The announcement could change the landscape in residential solar and usher in a new level of competitive innovation. But there's also a lot of misunderstanding about what SolarCity is really making, and who it threatens. What does this mean for SolarCity, SunPower, and other residential solar companies? Let's lay out the reality of SolarCity's new solar panel.
I think the first thing to look at is what's really being made by SolarCity. The press release last week made lofty claims, but we also need to consider that this panel is still in the lab. The company's 22% efficient panel is being made on a pilot line that will make, at most, 100 MW of panels annually, although we don't know its current run rate or the cost of the product coming off the line.
The efficiency claim is also a bit misleading. Peter Rive, SolarCity's CTO, told GTM Research that 22% is "on the high end" of what the company can make. Most panels are over 21.8% efficient, but they're not all 22%. Meanwhile, SunPower hasn't changed its 21.5% efficiency rating in two years, and it is delivering modules that exceed 22% to customers today. It's also in full production, while SolarCity will reach full production of this 22% module in 2017.
Is SolarCity beating SunPower on efficiency? Maybe in the lab, but probably not for panels you could actually put on your roof today.
More importantly, SolarCity's aim of making panels for $0.55 per watt is a goal for 2017, when its Buffalo, New York, facility is up and running. Keep in mind that this $750 million facility was built by the state of New York and leased to SolarCity for $1 per year, so unless the company can get another sweetheart deal like that, the actual cost of solar panels in future facilities will be higher than what it sees in New York (a 10-year depreciation rate and 1 GW production rate would add 7.5 cents per watt to costs).
We also don't know much about the durability and reliability of SolarCity solar panels. One of SunPower's strengths is that its panels have been tested for years, and only about 1 in 20,000 is ever returned under warranty. This is partially due to the back contact construction, which makes panels much more durable than most solar panels. This also plays into degradation rates, something else we don't know anything about from SolarCity. SolarCity may make a panel that's more efficient than SunPower on day 1, but if it degrades faster than SunPower's, is producing less power after year 1, or is more likely to break, then it's not really a better panel in the long term.
I'm not trying to discount that this new solar panel is a big deal for SolarCity. It's a big deal. But that's different from saying it'll suddenly replace SunPower atop the efficiency heap when SunPower is in full production and SolarCity is on a pilot line without real-world experience in manufacturing at scale. We should temper our expectations.
This changes the game in residential solar
SunPower may not feel threatened by SolarCity, and in fact might welcome more companies appreciating high-efficiency panels. But if SolarCity can make what it says it can make, these panels are a threat to other residential solar companies.
Vivint Solar and Sunrun are two who should feel very threatened by SolarCity's high efficiency panels. When SolarCity starts installing high efficiency panels, it'll be able to get 30% to 40% more power out of each roof than competitor commodity panels. That'll leverage its operating costs and allow for more revenue from each installation.
This shifts power further in SolarCity's favor in residential solar. With the investment tax credit falling from 30% to 10% in 2017 for commercially owned solar systems, the market is going to get hyper-competitive. SolarCity now has a big advantage.
SolarCity isn't at the top of the heap yet
I've seen enough press releases about high efficiency and low costs to read too much into SolarCity's new panel. The company will have to prove that it can hit efficiency and cost targets in a manufacturing plant, not just on paper -- and that can be harder than people think.
If SolarCity can deliver, it may not be a threat to SunPower, who it has been compared to most in the media recently. But it would be a major threat to residential solar competitors that would be installing less-efficient products at a potentially higher cost. That's where this could really make an impact in the solar industry.
Before you get too excited, let's make sure SolarCity can make a highly efficient product for the costs it projects. That would be meaningful, but it's also easier said than done.