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Tesla-SolarCity merger could be fraught with danger -- and big potential

Lucas Mearian | July 4, 2016
Both companies have the same majority stock holder

SolarCity, however, has nowhere near the debt Sun Edison has and it has some lucrative utility deals in the pipeline that will significantly increase its revenues; one project is even tied to Tesla.

SolarCity Hawaii Tesla Kauai Island Utility Cooperative

This 12 megawatt Koloa solar array owned by Kauai Island Utility Cooperative was built by SolarCity and went into operation in 2014. SolarCity plans to build a larger array at Kapaia with a unique battery energy storage system.

SolarCity won a 20-year contract to build and run a 52 megawatt (mW) first-of-its-kind solar array and energy storage system on 50 acres for Hawaii's Kaua'i Island Utility Cooperative (KIUC). Tesla will supply the batteries that will provide 13mW worth capacity. The solar array is expected to go live by the end of 2016.

KIUC will purchase energy for 14.5 cents/kWh through a 20-year power purchase agreement.

"SolarCity still has the potential to hurt Tesla. We've already seen how the market responded to the acquisition with Tesla's stocks going down given the huge debt load of SolarCity -- there's always the possibility of bankruptcy," Ogden said. "But, given the way SolarCity is moving, I don't see [SolarCity] following a similar path of Sun Edison, largely because of its vertical integration strategy."

SolarCity, for example, has been acquiring companies, such as Zep Solar, in order to be able to supply all of its own rooftop mounting equipment. And, it is now building its own high-efficiency solar modules, which allows it to control the price of production.

"The combination of those things will make it a key competitor in the residential and commercial space, particularly from a lower-cost perspective," Ogden said.

“One benefit that this acquisition could have,” he continued, “is to create an integrated alternative energy company before any of its potential competitors gain a foot hold in the market.”

 

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