Tesla and SolarCity: Is Financing a Bundled Clean Energy and Transportation Service on the Horizon?

Tesla’s recent announcement that it intends to acquire SolarCity was an unprecedented Energy Cloud trifecta. It’s not easy for a single release by one company to stir the interests of three separate sets of passionate stakeholders tracking transformative clean energy and transportation technologies and business models. And rightly so, as the potential for Tesla to pair vehicle electrification with solar and advanced battery energy storage as integrated distributed energy resources (DER) is an eye-opener to say the least.

Tesla’s vehicle and battery manufacturing businesses are very different than SolarCity’s solar business, both technically and revenue model-wise. It will likely be a challenge for the company to explain these separate businesses to its investors and manage expectations. One could argue that Tesla might be better off focusing 100% of its efforts on building out the Model 3 and Nevada Gigafactory battery manufacturing capacities in the short term.

The DER Standpoint

But from a DER technical standpoint, it’s intriguing to consider the possibility of what the new Tesla could do. For example, the new Tesla could couple the energy capacity of plug-in electric vehicle (PEV) batteries with solar, PEV charging infrastructure, and virtual power plant (VPP) software all at the home of a single customer. It’s not hard to envision how this type of arrangement could serve both as DER and an overnight revenue source to utilities. The new Tesla indicated that it plans to continue to partner with utilities, which are increasingly interested in aggregated behind-the-meter demand response capacity. And SolarCity’s recent efforts to partner with utilities in New York on a new program to eliminate net metering along with the company’s recent hiring of former Federal Energy Regulatory Commission (FERC) Chairman Jon Wellinghoff as Chief Policy Officer demonstrates a willingness to pursue such new and innovative business models.

Going to Market

But how might the new Tesla take this sort of concept to market? A key aspect of technology innovation in renewable energy has been financing innovation. The development of power purchase agreement financing has been instrumental in the growth of solar PV. Guidehouse Insights believes that financing innovation will also drive energy storage markets over time, as well.

But the new Tesla could be uniquely positioned to apply financing innovation to an integrated solar battery PEV-based VPP while also providing consumers with the use of the vehicle. Imagine a homeowner entering into a 15-year financing agreement for solar, energy storage, and use of a Tesla Model 3 under a single contract. In this scenario, the new Tesla/utility partner manages the VPP asset while the customer gets access to, but not ownership of, a Tesla Model 3. If the new Tesla/utility partner decides to extensively use a Model 3 battery as part of the VPP, then the homeowners get a new Tesla battery. In this scenario, the long-term assumptions on VPP revenue, replacement batteries, or even new vehicles and solar storage benefits are bundled under one customer-facing agreement.

This type of integrated financing innovation might sound challenging. But I can guarantee that a trifecta (or more) of interested Guidehouse Insights teams will be closely tracking if and how the new Tesla comes together.