Elon Musk's proposal for Tesla (NASDAQ: TSLA) to buy SolarCity (NASDAQ: SCTY) in an all-stock deal is being met with the usual moans of disbelief.
Still, the central core of the complaints — that Musk is making an endless capital call on the markets to fund some futuristic idea of a solar utility giant — is essentially correct.
And that's good news. You can argue with his execution — or whether this combination with Tesla was the right way to do this — but the vision is big and bold and the technology is moving in his direction.
Musk's vision is pretty clear: He wants to be the Con Ed (NYSE: ED) of solar energy. He wants to be the first company that generates, stores and transports solar energy in a truly big way.
And he is not thinking too hard about how much money he is asking from his "believers." He is thinking 10 years down the road.
Because the relentless march of solar technology — like that of silicon chips — is working in his favor.
Ramez Naam, a technologist and Energy and Environmental Systems Faculty at the Singularity University and author of the award-winning Nexus trilogy, recently spoke about the growth of solar technologies at the Exponential Finance Conference in New York.
His main points:
Solar panel prices are dropping dramatically. The solar industry has its own variant of Moore's Law, which says that the number of transistors (and hence the computing power) on an integrated circuit doubles every two years. Swanson's Law says that the price of solar photovoltaic modules tends to drop 20 percent for every doubling of cumulative shipped volume. At present rates, costs drop 50 percent about every 10 years. (Note: It may be even better than that. The Solar Energy Industries Association (SEIA) notes that the cost to install solar has dropped by more than 70 percent over the last 10 years.)
Solar is becoming more competitive against oil and natural gas. Right now, oil costs roughly 6 cents a kilowatt/hour (KwH). Recent large-scale projects in Mexico, Dubai and India are competitive with oil and natural gas — even without subsidies.
Solar is generating more of the nation's electricity. Right now, solar generates only 1% of total energy generation in the U.S.; SEIA expects it to hit 3.5% by 2020 (less than four years away). In the first quarter of 2016, the U.S. passed 1 million solar installations; it will double to two million in only two more years.
That sounds pretty slow, but remember the technologies keep improving. A 2015 study predicts that solar could contribute 20 percent of total electricity consumption by 2030.
Bottom line: The short-term skepticism is understandable.
Philip Shen and Justin Clare of Roth Capital Partners expressed that skepticism perfectly in a note to clients this morning: "While we acknowledge the virtue of Mr. Musk's clean energy vision and mission (philosophically we support them), we do wonder if his vision truly needs to happen through the integration of these two companies."
Fair point. Commingling the risks and challenges of SolarCity with the risks and challenges of Tesla may or may not be the best way to advance the solar agenda.
But don't take your eye off the long-term picture. Solar is going to be a very big part of our energy future, and Tesla has just made a play to be a major factor in that equation.
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