Since Thomas Edison invented the light bulb and built the first electric grid in Manhattan there's been little change in the way we generate and distribute electricity around the world. Utilities build massive power generators that create electricity and it's sent through transmission and distribution lines into your home where you pay a price that you can't negotiate for the energy you consume.
How utilities are regulated and the amount of choice you have depends on where you live, but consumers are still beholden to a utility and have little choice in how they get electricity or where it comes from.
That's what makes rooftop solar power so revolutionary and so scary for utilities as we know them. Today, consumers are beginning to have energy choices, transferring power from utilities to homeowners. They can install solar panels to generate electricity, store energy for later use, and even charge a vehicle all without interacting with the grid. That's something that was nearly impossible even a decade ago but today it's not only possible, but economical for millions of Americans and many millions more the world over.
The power belongs to YOU
As recently as 2007, it was incredibly expensive for a homeowner to put solar panels up and generate their own electricity. An installation may have cost over $50,000 and the power generated cost much more than the utility.
But that's when Sunrun began offering solar leases, a business model that put the initial cost on the leaseholder and allowed homeowners to pay for their solar-power system over 20 years. Soon, the business model spread and SolarCity (NASDAQ:SCTY) is now the largest lease company and panel making giant SunPower (NASDAQ:SPWR) has joined the business as well. GTM Research predicts that solar leases will account for 68% of the projected 1.3 gigawatts of residential solar systems installed in the U.S. this year.
Leases wouldn't be viable if the power generated from a home wasn't cost effective, which is why SolarCity, SunPower, Sunrun, and others can offer solar for $0 down and a lower cost of electricity than the grid in some of the country. As costs fall further, homeowners will have even more choice, like whether they want to pay cash, get a loan, or design their system into the roof itself.
Beyond financing, storage is the next stage of development and it makes it possible for consumers to go without the grid. SolarCity's sister company Tesla Motors (NASDAQ:TSLA) is earmarking a large portion of its gigafactory for energy storage with sights set on dominating the market. SolarCity is already offering Tesla batteries to consumers and SunPower is now installing them in three test KB Home developments.
What's key in the cost reduction of solar is the increase in financing available, and that energy storage makes solar energy a choice for homeowners. If you live in a sunny or high cost energy state, it could even save you money.
Why utilities are frightened by solar
Giving consumers choices about where they get energy from has utilities around the country frightened about their future. Utilities generate rates of return (often guaranteed) on the assets they have in place and if more consumers put up solar energy it limits the need for existing and new capacity. In other words, they'll shrink rather than grow each year.
Utilities like APS in Arizona are fighting solar by charging customers to "net meter" or sell extra electricity back to the grid during the day. But they see storage on the horizon and the potential of consumers and communities reducing demand without net metering, or even cutting the cord of the grid someday.
The solar revolution is here
Revolutionary changes in energy don't happen often but we're watching one take place in the solar industry. A big disruptive force is that solar energy consumers can create their own solar-power systems and store energy for later use.
SolarCity and SunPower are leading the charge from the solar side and Tesla Motors is a surprisingly big player with its gigafactory. These three will be leading the revolution and challenging the status quo along the way.
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Travis Hoium manages an account that owns shares of SunPower and personally owns shares and options in SunPower. The Motley Fool recommends SolarCity and Tesla Motors. The Motley Fool owns shares of SolarCity and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.