Written by Sally Guo, Louie Liu, Archi Varma, Ellen Xu

 

Introduction and Context

Addressing environmental problems and issues needs a sustainable long-term solution. Hence renewable energy is one of the most efficient and promising solutions. Energy is called the currency of technology. And given our increasing dependency on technology, the risk of energy deficit becomes greater and greater. Moreover, problems with energy supply are related not only to global warming, but also to such environmental concerns as air pollution, acid precipitation, ozone depletion, forest destruction, and emission of radioactive substances¹. These issues have to be considered simultaneously if we are to achieve a bright energy future with low environmental impact. Greater use of renewable energy and technologies is a sustainable solution this long-term problem.

As the world gets cognizant of this issue, the solar energy industry is on an upward trajectory. In fact, a recent report from The Solar Foundation says that for every 50 new jobs created in the U.S., one comes from the solar industry. And that same report also says that the solar industry now employs more than twice the amount of people currently working in the coal industry². This growth is driven by increased awareness around the importance of alternate energy sources that have led to higher consumer demand and lower prices for solar panels. A key player in this industry and the focus of our post today, is SolarCity.

Founded in 2006, SolarCity is America’s largest solar provider, delivering affordable and sustainable alternative to energy to homeowners, businesses, schools and governments. SolarCity has changed the traditional supply model of the industry from being only B2B focused to reaching out to consumers directly through a brand. Traditionally solar panel providers were only suppliers and installers, but today SolarCity has positioned itself as the one-stop shop providing; consultation, project planning, installation and continued monitoring. They call themselves the ‘Energy Concierge’ providing a dedicated sales manager who will keep you up-to-date on your project status and answer any questions³. Additionally, SolarCity has introduced Solar Financing offers, removing the third party financing body and making the supply chain lean and simple.

In this essay, we will delve into the SolarCity model to understand its innovative supply chain, the feedback loop of profit and environmental impact and potential costs and risks associated. Before we go into more details on this model, let’s explore the current ways solar companies are matching supply and demand.

 

 

Traditional Way of Matching Supply and Demand

Solar panel technology has been around for over 50 years, but most of us have not had access to the technology until the most recent decade. Since 2000, a number of companies have tried to bring solar panels to the mainstream with little success.

The main reason for the low adoption rate is its high upfront one time implementation cost. Even in 2017, the total cost of implementing a solar panel system is around $15,000 depending upon a homeowner’s energy usage. Not a small investment for a household.

The New SolarCity Model

SolarCity aims to change that pattern by gaining mass adoption through the alignment of an innovative business model and operating environment.

Business model

SolarCity’s business model involves two critical parts: Leases/Power Purchase Agreements (PPAs) and solar energy system sales.

When SolarCity starts a PPA with a customer, SolarCity installs a system on the customer’s roof for no fee. For an entire life of a typical 20-year contract, the customer pays for electricity generated from the installed panels at much lower rates than they normally would have paid a utility company. These rates are also secure being nearly locked in for the 20 years vs. utility rates that trend dramatically upward over time. SolarCity maintains ownership and service requirements, but they also own what amounts to an annuity like cash flow from the energy the customer utilizes.

Customers do not pay for the installation but instead reduce their utility bills. SolarCity profits the sale of energy to the customer which is almost guaranteed over a 20-year life.

Operating model

In order to achieve the above innovative business model, SolarCity invested heavily in operations.

• Design and Installation

SolarCity uses local teams for design and installation work. A simple design to installation process starts with a consolation about the product and qualifications (e.g. does the home meet certain requirements?). Next, expert engineers design a solar power system based on the customer’s home dimensions and energy needs. Next installation is typically done in one day and SolarCity takes care of all of the permits and inspections. SolarCity’s unique and personalized installation experience provides a strong competitive advantage.

• Manufacturing

For the first 7 years of existence, SolarCity sourced their components from outside suppliers. This limited the SolarCity’s ability to innovate and improve the technology within the value chain. In 2014, they acquired two companies, Zep Solar and Silevo, to help integrate additional manufacturing into their operations. Since then, SolarCity has been credited with top of the line panel development and innovation compared with other panel installation companies within the industry.

• Partnership and merger

SolarCity previously partnered with Tesla and then was acquired by Tesla in Nov, 2016. A “Solar Roof” product which utilizes Tesla’s retail network and SolarCity’s network of rooftop solar installers was announced upon the company integration. SolarCity is expected to cease being a stand-alone brand, as Tesla markets its Powerwall battery for the home as a Tesla Energy Product.

 

Sustainability

Solar energy is probably one of the most important renewable and sustainable energy available today. According to the United Nation, sustainable development is defined as “development that meets the needs of present without compromising the ability of future generations to meet their own needs”.[3] Solar energy completely fits into this development as it does not consume or destroy any other energy generation in anyway. We accept the generous gift from the sun and transform the solar cells to electric energy. This does not contain the use of chemical reactions or moving parts.

Creating a Healthier Environment

SolarCity’s key mission is to create a healthier environment for the current and future generations by the following plans. First, measuring and managing carbon emission. SolarCity has conducted examinations throughout the year to measure the carbon emission at every working place of the company and “for each ton of carbon emitted in SolarCity’s 2015 carbon footprint, the clean energy system that SolarCity have deployed avoided more than 3 tons.”

The solar energy SolarCity produces through its solar systems is completely pollution-free. In comparison to conventional power plants, for every kilowatt-hour of energy, solar energy reduces 1.4 pounds of nitrogen oxide, 1.5 pounds of ozone and 3.4 pounds of sulfur dioxide.

In addition, SolarCity promotes the daily usage of clean power by equipping the office buildings with solar panels and building local power energy stations. Also, SolarCity is committed to minimize waste in production and operation wherever possible. It conducts regular energy audits and recycles, repurpose and reuses excess materials at work.

Creating Safe, Healthy and Inclusive Employment

SolarCity is committed to build a zero-injury working place and aims to be the leader in building the safest solar company in the world. This means intensive safety training and innovation on safety devices and procedure. SolarCity provides new workers with at least 50 hours of safety trainings before they start working and developed innovative safety tools such as material hoist, ascent tool and ZS beams. So far SolarCity has achieved a total recordable injury rate of 1.96 compares to the national rate of 3.2.

SolarCity is also a believer in diversity. As for now, 18% of its employees are women, 22% are Hispanic, 8% are Asian, 6% are Black and it has created various talent resource groups to keep increasing the diversity and inclusion of the company. ⁴

Creating Jobs, Affordability and Access

According to 2015 Solar Jobs Census, the solar industry creates jobs 12 times faster than the overall economy. SolarCity has one of the leading solar installer in the world, it has created more than 15,000 jobs from 2013 to 2015. SolarCity has a mission of bringing more people into the solar installation sector to boost the deployment of clean and affordable energy.

SolarCity is aspired to make clean and affordable energy available to everyone by decreasing the cost of solar energy for consumers, enabling community-scale solar system and installing solar power for affordable housing. In order to achieve this, SolarCity is working with the governments and local solar energy installation companies to expand solar power projects in each state in the US. At the same time it’s also offering solar finance services such as solar leases, solar loans and power purchase agreements to households and businesses.

Creating Global Impact

There are more than one million people globally who still don’t have access to electric power and hundreds of millions of children attend schools without electric power. A lack of power not only affects the living quality of millions of families, but also drags behind the economic development of the communities. SolarCity has created a non-profit organization GivePower with the goal of providing accessible electric power to these communities and families ever since 2013. GivePower not only focuses on the delivery of electric power, but also uses its clean energy technologies to deliver other essential community services such as education, water, healthcare and so on. With its principle: “Solar energy should be benefit everyone,” GivePower has brought light to 1514 schools all over the globe since 2014.

 

Opportunity

The market has great potential as SolarCity is currently tapping into a newly developed field. With the shift in consumer attitudes, there’s a new opportunity to capture market share via sustainable product offerings and positioning. Being a first mover, SolarCity would enjoy a much desired market space in solar energy products and services.

When presented a choice between products of similar quality and price, consumers tend to choose the green product most of the time. This could open up new markets—for green products and services to replace conventional products and services. Over the years, more and more products and businesses have been going green. Green America reports that growth rates of “green” segments are outpacing conventional segments in all areas surveyed: renewable energy, green building, social investing, organics (both food and non-food), and fair trade. Green is expected to represent 44% of all commercial and institutional construction in 2012, growing up to 55% by 2016. SolarCity has been working to reduce its cost of production, and is optimistic that its solar roof would soon provide cheaper electricity while cost less than normal roof, creating values for its customers. Consumers and B2B customers will increasingly demand sustainable business practices, products, and services. Already, 55% of consumers actively seek these types of products. Market share will therefore increasingly depend on sustainability of the brand and the product.

The rising prices of electricity from traditional utilities will also likely provide an incentive for retail customers to go solar and should boost the business of downstream solar companies like SolarCity. According to the EIA (US Energy Information Administration), the average price of electricity supplied to residential customers has grown consistently over the past ten years. These rates grew at a compounded annual growth rate of ~2.7% between 2005–2015.

To elevate the business to a new level, government support would be crucial. SolarCity has recently made a move going for businesses. The company recently announced it will start offering solar services to owner-occupied small- and medium-sized businesses (SMBs). According to the U.S. Small Business Administration, a U.S. government organization, there are around 28 million SMBs throughout America, collectively accounting for around 99% of all businesses and about half of all private-sector employment. If the government opens up incentives for solar-equipped businesses with the intention to support renewable sustainability, it will definitely create a large demand for SolarCity.

 

Challenges

Greenwashing has taken a toll as customers are overwhelmed by all kinds of green labels around our lives. There is strong interest by consumers in green products but also strong skepticism.

The great challenge for SolarCity would be how it lives up to the expectation of being a truly green company that offers renewable energy from cradle to grave life cycle. Although the interest levels may remain high among potential customers, the trust for switching to environmental friendly or socially responsible products has been damaged by greenwashing. The lack of transparency further worsens customer perception. Consumers feel under-informed and express distrust of companies’ claims.  A report conducted by Cone Communications¹ indicates that 55% of consumers express that they have no idea what the impact they are having when buying a product from a company that says it is socially responsible. As observed in the Corporate Social Return Trend Tracker, “Consumers reward results, not aspirations; companies must communicate corporate social responsibility.” A poll out of the University of Texas, Austin found that 36% of those surveyed do not believe” claims from companies that state they are trying to “save energy” or “be energy efficient.”

Consumer action is unpredictable. Attitudes don’t always translate into purchase decisions when it comes to green products and services. The Green Gauge Report points out that green awareness and engagement don’t necessarily translate into green purchases and found a decrease from 2008 in consumers’ willingness to pay more for environmentally friendly alternatives. Green may be a tiebreaker between two similar products, but there are still a number of competing (and more highly-ranked) motivations for making a purchase or switching brands, including performance, price, maintenance, health and safety, discounts, convenience, style and much more.

 

Final Remark

The future prospect of SolarCity remains uncertain, but it will definitely generate a great impact to society, utilizing technologic advancement to promote green products and services as a sustainable business. There are a lot of questions to be answered and there are a lot of opportunities to be tapped.  Let’s imagine the future where every rooftop has solar panels, energy production is significantly reduced, and we truly phase out fossil fuels and non-renewable energy sources. Would that day come or it is just a fiction?

 

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Reference: 

1.http://www.conecomm.com/research-blog/2017-csr-study

2.http://solar-power-now.com/cost-of-solar/

3.https://rctom.hbs.org/submission/solarcity-where-sunshine-meets-innovation/

4.General Assembly of the United Nations. http://www.un.org/en/ga/president/65/issues/sustdev.shtml

5. SolarCity Impact Report.  http://www.solarcity.com/sites/default/files/SolarCity_Impact_Report_2015.pdf?120516=

6. http://www.sciencedirect.com/science/article/pii/S1364032199000118

7. https://smallbiztrends.com/2017/02/solar-energy-industry.html

8. http://www.SolarCity.com/commercial/get-started