Monday, August 15, 2016

What does the Tesla / Solar City merger really mean for renewable energy?

Well, the dust has settled a bit after the initial excitement regarding Tesla's $2,600,000,000 purchase of Solar City.  (Somehow, writing it out with all 8 zeroes gives a better picture of the money involved.  As Senator Everett Dirksen never actually said, "A billion here and a billion there, and pretty soon you're talking about real money.")

Of course, there has been significant kerfluffle about the fact that Elon Musk is founder and general grand poo-bah of both companies.  However, it seems that settled down pretty quickly, primarily because Tesla's shareholders are still sitting pretty.

Besides, it's Elon-freakin-Musk.  What could go wrong? (insert smirk here)

So, what does it all really mean for renewable energy?  Not much.

Why? I'll tell you in two words:

Net Metering

You see, Solar City's business is built on the concept of Net Metering, and specifically Net Metering at fully loaded retail rates.  That's really the only way that their business model works.  They are very sensitive to changes in the net metering rate, as this article from GreenTechMedia indicates.

You see, functionally, SolarCity is a financing company that loans people money, at unusually low rates, to finance rooftop solar.  Even with those low interest rates, the numbers only really work because of net metering, which is going away as an energy pricing model, and other subsidies, which are similarly going away.

Whether or not you think that Nevada got the numbers right in terms of the $16,000,000 / year subsidy their analysis said was flowing to solar customers from everybody else isn't the point here (though I'm not at all surprised that they found that a subsidy existed, I've been saying that since 2013).  The point is that a Net Metering rate change in one state caused a 37% drop in Solar City's stock value between January 1st (when the new rates took effect) and February 4th (when the GreenTechMedia article was published).

Right now, even after Tesla's purchase, if you bought SolarCity stock a year ago, and held it, you would have lost half your investment.  I'm no market analyst, but that doesn't sound like a good thing.

Now Elon Musk said the merger was necessary in order for Tesla and Solar City to have a combined vehicle/storage/solar offering.  I don't buy it.  It's not like other companies haven't put forward combined marketing efforts, or even set up joint ventures to do that kind of thing.  But I digress...

Even so, if this all flies only* because of net metering and other subsidies, since the market for such a system is pretty much limited to those who are in the upper income brackets, it creates a perverse subsidy, where the few who can afford such a set up are subsidized by the many who can't.

What it all boils down to is what I said about 3 years ago. We need solar energy and storage systems, for a lot of very good reasons which may justify explicit subsidies, but we need both the subsidies and the systems to make economic sense on their own merits.

There are people working on that, but they aren't named Elon Musk.

* If one figures in the avoided cost of gasoline and internal-combustion-specific maintenance, it does change the math a bit, but my back-of-the-envelope calculations say that between my $1000 '99 Saturn that gets 38 MPG and a $72,000  Model S, it's about a $3-$4 advantage to the Tesla every 200 miles.  So the break-even point is around 3,600,000 miles.  Even I don't keep a car that long.

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