{"id":9656,"date":"2016-11-03T22:21:05","date_gmt":"2016-11-04T02:21:05","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/solarcity-climate-change-winner-or-a-dud\/"},"modified":"2016-11-06T08:00:41","modified_gmt":"2016-11-06T13:00:41","slug":"solarcity-climate-change-winner-or-a-dud","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/solarcity-climate-change-winner-or-a-dud\/","title":{"rendered":"SolarCity \u2013 Climate Change Winner or a Dud?"},"content":{"rendered":"

As climate change moves to the forefront of global debate, reducing the 12% share of GHG emissions attributable to powering and heating buildings1<\/sup> is becoming an increasingly appealing way to reduce global GHG emissions. In the United States, taking advantage of a 30% Solar Investment Tax Credit toward residential and commercial solar projects2<\/sup>, numerous firms have sprung up offering homeowners and businesses the chance to install solar panels on their roof, reducing their electricity intake and GHG emissions. One of these firms is SolarCity<\/p>\n

The good \u2013 scaling quickly in response to an important problem<\/strong><\/p>\n

SolarCity has aggressively grown in response to this climate change opportunity to become the largest designer and installer of solar power systems in the United States, having installed over 280,000 solar systems representing ~2300\u00a0megawatts (MW) of capacity as of 6\/30\/163<\/sup>. For every hour these customers use electricity, this prevents ~1500 \u2013 2500 tons of CO2 emissions4<\/sup>. Additionally, excess power generated is stored in onsite batteries for use at night, further reducing emissions<\/p>\n

SolarCity continues to grow quickly, its total MW installed having increased 66% over the previous 12 months to June 2016. Given the rapid expected growth of this market5<\/sup>, and the fact that the US supplied almost 2.5 million MW of energy in 20101<\/sup>, this growth could continue unabated for a long period of time.<\/p>\n

\"market-growth-picture\"<\/a><\/p>\n

On the product development side, SolarCity\u2019s pace of innovation has not slowed, with the firm recently introducing a \u201csolar roof,\u201d where instead of mounting solar panels on an existing roof, SolarCity will sell and install a roof made of thin solar panels that are invisible from street level6<\/sup><\/p>\n

\"solar-roof\"<\/a><\/p>\n

Just as SolarCity\u2019s willingness to expand can\u2019t be doubted, nor can its willingness to embrace change. Pending a shareholder vote, SolarCity has agreed to be acquired by Tesla, in a move that some believe will dramatically expand SolarCity\u2019s reach, provide a long term battery supplier for SolarCity and potentially create a \u201cone-stop-shop\u201d for all a customers sustainable needs, allowing customers to purchase an electric car and the means to sustainably charge it under one roof7<\/sup>.<\/p>\n

The bad \u2013 how sustainable is this business?<\/strong><\/p>\n

\u00a0<\/strong>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/strong>SolarCity\u2019s impressive growth notwithstanding, there remain some key questions surrounding its future. Primarily, SolarCity has never been profitable in 10 years of operation, burned ~$800M in operating cash in FY2015, and is in questionable financial health with over $1B in debt on its balance sheet8<\/sup>. Even as part of Tesla, these results do not bode well for SolarCity\u2019s long-term viability.<\/p>\n

Additionally, there are some questions regarding the quality of SolarCity\u2019s latest products, with some questioning the potential quality and cost of the Solar Roof9<\/sup> and SolarCity providing little in the way of supporting details.<\/p>\n

Perhaps more worryingly, SolarCity has failed to reduce costs over time, the cost per installed watt having actually risen 2% in the past two years due to escalating sales costs10<\/sup>.<\/p>\n

\"cost-waterfall\"<\/a><\/p>\n

This is worrisome, since\u00a0that SolarCity has set a target for itself of $2.30 \/ watt by 2017, and that residential solar is still uncompetitive with other sources of energy, costing at least 50% more on a levelized basis compared with conventional fuel sources11<\/sup>. Given\u00a0that the Solar Investment Tax Credit is currently set to expire in 20232<\/sup>, SolarCity must continue to improve.<\/p>\n

\"lcoe-clean\"<\/a> \"lcoe-dirty\"<\/a><\/strong><\/p>\n

The future \u2013 a path toward sustainability<\/strong><\/p>\n

\u00a0<\/strong>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Going forward, SolarCity\u2019s future potential is equaled only by challenges it faces validating its operating model. To ensure its success in its mission to provide renewable energy, two things must happen:<\/p>\n