SolarCity is America's largest financier and installer of rooftop solar panels. SunPower is one of the country's biggest solar-panel manufacturers. From opposite ends of the supply chain, the two California firms have declared their plans to become vertically integrated, just like the major oil companies.
In late June, SolarCity said it would become the first solar-services company to make its own panels, and a lot of them (Greenwire, June 17). The 8-year-old firm is buying a small manufacturer, Silevo, for $200 million, according to Bloomberg, and is quintupling the size of its planned factory in order to produce a gigawatt of solar panels each year, by far the biggest such factory in the United States.
The waxing of SunPower has been more gradual. Founded 30 years ago as a maker of crystal-silicon photovoltaic panels, it added a network of dealers in 2005, then expanded into inverters, racking and monitoring systems, then into building utility-scale solar plants. Two weeks ago, it announced a partnership with KB Home to introduce energy storage alongside its home solar systems.
The two enterprises, whose headquarters are a mere half-hour apart on Highway 101, are adopting a strategy meant to keep costs down and weather the uncertainties of a fast-growing industry. Analysts said that controlling the market from raw silicon to the rooftop has its risks but makes sense when the product carries a guarantee to work for 20 years or more.
"They started on opposite ends of the spectrum," said Matt Feinstein, a solar industry analyst with Lux Research, of SolarCity and SunPower. "Now they want to be energy-solution providers. They're both pursuing energy storage with solar. They're both looking to be one-stop shops."
By pushing costs down, these super-players may hasten the day when solar is competitive with fossil fuels. Furthermore, Feinstein said, it signals that the duo are "trying to push the envelope on changing the utility business model and changing how we get electricity."
Such large resources mean that SolarCity and SunPower are more likely to clash with traditional power companies. Both are beginning to offer batteries to store solar power, which could deny utilities a lot of business. And by aggregating the solar output from thousands of rooftop solar panels, they could be in a position to alter the trajectory of energy use across entire states.
The two have jostled in the past. In 2012, SunPower sued SolarCity for poaching several of its salespeople and their intellectual property according to Greentech Media.
2 versions of vertical
While these two are the most ambitious in scope, other competitors are also expanding in order to survive. "There's lots of different kinds of vertical integration in solar," said Shayle Kann, director of research for Greentech Media.
For example, SunRun, another California solar financier, became a rooftop installer when it purchased the residential unit of REC Solar in February. In March, NRG Energy, whose traditional business is fossil fuel-fired power plants, expanded its presence in the residential market with the purchase of Roof Diagnostics.
So far, the country's other two major manufacturers and developers of large solar plants, SunEdison and First Solar, remain on the sidelines when it comes to the rooftop war.
SunPower's and SolarCity's visions of "vertical" are in fact quite different.
SolarCity's drive into the far ends of the solar industry echoes that of its sister company, Tesla. That electric automaker, also based just outside Silicon Valley, is on the cusp of vertically integrating, as well. Any day now, it may announce where it will build its enormous "gigafactory," which is envisioned to produce more lithium-ion batteries than the world currently makes in a year.
Tesla's CEO, Elon Musk, is the chairman of SolarCity and the cousin of its two founders. The batteries that SolarCity is starting to sell to its solar customers are from Tesla (EnergyWire, March 3).
Both Tesla and SolarCity have exhibited a desire to control and brand it all, as well as a tendency to frame their grand plans not just in terms of dollars and cents, but as an imperative to hurry along a clean economy.
With the acquisition of Silevo, SolarCity's name will be on everything, from the solar panel to the green T-shirts that installers wear. "We will be the most vertically integrated solar company in the world, spanning from modules, balance of systems, installations, operations and maintenance," said Peter Rive, SolarCity's chief technology officer.
By comparison, SunPower's approach is less monolithic and more flexible. It distributes its solar panels and systems through a network of dealers that operate independently. SunPower CEO Tom Werner said in an interview that this gives SunPower the ability to saturate regions more quickly, and to enter new markets faster.
Only time will tell whether vertical integration is a recipe for success in the solar industry. Controlling every part of the value chain means that if one link becomes a money-loser, another can make up the slack. SunPower and SolarCity both have some of the most efficient solar panels on the market. But if a competitor breaks out with a better one, the companies could be locked in and would struggle to compete.
Early in the game, both companies are confident about their prospects.
"Scale is going to matter," said Werner, SunPower's CEO. "The big winners are going to be the big guys, and they're going to be integrating."