Solar Still Can’t Make Money

  • Date: 01/11/16
  • The American Interest

Elon Musk made headlines at an event in Los Angeles last Friday when he debuted SolarCity’s new glass roofing tiles—sleek, smart shingles that can let sunlight in from above (how’s that for better lighting?) while also containing solar cells to generate electricity. He went on to unveil the second iteration of Tesla’s home battery system, the Powerwall, which he said would have enough storage capacity to supply a typical four bedroom home’s “fridge, sockets and lights” for a day.

Musk has never been one to lack vision, and his roadmap for bringing both solar power generation and the ability to store said electricity into (and on top of) the home is certainly ambitious. But while the eventual goal may be to have every new home in America constructed with solar tiles, Musk’s first steps mirror those he’s made with electric cars at Tesla: that is characterized by a tight focus on creating a luxury product people with the money to spend will want to buy.

Your average green will tell you that solar’s day in the sun has already arrived, and will point to the fact that solar installations have risen sharply in recent years as up-front costs have fallen and government subsidies have made these panels more economically attractive. But that period of fast growth could be coming to a grinding halt, as analysts are predicting that 2017 will be the year of the solar taper.

And, more importantly, the real test for Musk and the rest of the solar industry isn’t in whether or not they can convince people to install solar panels, it’s whether they can actually make money doing it. Unfortunately, as the FT reports, profitability still seems to be a distant dream:

Panels are appearing on the roofs of homes all over the US, and about 1m now have solar systems. But the industry is another victim of the perennial curse of renewable energy: although the market is growing fast, it is proving hard for companies to find a reliable way to make a profit. […]

Sunrun’s shares are down 54 per cent since the start of the year, while Vivint, the second-largest residential solar company in the US, is down 67 per cent. Shares in SolarCity, the largest US supplier for residential solar systems, dropped about 60 per cent between the start of the year and June, when the electric carmaker Tesla announced plans to buy it in an all-share deal worth about $2.3bn. Shareholders of the two companies will vote on the takeover on November 18. […]

[E]arnings reports from SolarCity and other residential solar companies this year have made it clear that they are facing more difficult times…the companies’ cash outflows have been increasing. Sunrun reported a $159m cash outflow from operations in the first half of this year, compared with a $105m deficit for the whole of 2015. SolarCity’s outflow rose from $790m last year to $867m in the first half of 2016.

If making money is the goal—and make no mistake, for solar to make an impact, that absolutely must be the goal—then Musk at least seems to be on the right track. Racing to the bottom and trying to crank out bargain-priced solar panels of dubious quality to push on middle class consumers will only get you so far (and leaves oneself open to the whims of the policymakers controlling the subsidies underwriting your business model). There are limits to how much you can make by capitalizing on consumers’ appetite for green virtue signaling.

Given the state of solar technology, it would make more sense to divert government dollars away from the subsidization of current generation panels and instead spend that cash on the research and development of better systems that might actually be capable of competing with other, dirtier sources of electricity without generous government support.

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