoption that we’ve had, we have 45,000 customers. 45,000 customers, you can see just with your eye. So we could expand almost infinitely for the next 10 years just in the market that we are in without having saturation. So we’re absolutely interested in international expansion, but the markets that we’re in, it’s a massive market to expand in.
“So today we are growing as fast as we can in the 14 states that we operate in. The benefit and downside about the energy market is that it’s a massive market. We could meet our growth targets for the next 10 years just focusing in California. So international expansion is exciting, but at what point is it too soon, as it may be a distraction for our existing execution.”