Why This Utility Could Become SolarCity’s Biggest Competitor

Editor's note: A previous version of this article stated that SolarCity's primary business is off-grid electricity. In fact, SolarCity's solar systems are grid-connected. The Fool regrets the error.

SolarCity  (NASDAQ: SCTY  ) has an interesting and unlikely competitor that many people won't see coming. It's NRG Energy (NYSE: NRG  ) , an old line utility and power plant operator that is positioning itself to be SolarCity's biggest and most aggressive competitor.

Under its visionary CEO and power-grid basher David Crane, NRG is moving into the off-grid electricity business in a big way. Crane is an advocate of distributed, or small-scale, electricity generation for homes and businesses. He has teamed up with the man who created the Segway, Dean Kamen, to create the Beacon 10 home-energy appliance.

Why the home-energy appliance is a threat to SolarCity
Despite its wonky name, the home-energy appliance is actually a home-power system designed to compete directly with SolarCity's system. The difference between the two systems is that the home-energy appliance can generate electricity with or without the sun.

The appliance combines a 5 kilowatt photovoltaic solar-panel system with a natural gas burning Stirling, or hot air generator; it can make 10 kilowatts of electricity and battery storage. The appliance can do something that SolarCity's system cannot: It can make electricity at night or on a cloudy day.

That means the Beacon 10 can make electricity 24 hours a day, seven days a week, which solar panels cannot replicate. If it works as advertised, the appliance will also be able to heat your house, heat your water, and even melt snow.

If current energy trends -- with the price of natural gas falling and the price of electricity rising -- continue, NRG could have a real money maker on its hands here. It could also put SolarCity in a real tough spot. The hip green-power company might have to bring out a natural gas solution of its own to stay competitive.

Energy appliance might not pan out
There are some problems to this scenario; after all, the Beacon 10 energy appliance is an untested technology. Supposedly, there are only two of them out there: one at Kamen's house and one at Crane's. The NRG website doesn't even mention the device, even though Crane and his public relations crew have been hyping it up.

We really don't know much about the Beacon 10. We don't know how much it will cost, how much it will cost to install or operate, or how well it will work. If it burns large amounts of natural gas, Beacon 10 could be an energy hog that drives up utility bills.

It should also be noted that NRG has some other off-grid electricity solutions that could threaten SolarCity. For instance, its website mentions a "solar canopy." The canopy is a photovoltaic deck awning or umbrella that can generate up to 7.2 kilowatts of power. The NRG website shows a variety of canopies, including covers for gas pumps, a backyard deck cove, an office building entrance way, and even a bus-stop shelter. This technology could be a real menace to SolarCity or a complement for SolarCity's products.

NRG and SolarCity as investments
Okay, that's the hype -- but how does NRG Energy pan out as an investment compared to SolarCity? Actually, it does fairly well when you look at the financials. On Dec. 31, NRG reported full-year 2013 revenue of approximately $11.3 billion, representing an increase of nearly $3 billion; for 2012, NRG reported revenue of $8.4 billion.

SolarCity reported trailing-12 month revenue of $141.8 million on Sept. 30. This translates to a 1-year revenue growth rate of 52%, while NRG reported a 1-year revenue growth rate of 35.5%.

There are many people who will call this comparison unfair because NRG is a well-established utility. Both companies are in the same basic business of providing electricity, however, so on some level they are competitors.

NRG's Beacon 10 plans and solar canopy also present a question for SolarCity and its investors to answer: What happens when utilities and other large companies start marketing electricity solutions in competition with SolarCity? After all, these companies have more resources and a ready-made distribution network staffed by experienced technicians. Elon Musk needs to address that question now if he wants SolarCity to survive.

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  • Report this Comment On March 17, 2014, at 12:16 PM, ronwiserinvestor wrote:

    SolarCity does not sell off-grid electricity. SolarCity leases grid tied solar systems that are designed by law to turn themselves off when there is no grid power available.

    In other words SolarCity's grid tied systems are totally useless without the grid. So by no means does SolarCity sell "off-grid electricity"

  • Report this Comment On March 17, 2014, at 12:29 PM, speculawyer wrote:

    "Many people get SolarCity wrong; they think it is a green energy or solar power company. What SolarCity really sells is off-grid electricity, an alternative and backup to power from the grid."

    No . . . YOU got it wrong. Only a very tiny percentage of solar systems they sell are really off-grid. And the number that are grid-connected by have batteries for back-up is also tiny.

    Jeez, the quality of Motley Fool articles is astoundingly bad. Just straight up cluelessness often. No wonder markets are so volatile and irrational.

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