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Facing a skeptical Wall Street, SolarCity points to advantages of scale

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Facing a skeptical Wall Street, SolarCity points to advantages of scale

Afterreporting disappointingfirst-quarter results on May 9, SolarCityCorp. President and CFO Tanguy Serra sought to remind Wall Streetwhat distinguishes the country's top rooftop solar company from thecompetition: economies of scale and the in-house expertise that comes fromvertical integration.

"Ourcost structure is just better than everybody else's," Serra said on aconference call with analysts. "We own our mounting hardware and destinyaround that."

SolarCity,which lowered itsforecast for installations for the remainder of the year, is trying to win backthe confidence of investors who seem unsure of a business model that has takenthe developer into complicated areas of project finance.

Thedefense Serra mounted May 9 echoed arguments that national solar developershave been making in favor of vertical integration; massive scale, they say, isthe only way to deploy meaningful amounts of solar power. They also say thatbeing diversified across market segments insulates them from a downturn in anyone area.

Otherscontend partnership networks that let companies focus on what they do best isthe sign of a healthy, mature industry.

Thedirection companies go could have consequences for an industry that is racingto lower costs in order to compete with other sources of electricity. One wayto become more competitive, some say, is to develop new software that canstreamline business. But top software developers generally are drawn to cuttingedge technology companies, not big solar installers that build software inhouse, said Emergence Capital senior associate Jake Saper May 10 at GTMResearch's solar software summit in Arizona.

Inaddition to improving work flow to eliminate costly inefficiencies,Louis-Philippe Lalonde, chief marketing officer of Ygrene Energy Fund Inc., aprovider of property assessed clean energy financing, or PACE, said having anindustry filled with competitive regional developers, known as long-tailcompanies, is the best way to ensure solar power expands beyond the wealthiestcustomers.

"Ifwe want to scale … you need to enable not the [customers] who have the money …but the middle class and possibly even the working class with financinginstruments that are really easy to access," Lalonde said in an interview."And so we need to find contractors that can actually deliver tools theydon't qualify for with the big guys. Because the big guys want to work with bigguys.

"Ifyou want to democratize access to all these types of projects," includingsolar power and energy efficiency, "you need to enable a lot morecontractors than the big guys," he added.

Whilea handful of national companies account for more than half of the U.S.residential solar market, smaller regional developers are benefiting from "moresophisticated value chains in local" markets, MJ Shiao, director of solarresearch at GTM Research, said on the sidelines of the summit.

Shiaodoes not anticipate a dramatic change in market share. But "we have thismarket that's not only growing but also this group of local and regionalinstallers that are also growing and keeping … fairly well in pace with the topinstallers," he said during opening remarks at the conference.

Still,Eric Reinhardt, director of software product management at , another top nationalinstaller, said the competition his sales people face is from big competitorslike SolarCity, not from the industry's long tail. Regional developers losetheir markets when national companies move in with lower costs, he said on thesidelines of the conference.

"Wehave clear availability of capital and we're ultimately building what is ourbest-in-class power plants for the lowest cost," Serra said on SolarCity'searnings call.