There’s a corny old adage about genius and insanity sharing a very fine line. When Tesla CEO Elon Musk first proposed building a giant $5 billion “gigafactory” to churn out his electric cars’ lithium-ion batteries in bulk – thus rendering Teslas more affordable to the average family – a few critics were certain Musk had crossed it. But eventually, after a very high-stakes battle for which state would house the giant thing, the gigafactory is now under construction in Nevada.
Less talked about is SolarCity’s proposed gigafactory, which it wants to build in New York. Musk is the chairman of SolarCity, America’s largest solar energy provider, and in June he oversaw the purchase of Silevo, a manufacturer of high-performance solar panels. Currently, Silevo cells can convert 21 percent of absorbed solar energy into electricity (the industry average is 17 percent), but SolarCity wants to push that conversion rate even higher. With its New York gigafactory, SolarCity would mass produce cheaper, more efficient solar panels that would lower the cost of solar installations.
And this isn’t sitting well with conventional utilities. Musk’s direct-to-consumer method of sales is seen by some as the decentralized future of car sales, but car dealerships in 26 states have banned the sale of Tesla cars – and depending on who you talk to, it’s either a simple legal matter or a concerted move to keep Musk out of the competition. In the same way, SolarCity’s cheap and cheaply-installed solar panels could end traditional utility dominance.
Germany is already experiencing this in its fossil fuel industry. The rapid, state-mandated development of its renewables has made it a world leader in solar but no friend to coal and natural gas. Germany’s largest utility, E.ON, recently announced how it is adapting to the new normal. It is splitting itself into two separate companies, one that will handle its conventional fuels and one – the one that’s keeping the E.ON name – to focus on renewables and on-site energy production (e.g. rooftop solar panels).
Environmental advocate and former vice-president Al Gore recently said that the old world of carbon emissions and dirty energy is now in decline, and that those who are still clinging to them need to come to grips with reality. “Investors who haven’t yet come to grips with the stranding problem are like the classic scene in the Road Runner cartoons where the coyote runs off the edge of the cliff,” he said, “and his legs keep moving for quite a long time before gravity takes hold. There are investors out there whose legs are moving in mid-air.”
Shifting energy production from massive, centralized utilities to local windmills or rooftop solar is disrupting the status quo. Amory Lovins, co-founder of the Rocky Mountain Institute, a Colorado-based energy consultant, has said that on-site renewables pose a “mortal threat” to the classic model. “That is an unregulated product you can buy at Home Depot that leaves the old business model with no place to hide,” he told Bloomberg.
Elon Musk has thus far proved himself adept at the energy game and he, SolarCity and others “are beating the utilities to the punch,” Ben Kallo an analyst for Robert W. Baird & Co., also told Bloomberg.
“Utilities should look at Elon as a brilliant entrepreneur and innovator who is helping create the new electricity industry and betting against him hasn’t worked so well,” said Lovins. “I would look at ways to benefit from what he is bringing to the market.”
Of course, how many utilities can be expected to learn from or work with Musk to adapt to the new energy normal and how many will – like 26 U.S. states, like Duke Energy in Florida, like the American Legislative Exchange Council – do everything in their power to block the coming revolution?