The Tesla-SolarCity merger talks have been dominating headlines of late. While Elon Musk’s demagoguery is a welcome reprieve from the political demagoguery that is otherwise competing for space above the fold — at Navigant Research, we aren’t exactly surprised by the move.
The Tesla-SolarCity proposed merger is really just the tip of the energy cloud:
“This emerging energy cloud landscape, a concept that borrows from cloud computing, represents a range of technical, commercial, environmental, and regulatory changes that challenge the traditional hub-and-spoke grid architecture. Fueling this shift are the steady increase in distributed energy resources (DER) capacity and the continuous expansion of smart grid infrastructure. Both trends point to a future grid that will be far more dynamic, responsive, and democratized than current infrastructures allow.”
The potential merger is consistent with the need for energy companies to expand across verticals with new business models and partnerships. Bundling services with complimentary benefits—such as solar PV, energy storage, and electric vehicles (EVs)—will become increasingly critical both for gaining market share and leading in the new energy paradigm.
There are real issues specific to the propriety of the merger, including those related to corporate governance, timing, and the price offered for SolarCity. Still, my colleague Bill Tokash wrote a fantastic analysis of how this Tesla-SolarCity deal represents the energy cloud trifecta. But you don’t have to be Tony Stark/Iron Man incarnate in order to see the benefits of bundling as energy moves into the cloud. Consider the following examples of similar moves that have received less attention:
- Home security giant Vivint rapidly ascended to the position of second largest residential solar PV installer in the U.S. before SunEdison choked on its acquisition.
- Taking a page out of Vivint’s book, Alarm.com now owns EnergyHub for thermostat and demand response (DR) services.
- General Electric (GE) already works across numerous verticals in the energy sector—it is the second largest wind turbine manufacturer and also manufactures gas turbines and home appliances. The company has further upped its energy cloud capabilities with GE Current, which now bundles solar PV, energy storage solutions, EV charging, and lighting. GE also recently acquired Daintree Networks, a building automation company that provides wireless control systems for commercial buildings.
- Utilities have established non-regulated arms, such as Constellation Energy, which are experimenting with bundling retail supply, energy efficiency, solar PV, energy storage, and DR for commercial and industrial customers. Meanwhile, Dominion is buying and operating fuel cells from both Bloom and Fuel Cell Energy, respectively, while various public utility commissions are deciding across the county, how much DER traditional utilities can own.
- Elsewhere in the value chain, plenty of engineering, procurement, and construction contractors have expanded into solar energy services—including Rosendin Electric and S&C Electric, with several gigawatts installed to date. CAT and First Solar are now partnering on solar-diesel microgrids globally. Even energy service companies that typically serve the municipality, university, school, and hospital markets have expanded their energy efficiency retrofit expertise and energy service performance contracting to include financing for onsite solar.
- Comcast, a company with a business model that is (arguably) synonymous with bundling, is now offering energy services in certain markets, including retail supply, thermostats, and DR.
- And, of course, Apple’s and Google’s respective forays into energy have been well-covered.
The list goes on and on. How successful this bundling will be over the long term has yet to be seen, particularly given the evolving regulatory landscape (net metering, DER ownership, value of solar, etc.) that varies jurisdiction to jurisdiction. It is one thing to identify synergies across verticals; it is another thing to deploy bundled services (profitably!) over the long term when there is so much in flux.
In an upcoming webinar titled The Integrated DER Ecosystem, Navigant Research and two industry leaders (SolarCity and Generate Capital) will discuss how these bundling trends, in addition to other advances in the DER landscape, present opportunities and challenges in the market. The transition to the energy cloud is a bumpy path, but it is already redefining the grid architecture and customer relationships of the future.