Why the SolarCity-Tesla Merger Makes Sense … and Why It’s a Great Opportunity for Utilities
I’m sure you’ve heard the nepotistic news:
Elon Musk wants Tesla to buy his cousin’s SolarCity business, thus creating a one-stop clean energy shop where a consumer could buy an electric car and power it at home with solar panels or from their battery storage unit.
Apparently Wall Street doesn’t like this idea at all: as I write this there are many news stories about Tesla’s stock tumbling 10%, losing about $3 billion in value, in the wake of the announcement.
Talking heads are saying it’s too much – both companies need so much cash, so it’s not a good idea … Musk will take his eye off the ball of the car business … the two companies cater to two different customers with little crossover …
I’m not a financial expert, but I am an expert on consumers and their attitudes and behaviors related to energy. And I can tell you that last criticism is incorrect. According to our ongoing Energy Pulse research, the human beings who have bought electric cars look very much like the human beings who have bought solar systems. These people have also taken steps to improve the efficiency of their homes, AND they’re very likely to buy smart home devices. They’d also likely leave their utility for a provider of electricity outside the utility arena if they could.
We have also seen in custom research work that we’ve performed for various clients that bundling works. I’m sure you’ve noticed you can buy Internet, cable, phone, home security AND energy management all bundled together on one easy monthly bill from Comcast. Despite how negatively some of us may feel about Comcast, the convenience of the bundle is very tempting. And this isn’t a new idea – CPG manufacturers and retailers have been offering the “buy one, get one free” bundle forever.
So, knowing that Americans are wired to favor the most convenient choices (and that bundling implies “better deal”), and that the same people are interested in both solar and EVs, the SolarCity-Tesla deal makes a lot of sense from a marketing perspective. There’s just one catch … and this is where an opportunity for utilities bubbles up to the top.
Based on research we’ve recently completed with SEPA to better understand the market for community solar (sign up to receive that report), we know that 59% of the American population is interested in solar. We also know that 59% of the American population (not necessarily the same folks) drastically underestimates the cost. Now, I presume Tesla and SolarCity will figure out an attractive joint financing package (obviously, SolarCity is a master at making the economics look attractive), but if energy efficiency’s not part of the bundle, people will have to buy more solar than they really need, because so much of the energy they generate will just leak right out the colanders most of us live in. That will make the deal more expensive than it needs to be.
Utilities, on the other hand, could bundle weatherization (caulking and sealing, plus adding insulation) with a smaller solar system (the weatherization means less energy waste, so you don’t need to generate as much energy), an EV charging station and a home energy management app – all at one predictable monthly fee, locked in for some number of years (whatever makes the economics work that the market will also stomach). This bundle allows people to buy whatever electric car they want – they’re not locked into a Tesla – and it allows them to buy the package from “the devil they know.”
Many of us love to complain about our utility – and roughly half of us report we’re less than satisfied with our utility – but they have kept the lights on for 100 years, and the lights are on 99.5% of the time in most American markets. When we’re talking about signing on the dotted line for a purchase as large as this, that history is very reassuring. So utilities can actually leverage their “old school” perception against the “high tech shiny” perception of the likes of Tesla and SolarCity, because in this case old school = reliable. And reliability matters when we’re talking about powering our lives.
From the utility’s perspective, this approach opens up a world of opportunities. The bundle would include giving the utility the ability to leverage the storage capacity in times of peak demand. And the utility would have line of sight into how the home is performing … which means a utility could call up its customers to warn them, for instance, that the HVAC unit is about to break, and sell or lease them a new one, all conveniently added onto the existing monthly payment. That’s the offense opportunity.
The defense opportunity here is that a bundle like this keeps customers with the utility. If utilities don’t have this kind of bundle to offer, as more and more players begin to make similar offers (it will come from others besides Tesla-SolarCity), utilities will see customer attrition, which they simply can’t afford under their current everyone-buys-100%-of-their-power-from-us business model.
If you’re a utility and you’re reading this right now, I’m going to bet you’re thinking, “This sounds great, but our regulators will never let us do this.” My response is, “Figure it out.” It’s an old adage but it’s true: competition makes us better. Competition puts us in uncomfortable spots where we have to innovate, re-imagine, dig in and plow forward. The utility industry has rarely had to do that, so I get it that those muscles aren’t in place. But it’s time to start developing them. And it’s time to stop blaming the regulators while competitors eat your lunch.