Driving Solar Growth Through Financing: SolarCity CEO Lyndon Rive (Part 3)

SM: There are a lot of business areas that can have a positive environmental impact. Why solar?

LR: We looked at the solar industry and realized it was one place where we could really make a difference. We looked at the value chain from panel manufacturing to technology for the solar industry and actual delivery. We realized that there are a fair amount of smart people and good money focused on the upper part of the value chain but that there was very little focus on the lower part. Only a handful of good companies were there. The market was extremely fragmented.

SM: Are you referring to the system integration market segment?

LR: Yes. In California, there are 250 active companies and over 700 in the US. There is a tremendous amount of turnover. Electricians think they are going to get into the solar business, try it for six months, and then get out. 

We interviewed many installers before we decided to get into this business. We asked them what they were doing to reduce their costs and bring scale to the market. Nobody was thinking massive scale. They were thinking three to four crews. That did not solve the environmental challenges we were facing. If you want to make a true difference then you need to install in millions of homes. In order to do that you have to build other infrastructure that can accommodate that adoption.

Let’s suppose that solar were really cheap today. Anyone could afford it. The adoption would not change as everyone is at a 100% capacity rate. As new technology evolves, we need to gear the infrastructure to bring mass adoption today. We cannot wait for five to ten years from now. That is what we are focused on. In doing this, we need to eliminate every barrier to adoption.

We launched the company and quickly found that the biggest barrier to adoption is upfront cost. We knew that we had to eliminate those.

SM: How did you do that?

LR: We launched a financing offering which is a solar lease program. The lease payments, combined with your new electricity bill, are less than your old electricity bill. You save money from day one with no investment from the customer side. As a consumer, if you have the choice of paying more money for dirty power or paying less money for clean power, which would you choose? That has really accelerated our growth.

SM: What is the structure of your lease financing? Do you work with a partner or bank?

LR: We do. From a customer’s perspective it is very simple. You sign up for a 15-year lease, the payments are less than your cost of power, and we guarantee the production of your lease system. There is no downside.

On the back end, we partner with banks to make the leasing available. We did a lot of business with Morgan Stanley before they moved out of the business at the end of last year. Most recently, we have signed a relationship with Greystone, which is a company in New York that facilitates these lease systems. That is working really well for us.

SM: Why did Morgan Stanley pull out?

LR: In order to make the economics of a bank investing in a solar system work, you need to be able to take advantage of the tax credits that are available. The tax credits help with the returns. If you don’t have any profits you can’t use the tax credits. Morgan Stanley unfortunately was not making money any more. When you are not making money, you cannot make money with tax credits. Buying solar systems without being able to benefit from the tax credits would make their financial situation even worse.

This segment is part 3 in the series : Driving Solar Growth Through Financing: SolarCity CEO Lyndon Rive
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