One could argue that 2016 was one of the most tumultuous years in recent history. Certainly since 2001.
David Bowie, Prince and Harper Lee all died. So did Harambe the gorilla. Vine was shut down. Fake news took over social media. Facts no longer exist.
We had the most devastating mass shooting in American history at Orlando’s Pulse nightclub. A sniper murdered five police officers in Dallas, adding to tensions surrounding the Black Lives Matter movement.
Oh, Britain left the European Union. And Donald Trump became America’s president, to everyone’s surprise (including his own campaign).
Hey, at least the Cubs won the World Series and the Cavaliers scored their first NBA championship.
Throughout these strange 12 months, we’ve been following an equally tumultuous cleantech market — a year filled with bankruptcies, financial turmoil, uncertain policy, astonishingly low pricing records, and impressively high investment numbers.
This year, our editorial team sat down (over Slack) to discuss the most important stories that GTM covered.
What follows is an edited version of that discussion.
Stephen's pick: Tesla and SolarCity's marriage
Stephen Lacey: I could pick any number of stories this year. But the biggest, in my eyes, was Tesla’s acquisition of SolarCity for $2.6 billion. I’m not choosing it because I think Elon Musk just pulled off his grand vision. I’m choosing it because I think it raises a lot more questions than answers, many of them negative.
I do think there is a compelling narrative here. Elon Musk has been dreaming about space travel, electric cars and solar since he was a kid — and having Tesla, SolarCity and SpaceX fully under his control truly is part of his master plan. (If you haven’t read Ashlee Vance’s book on Musk, I recommend it.) I do believe he has a vision for integrating these companies and is working to build a dominant supplier of solar, storage and EVs all under one roof. I think Julia Pyper did the best job of anyone this year describing what that future company could look like.
With that said, there’s a very compelling case that this is a way for Musk to hide SolarCity’s financial troubles. It was also a chance to buy the company on the cheap, as SolarCity was acquired for around half its peak market cap since going public. The company’s debt burden continues to mount, its customer acquisition costs are climbing, its growth has slowed, and it continually changed its guidance. Oh, and SolarCity’s decision to become a solar manufacturer is under pressure due to module oversupply and record-low prices.
Instead of addressing any of this at the investor vote meeting, Musk only wanted to talk about his new solar roof — a product with a very small addressable market, and no performance details. At this point, it’s vaporware. And Musk is clearly using it to divert attention from bigger questions about the SolarCity acquisition. (Julian Spector had a very good article on the Orwellian reveal of the solar roof. Shayle Kann and I also talked about it on the Interchange.)
In 2017, credible sources tell me we can expect to see big layoffs at SolarCity (they have to make those “synergies” happen somewhere) and even more changes at the Buffalo facility.
I want to be clear: I’m not saying that Tesla’s SolarCity acquisition is necessarily a failed strategy. SolarCity is still the biggest residential solar installer. Tesla has marketing prowess and vision that can’t be rivaled. The combined companies could ultimately become the all-in-one clean energy provider that Musk envisions. And SolarCity will certainly become a more product-focused company under Tesla.
But it’s still unclear how effective vertical integration will be long-term in residential solar. Now, becoming a cross-sector vertical company adds more complexity — and a minefield of market risks and cost challenges. Those challenges were conveniently swept under the rug in all the pitches for this combined company.
This is definitely one of the more interesting stories for me this year — and certainly will be next year, too.
Julia Pyper: I, too, have been frustrated by the lack of detail around Tesla’s SolarCity acquisition. The snazzy solar roof dominated coverage, when I really wanted to know more about how Tesla plans to evolve SolarCity’s traditional business.
Since the solar roof doesn’t go into production until summer 2017, it likely won’t reach meaningful scale until the following year. So the story of 2017 (and likely several years to come) is still going to be about how well existing rooftop solar products and business models fare. Given that, I wanted to hear more about how Tesla plans to provide customers with additional value by bringing solar and storage offerings under one brand. Why, exactly, are they better together? What are those synergies (not the laying-off kind)?
I think value has to be a key part of this conversation. Tesla is a value brand. The company built its reputation on being high-tech and high-performance, and people have proven willing to pay a premium for that. The solar roof adds value (assuming it works) because it looks awesome. But what about conventional residential solar? Can Tesla shift the conversation from “save $10 per month with solar” to “look at all of this amazing stuff solar does for you and your community”?
It doesn’t seem like the residential solar business can sustain itself forever on the savings play alone, especially since that play is so policy-dependent — at least for now. So rather than drive to the bottom on price, it seems like now is the time to start driving up product value.
Solar probably can’t do that alone. So it will be interesting to see how solar-plus-storage plus home energy management (and the solar roof?) enters the discussion. SolarCity’s Ryan Hanley has previously talked about SolarCity as a “platform company” and has alluded to the Tesla acquisition as a way to get more assets (EVs and storage) onto the platform. The idea is to offer technology packages that benefit both customers and utilities. I want to know more about this platform concept
and where Tesla plans to take it.
Katie Tweed: Stephen is correct that the near-term market risks and cost challenges are immense for Tesla and SolarCity, even if the long-term vision is still a good one.
Julia is getting at an interesting question that sits between Musk’s long-term vision and the short-term reality, which is about SolarCity’s evolution from just a value play for customers to becoming some sort of platform company that offers more than just utility bill savings.
I’m just not sure the average homeowner is interested in that platform today. Julia lives in sunny Southern California, and I live in cold, gray, bitter New York, so perhaps I’m just a skeptic. Some people will pay a premium for solar-plus-storage, but this idea that everyone wants to be some sort of willing participant in their energy production and use seems like a cleantech fantasy to me. I cover this industry for a living, and I can barely be bothered to reset my smart thermostat when it gets kicked offline.
As you look across the country, there is still plenty of headroom for solar to be sold on economic value in coming years, even as net metering rules change or are updated in various states.
The question is whether the acquisition is going to allow SolarCity to come out better prepared for this next phase of residential solar. On this issue, I’d like to be an optimist — but with so many unknowns in the short term and shareholder pressure, it’s hard to maintain a completely sunny outlook.
Julia Pyper: I agree with you, Katie, that savings will remain part of the residential solar equation. There are still ways to drive down soft costs, and while policy discussions are underway in a number of states, some form of compensation for excess solar energy from residential customers had been maintained — like in California, New York and recently in Illinois.
I have to admit I also agree that few customers actually want to participate in their energy production. Then again, I think it depends on how it’s marketed. My dad, who lives in cold, gray, bitter Hamilton, Ontario, has brought up the Tesla Powerwall several times during our chats — unprompted.
“When is that going to become available?” he asks. He likes the idea of controlling his own energy. He is not a techy. He can barely unlock an iPhone (sorry for calling you out, Dad). But he’s heard of the Powerwall and what it can do and is interested in pursuing it. The play for my dad — and presumably others — isn’t just to save money. It’s to have control and backup power. That’s a different way of marketing cleantech that I don’t think has been fully explored.
Consumers aside for a moment, I think the discussion around residential solar is going to have to broaden. In order to reach higher penetrations, solar is going to have to be married with other technologies so that it can serve utilities and customers at the same time. In California, where FERC recently allowed CAISO to integrate DERs into the wholesale market, customers could actually make money from their DER purchases.
I agree with Katie that there is still plenty of headroom for solar when you look across the country. But I think the conversation is already changing in leading states like California, New York and Arizona. I think SolarCity/Tesla are going to be at the center of deciding where solar-plus is headed. And it will be up to the marketing masters at the company to find a way to make it appealing to customers.
Stephen Lacey: I think you’ve both hit on something crucial here: the assumption that a wave of enlightened consumers will suddenly want to adopt solar, storage, EVs, load controllers, etc, en masse and participate in energy markets. This is the assumption baked into everyone’s belief in Tesla becoming a clean energy powerhouse. It’s pretty clear that this integrated service offering is pretty limited — because market rules and consumer interest/education is limited too.
Look at electric vehicles alone. Today's “booming” EV market represents 1 percent of total car sales. Tesla, the U.S. leader, sold 3,000 cars in November. We’re still talking about such an unsophisticated market, and I don’t think we should assume that an integrated package will somehow take off overnight just because someone like Musk has touched it.
I agree. It’s still an unsophisticated market. But to play devil’s advocate — there was clearly still a lot of money to be made from selling to that 1 percent. Imagine if it became 2 percent or even 3 percent. Tesla has been able to make a good bit of money because it started at the high-end level, which I think is really smart. (Fun fact: There are nuances, but it’s technically true that Tesla made more than the U.S. oil industry
We scoff because the solar roof was paraded around at a time when people had a lot of legitimate economic and technical questions. But, assuming for a minute that technology isn’t a barrier, I think this is how Musk plans to “Teslify” SolarCity. Go for the high-end customer, and then you don’t need to make as many sales and employ as many salespeople to meet your earnings targets. Solar penetration doesn’t have to reach double digits for this to be lucrative. It’s hard to know how things will play out, but the same could be said for the up-sell from solar + storage + EV + other. One sales process to sell more stuff and make more money.
Eric Wesoff: A while back, right before the unveiling of the Powerwall at the Hawthorne facility, I asked Musk a question about how and when the company was going to be profitable. His answer was telling. He snorted and basically said that profit was not important to him and was just something to show off to stockholders. This is a fundamental thing to keep in mind in this discussion. Musk doesn't really care about profitability.
I will also go out on a limb and say that the building-integrated PV product is not going to be successful. Even Musk can't make that happen for all the reasons I've outlined in previous articles
Julian Spector: To Julia's point about the Teslification of SolarCity, I'm intrigued to see how this plays out in the sales and marketing realm. Tesla sells out of its cars before they even launch, and thus ignores most of the traditional sales techniques of the auto industry, like deals and TV commercials with Matthew McConaughey. The company has made an art of making customers (and the media) come to them, rather than the other way around.
SolarCity, on the other hand, has to spend a lot of time and money pounding the pavement to reach customers, and that's becoming more of a drain on the bottom line. Is there a way to transfer the Tesla effect to a rooftop solar product, where homeowners seek it out because they heard Elon Musk is involved? And if they do adopt that approach, how many SolarCity employees are no longer needed?
I'm also struck by the dollar amount — $2.6 billion is huge for cleantech, but remember when Nest sold to Google for $3.2 billion? It's hard to square the nation's largest solar installer being worth less than a maker of high-end smart thermostats. I think it illustrates just how hard it is to make money with physical labor like putting things on people's roofs, as opposed to making and selling software-driven gadgets.
Looking ahead, I'm also going to be watching the political implications for the industry of a battery powerhouse acquiring a solar powerhouse. What does that mean for other, unaffiliated solar and battery companies? We already saw Sunrun launch a new partnership with LG Chem for solar-plus-storage (coincidentally announced the same week as the Powerwall 2 and solar roof unveiling). So far, it seems like Tesla is happy to sell batteries to whoever will pay, but will SolarCity's peers feel pressure to cut ties with Tesla's batteries and find their own battery partners to avoid enriching their competition?
Julia's pick: Climate action isn't about sacrifice — it's about competitiveness
Shifting focus here, I think that global climate action is another one of the biggest stories of 2016. Remarkably, the landmark Paris Climate Accord did not lose momentum this year. Instead, the agreement entered into force earlier than expected, and by the end of the COP22 climate summit in Marrakech, Morocco, 115 of 193 signatories had ratified the convention, including the world’s biggest polluters. A recent World Resources Institute blog post offers a nice summary
of the talks.
At GTM, we haven’t covered the U.N. climate negotiations very closely, but I think this story will become increasingly significant for our audience as stakeholders shift focus from making plans to taking action, which is expected to spur a dramatic increase in renewable energy deployments. So, I think there are a few takeaways from this year’s climate negotiations that are interesting to discuss.
First, while momentum around international climate action is building, the election of climate skeptic Donald Trump has stoked fears that America could pull out of the Paris aAgreement. Contributing writer Brooke Cary wrote a nice piece on this
for GTM from the floor of COP22. It’s been interesting to see other countries — especially China
— reaffirm their commitments to climate action and clean energy as Trump threatens to abandon the Paris deal. I wonder, what will the U.S. do and what will the impact be?
Another takeaway from the climate talks is how other countries are taking on leadership roles. India, for instance, has set an ambitious target to build 175 gigawatts of renewable energy by 2022 and renewable energy deployments in the country are now surpassing coal
. What other countries will emerge as clean energy leaders in the fight against climate change? What companies are best positioned to serve them?
Finally, this year’s ongoing climate negotiations have highlighted the influential role that corporations play in driving climate action and clean energy adoption. During COP22, two more companies, Dalmia Cement and Helvetia Insurance, joined the RE100 pledge to shift to 100 percent renewable power. A group of 200 companies
, representing $4.8 trillion in market value, committed to science-based emissions reductions targets. And 360 businesses, including Nike and Starbucks, urged President-elect Donald Trump to power the U.S. economy with low-carbon energy.
I’m curious to know what others make of these developments and how they see efforts to address climate change affecting the greentech industry in the months to come.
Eric Wesoff: I've watched China and India move toward green solutions (bus fleet electrification in China, massive solar in India). However, it looks like their motive is not global warming or carbon, but reducing urban pollution and energy poverty. Would it help if the argument is couched differently?
Katie Tweed: I agree with Julia that the Paris Agreement gives countries — and companies — a platform to push forward with clean energy agendas. But, as Eric noted, for many countries this isn’t just about limiting temperature rise. I think the pressure of global companies is a big factor here, and certainly the biggest in terms of maybe — just maybe — keeping pressure on Trump to honor the agreement.
Trump aside, let’s remember India is still building coal at a CAGR of 12.5 percent and China has gigawatts of coal sitting on the sidelines. Some of those are new coal plants, which could be called into service anytime that the economics are favorable. The next few years will be telling, especially the extent to which policies halt coal further or dismantle plants, especially in Southeast Asia. But IEA has said that even meeting the Paris Agreement’s goals won’t come close to limiting it to 2 degrees C, and the real challenge will be decarbonizing the transportation sector globally.
I can only hope that Eric is right — the drive for clean energy solutions won’t just be about climate in most of the world. Because if it is, we’ll never get to the goals of Paris.
Julian Spector: The whole dilemma of what Trump means for the Paris Agreement reminded me of a line from Henry IV, Part 1, where Falstaff, who's a bit of a warfare skeptic, questions the force driving the men around him into battle. “What is honour? A word. What is in that word honour? What is that honour? Air. A trim reckoning!”
The Paris Agreement wields both honor and air. It has mobilized the entire community of nations to stake their reputations on an unprecedented fight against a threat that faces them all. At the same time, if Trump says he doesn't care anymore, it starts to look more like air: It sounds good, but what force can it bring to bear on him?
Trump as a candidate showed minimal regard for the workings of the international system. The fact that he is the outlier here won't move him to change. The question then is, how can other elements, either around the world or in the U.S., pressure him to continue progress on climate without a real enforcement mechanism?
Stephen Lacey: I agree that this is one of the biggest stories of our lifetime — and something our readers really need to watch. But I’m split on how important global climate talks are to the majority of clean energy businesses out there in the short term, particularly under a Donald Trump presidency.
The Paris climate accord ended up being one of the defining stories of 2016. Even though it was a voluntary deal (that doesn’t do enough to avoid catastrophic warming), it was the first time that we got all the major countries to the table in agree on their responsibility to act. And most importantly for the sector we cover, it was the relentless cost reductions and investments in clean energy that made countries willing to act. The business community — particularly the largest multinational companies — was central to putting additional momentum behind the negotiations. For our audience, this is probably the most important part of the story to be covering.
However, most in the diplomatic community (and us in the press) operated this year under the assumption that America would shift from an Obama to Clinton presidency in 2017, and that the climate agreement would be built upon. Obviously, all that is in doubt under a Trump presidency.
But it’s important to remember two things going into 2017. First, the biggest countries (China, India, Brazil) see investments in renewables as a crucial important economic driver — and none have shown willingness to back away from their emissions targets. Secondly, corporate players say they plan to ramp up their own investments in wind, solar and efficiency because it makes economic sense. (We had a great conversation about this right after the election at an RMI corporate renewables event in Detroit, at General Motors’ headquarters.)
And Trump is still a wild card in this area. Anyone who says they know what’s going to happen with U.S. climate policy is delusional. We can only guess based on the clues we’ve been given.
Julian Spector: Very true. I'm interested to see what the U.S. commitment to Paris looks like if you add up all the cities, states and companies that are still committed to taking action on it, regardless of what happens with federal policy. Chances are that could be enough — not enough to stave off serious warming perhaps, but enough to keep the process alive.
Julia Pyper: Yeah, while it’s important to call out that this one agreement isn’t enough to counteract dangerous levels of global warming, I definitely think it’s important to keep the momentum going. It was surprising and heartening to see conservative media personality Bill O’Reilly say Trump should accept the Paris agreement in order to “buy some goodwill overseas.”
Whether it’s for diplomacy, or combating local air pollution or spurring investments in cost-saving technology, there are a lot of reasons to like the Paris Agreement. The fact that fighting climate change comes with multiple benefits (community empowerment and poverty alleviation, among some of the ones I highlighted in the mini-doc I produced about clean energy in Haiti) gives me reason to believe humanity just might be able to tackle this enormous challenge. But it requires world leaders — in politics and business — to recognize those benefits.
Katie's pick: Distributed energy as a non-wires alternative
Katie Tweed: Somewhere between NRG ousting David Crane, SunEdison filing for Chapter 11 and the Tesla/SolarCity deal, it’s easy to forget about the quiet-but-revolutionary work happening at the edge of the grid.
Utility programs are slow-moving, but it’s very possible that we look back at 2016 as the year that distributed energy resources as grid assets got real — well, at least in California and New York.
At the beginning of the year, California utilities announced the winners of the first ever Demand Response Auction Mechanism. DRAM contracted for about 40 megawatts total of C&I demand response, behind-the-meter energy storage and smart thermostat aggregators to provide both resource adequacy for utilities and allowing these smaller resources to be bid up into the wholesale market.
Across the country in New York City, Consolidated Edison held an auction for its Brooklyn Queens Demand Management project that needs to leverage homes and businesses across Brooklyn and Queens to defer a $1.2 billion substation.
The auction paid impressive prices, about $985 per kilowatt-year for the assets, which also ranged from energy storage to demand response. The auction only serves 2017 and 2018, but there is a possibility the auction could be run again or become a more permanent part of Con Edison’s way of doing business.
Back in California, the Aliso Canyon gas emergency has also brought distributed energy resources to the forefront. Southern California Edison will spend millions more on demand response, seek out energy storage and invest in smart thermostat programs to help cover any shortages of natural gas availability next summer.
By utility standards, each of these programs are not huge, but if successful, they highlight to investor-owned utilities — and regulators — a cost-effective way to meet new demand.
For example, even though San Diego Gas & Electric decided to replace the shuttered San Onofre nuclear power plant largely with natural gas, there is still a gap, and much of that could be met by renewables, energy efficiency, demand response and storage. Earlier this year, SDG&E put out an RFO for up to 140 megawatts of these resources to help meet the shortfall from the closed nuclear plant.
In the coming years, grid edge resources will increasingly be called upon to meet specific utility issues in a given neighborhood. Many utilities, for example, are seeing flat growth, but growing peaks only in limited sections of their grid.
For other utilities, such as Avista’s Urbanova project in Washington, it’s about staying ahead of the curve and better understanding how to leverage renewables, batteries and smart buildings on their network.
But for many utilities, it will be mandated from their regulators that they look at these assets in a new way. Non-wires alternatives projects have been around for decades, but they were often about system-wide efficiency, and not surgically applying novel technology to reduce or adjust load in a certain pocket.
As lessons are learned, primarily from New York and California, there is a real opportunity for this to become a new way of doing business across the U.S., and not just at a select few cutting-edge utilities. No longer does some “utility of the future” group within the utility run these just projects as technology pilots; they are emerging as market solutions to meet pressing needs of planning and operation.
And it’s not just individual utilities. Just last month FERC proposed a rule concerning energy storage in wholesale markets that directed grid operators to allow for distributed energy resource aggregators to be able to participate in wholesale markets.
Stephen Lacey: This is one of those developments that people have long talked about, but which has never really materialized. Finally, in 2016, we saw actual proposals and bids for using demand-side management tools to offset expensive grid investments.
As is the case in nearly every sector, California and New York are the test cases. California is the most interesting test case for me. With the Aliso Canyon gas crisis and PG&E’s closure of the Diablo Canyon nuclear plant in 2025, utilities and regulators are turning to demand-side management and distributed generation as actual grid resources — it’s forced them to think differently about how the resource mix needs to change, and needs to fill in for traditional power plants. PG&E said that storage, efficiency and renewables are simply cheaper than keeping Diablo Canyon open. I think 2016 will be remembered (in small, geeky circles anyway) for sparking this shift.
Julia Pyper: This discussion reminds me of a panel I moderated at a SunPower event this fall where David Olsen, a member of the CAISO Board of Governors, said: “We think the future of electric service is decarbonized, decentralized and regionalized.”
In California, where there’s a 50 percent renewable energy mandate by 2030, and with renewable energy levels expected to go even higher, “it becomes essential to have access to a much larger pool of resources than currently available because we have to have reliable service every minute in every part of the state,” Olsen said. While CAISO is generally focused on large-scale projects operating in the wholesale market, the system operator is also taking DERs seriously as an important part of the future resource mix. CAISO's request to aggregate DERs to serve in the wholesale market underscores this.
This SolarCity graph also comes to mind. The company envisions replacing bulky centralized deployment with targeted, distributed deployment — pretty much entirely. The examples Katie gave are evidence of this in action. But I wonder just how far this concept can go.
Can DERs really replace conventional generation at a mass scale and in different types of markets? I reckon this will become a prominent policy issue as more and more large-scale, conventional generating plants age and near retirement in states across the country.
Julian Spector: The success of these distributed programs this year really is remarkable. The key element here is incentive structures. In much of the country, big capital upgrades to the grid could be more lucrative for utilities, because they can rate-base it. New York and California passed policies that put greenhouse gas reductions, renewables expansion and grid optimization into the planning mix. What we learned is when utilities have a nudge to use non-wires alternatives, they can be very effective at leveraging all these distributed technologies that are far cheaper by comparison — BQDM is spending $200 million to avoid $1.2 billion in transmission upgrades. That's big!
Julian's pick: The specter of commoditization
Julian Spector: Moving from utilities to cleantech companies, the big story I've been thinking about lately is what I'll call the “specter of commodification.” This year, we saw the surprising success of solar manufacturers turn into chaos for the industry. As module production ramped up and costs came down, it set off a chain reaction through the industry as people in each step of the value chain scrambled to keep up with those plummeting prices. As Shayle Kahn has discussed, the macro trends for solar look great — more units are going up than ever before — but underneath that a lot of big players are struggling to cut costs and switch up their business models.
There's something scary in this story, because it shows that succeeding at your manufacturing goals actually makes each unit less valuable. Moving out products at scale for cheap is not sufficient to ensure long-term success. I've lost count of the number of conversations I've had with companies working on other aspects of the grid edge who are haunted by this, and pitch their product strategies as a way of making sure the commodification of solar modules doesn't happen to them.
The simplest formulation of this is “energy as a service.” Don't sell a battery, or an inverter, or a thermostat; sell the new abilities you can work with a customer to unlock thanks to this tool.
This makes a lot of sense. If a company makes its expertise essential to the usefulness of the product, it can maintain a relationship with the customer long past the exchange of purchasing some metal box. But I wonder if it's also a bit too easy. Maybe some grid edge products are better suited to commodity status, rather than long-term service contracts. And if everyone gets on this service-rather-than-commodity bandwagon, won't it turn into a race to deliver the most value at the lowest cost? It could just delay the price wars, not eliminate them.
Have y'all seen any notable examples of companies trying to avoid the commodity trap? Do you think the excitement about energy as a service is justified, or in need of some tempering?
Julia Pyper: I remember reading a GTM article about the 2013 Solar Summit conference where virtually the entire conference session agreed that solar was not yet a commodity. I wonder what that survey would look like now.
Solar companies in particular have already put a lot of work into distinguishing their solar products and building up services around them, and its difficult to see the big players stepping back from that. Sunrun, for instance, recently rebranded with a logo called “Brilliant Home” that represents a comprehensive energy solution. So you see them doubling down on the services approach. You also see SolarCity talking more about becoming a distributed energy services “platform,” which is part of what makes the Tesla discussion so interesting — how will they advance the energy services concept now that they have more assets and capabilities under one roof?
I think it’s going to be tough, but there is still reason to be excited about the energy-as-a-service concept. Particularly when solar is combined with other technologies. I think there is value in offering a suite of customer-centric energy solutions that provide savings, reliable operations and peace of mind. Also, don’t forget the utilities. There is value in designing these solutions to provide services to the grid and the customer at the same time.
Stephen Lacey: This is one of the big questions going into 2017. Can distributed energy companies finally start executing on the “energy-as-a-service” model, particularly in the residential space? I don’t think sectors like solar, storage or efficiency have been totally commodified. But they’re getting there. And I think everyone agrees that customizing services — and using those customized offerings to “stack” revenue streams — is necessary for companies to differentiate themselves. I just don’t see it materializing in a big way yet.
I think we can go back to SolarCity/Tesla for an example. SolarCity is finding it difficult to compete on price with local installers. Rooftop solar is an increasingly commodified business. After the Tesla acquisition, Musk wants SolarCity to focus on the solar roof and manufacturing. This is making SolarCity a product-based company, not just a services company. And that’s a really important shift.
Storage is another example. When you look across the broad range of behind-the-meter storage providers, they’re all looking at how to expand revenue streams and customer benefits, while possibly selling other distributed energy assets on top of the storage. However, this type of cross-selling is still very difficult, and most companies haven’t found their footing yet. “Energy-as-a-service” is still largely a talking point, not a proven business model. We’ll see if that changes in 2017.
Julian Spector: That's interesting about the solar roof as a turn back to a product-focused business model. It's almost like Musk is accepting the commodification of solar modules by entering a related field, solar roofing, where nobody has succeeded at scale. There are no huge factories pumping out solar shingles or French slate. Maybe there will be some day, but Tesla could corner the market before others have a chance to ride. That offers a period of respite from the fierce competition in the module world.
More broadly, Tesla seems quite comfortable selling products rather than energy-as-a-service. Even its clean energy platform of electric car/Powerwall/rooftop solar is more of a collection of products than a service that you need Tesla in particular to operate. That might be the benefit of pushing out volume — they can sell commodities on the cheap and maybe still beat out more expensive but higher-value competitors.
That concludes our 2016 editorial roundtable. Want to know how right or wrong we are? Keep reading GTM in 2017.