Finance is the biggest tool in the US solar race, SolarCity shows.

Gigaom: “….now SunPower is facing a more unusual challenge in the dramatically growing solar market in the U.S.: an aggressive startup that, until recently, had little in the way of solar cell manufacturing chops.”
“Startups don’t tend to disrupt energy industries in the same way that they do the internet. But this startup is SolarCity. ….SolarCity launched and built a business off of financing and installing solar panels on rooftops. Its smart play was the new business model, first developed by SunEdison and Jigar Shah back in 2003. SolarCity raises money from big banks and companies, then provides the upfront funding to pay for solar panels installed on a customer’s roof. The customer then pays SolarCity for the cost of the electricity over time — some two decades or so — and generally the customer is paying less than they were to the local utility. Win-win for everyone but the utility.
So SolarCity essentially removed that initial cost barrier — some tens of thousands of dollars for a home solar system — that was blocking everyone but the wealthy from going solar. This strategy of aiming for the installation and financing business first also meant that SolarCity was one of the companies that actually got a huge boost from the massive drop in solar panel costs. While solar makers globally struggled to maintain margins and survive the price drop, SolarCity had the benefit of getting to buy cheaper and cheaper panels. The industry’s manufacturing pain was SolarCity’s gain.
In fact, the solar financing and installation business proved to be so obviously lucrative during that period that SunPower and even bigger players like NRG Energy jumped into it. SunPower launched a residential solar leasing program in 2011 and, though it grew it slowly, it provided a bright spot of revenue for the company during the more difficult times in the manufacturing downturn. SunPower is now looking to grow that leasing program substantially.
Even big energy companies like GE now realize that solar installation and financing — and not manufacturing — was the best place to be in the solar market over those past several years. GE’s CEO Jeff Immelt said last month that he wished GE had thought of that business model idea, but at the time they were too focused on how awful the solar manufacturing market was.
After eight years in business SolarCity is now the largest residential solar companyin the country. For the full year 2013, SolarCity generated about $164 million in revenue, and installed 280 MW worth of solar energy systems, which was 78 percent more than in 2012. SolarCity anticipates it will see even more growth in 2014, and will install between 475 MW to 525 MW of solar panels this year. By the end of 2014 it plans to have over 1 GW of solar panels collectively installed since its inception.
However, it’s not all roses for SolarCity. Because of its rapid growth and the economics of the solar installation market, it has yet to turn a profit. For the year 2013, SolarCity had a net loss of $152 million. The point at which SolarCity will be able to turn that around and break even remains to be seen.
And SolarCity is still a smaller upstart in a big sunny pond. In terms of revenues, SunPower is 15 times the size of SolarCity, thanks to its solar manufacturing business. For the year 2013, SunPower generated revenues of $2.51 billion and a net income (as in, positive) of $95.5 million.
The dark says of the solar price crunch have also now seemed to have lifted. That’s good for the solar makers, but not necessarily great for SolarCity. While two years ago SunPower was forced to cut some of its production, the company is now manufacturing at full-tilt to meet demand and is building a factory in the Philippines. SunPower also generated its first annual profit in some time last year.
That means SunPower is now stable and strong enough to start innovating and attacking more. In a move clearly aimed at the market that SolarCity is dominating, SunPower more recently closed on a $220 million fund from Bank of America Merrill Lynch to boost its residential solar installation leasing business. SunPower’s CEO Tom Werner called 2013 “a break out year for the company,” in an earnings call in February.
SunPower isn’t just aiming at the residential leasing market, it’s also looking to move into energy storage at the same time that SolarCity is. Since 2012, SolarCity has been working on piloting a business around pairing solar panels with batteries, provided by its partner Tesla. About 500 residential customers have signed up to get one of their home energy storage systems, but only 19 customers had been connected by the utility as of the beginning of June, according to the San Jose Mercury Mews. Walmart has also been an early customer interested in the storage/solar combo. SolarCity plans to use some of Tesla’s low cost lithium-ion batteries for grid storage, sourced from Tesla’s planned massive battery factory.
Batteries that store energy generated from solar panels and then used when grid power is expensive, or at night, could be a very important piece of a solar-power system one day. Navigant Research predicts that worldwide revenue from residential distributed generation (solar and other generation technologies) plus energy storage will grow from $52.7 billion annually in 2014 to $71.6 billion in 2023.
SunPower is experimenting with energy storage, too. This week the company gavemore details about a battery pilot program it’s been working on in California. It’s still in the early stages, but SunPower said it’s looking to grow its energy storage business next year.
But by far the biggest twist that has delivered SunPower and SolarCity into closer competition is the news that SolarCity is now getting into the high-efficiency solar panel manufacturing business. Last week SolarCity said it planned to buy a high-efficiency solar cell maker called Silevo. SolarCity is paying $200 million in SolarCity stock, with an option for another $150 million in shares upon achievement of certain milestones.
It’s a risky move. It took SunPower a couple decades to get its solar panels ready for mass production at the economies of scale that it’s at now. SolarCity says Silevo was at a point of transitioning between a startup and a commercial producer when it decided to buy it. SolarCity’s CTO Peter Rive recently told me it will be moving ahead quickly on building a 1 GW factory (which is very large) to make Silevo’s solar panels in Buffalo, New York.
Like with Tesla and its massive battery factory plan, SolarCity is looking to build a huge factory that can lower the cost of making solar panels for it to install. Elon Musk (chairman of SolarCity) said on a call about the Silevo deal that the only way for SolarCity to expand fast enough was to make its own panels. But Tesla building batteries with long time battery maker Panasonic is decidedly less risky than SolarCity building a huge factory with a young company’s tech.
The rivalry between SolarCity and SunPower isn’t new and has been heating up over the years. Two years ago SunPower filed a lawsuit against SolarCity and five former employees that had joined SolarCity. The lawsuit accused them of stealing confidential data and bringing that data with them when they went to work for SolarCity. The two companies settled at the end of 2012.
SolarCity and SunPower are now in many of the same businesses. And that actually makes sense, as they’re both smart and innovative companies that are trying to be at the forefront of the dramatically growing U.S. solar market.
The U.S. installed 1.3 GW of solar in panels in the first quarter of 2014, which was growth of 79 percent from the first quarter of 2013. There’s currently 13.4 GW of solar panels operating in the U.S., which is about 482,000 systems.”