Arcwire Interviews Lyndon Rive, Founder of SolarCity
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The environmental debate is often framed in terms of sacrifice, that the only way to achieve environmental goals is to sacrifice our quality of life, or pay more for energy and electricity. What's your response to that argument?
I'm a big fan of paying more for electricity. If electricity costs more, then people will take the extra minute to educate themselves on solar, or alternatives. So I think the best thing that could happen to everyone is that the cost of electricity increases slightly so that the alternatives become a lot more exciting to homeowners.
And the irony of the whole thing is that there'll be a short term pain, but there'll be a long term gain. So you're hedging your bets against an increase in cost. I'm not sure you've heard of this cliché, if you put a frog in a bowl of water and you heat up the water over time the frog won't jump out, it'll die. But if you put a frog into hot water it'll jump out.
I've heard that, yes.
So the same thing is happening to us. We are slowly allowing electricity rates to increase over time. If you speak to some people in cities where the electric bills are really high because of air-conditioning – some of our customers are paying $300 - $700 a month in electricity. These aren't wealthy people, these are people in medium-income home areas, Central Valley, Southern California. These are not millionaires, these are just average people paying electric bills of three to seven hundred dollars a month. That's a massive burden they did not think they were going to pay ten years ago.
I'm a big fan of forcing the change. By forcing the change now, we'll benefit significantly from it later. Another example I could use is, lets say four years ago petrol was $2 a gallon, and somebody came to you and said, "I'll sell you petrol at $2.50 a gallon. It's fifty cents more, but you'd lock it in at $2.50." At the time, most people would've said you'd be crazy. But look where we are now.
By setting a price for electricity, what solar does is lock you in for the long haul. So not only is it a financial investment, it's also an environmental benefit.
Yes, there are definitely environmental benefits to going solar, but we're also in a recession. People are being squeezed. So when you speak about paying more for electricity to force a change, are you agreeing that we're going to be asked to make sacrifices for these environmental gains? Or is there a way for the renewable energy industry to allow us to make this transition cheaper?
The Holy Grail is to enable somebody to go solar without it costing them anything. And we've figured that out.
So you've figured out a way for people to go solar without it costing them anything?
Well there's an initial payment. So let's say there's a small payment of $1000 or $2000. And then going forward, they're saving money every month. Assuming their current electricity bill is more than $140 a month.
In a recent piece on SolarCity in the LA Times it says that after an initial payment of $2000, you can have a monthly payment of $200 for fifteen years. If you pay more up front, your price can be slightly lower. Is that correct?
It's not a fixed payment of $200, there's an increase of 3.5% every year. The utility rate has increased at 6.7%, so it's half of what the utility rate increase is. Over the lifetime of the solar system you're going to be saving electricity, and you're going to be saving that cost by not spending money with the utility.
That cash savings - if you add it up over the 30 years - is a big number. But that's not a fair comparison, you have to give it a discount factor and put it in today's value, because today's dollar won't be worth much in 30 years time. Gotcha.
So what's that worth in today's dollar? In today's dollar most of our customers are seeing a return of between $6,000 or $7,000. So in essence, by putting a solar system on their roof, they're giving themselves a check for six or seven thousand dollars. Okay, and what does it cost them to do that?
So the initial payment, and then the monthly fees. 7 out of 10 times they're cash flow positive, meaning that the monthly fee, combined with their new electric bill is less than their old electric bill. So they're saving money from day one. And that works for a majority of our customers.
And the reason I say majority and not all, is electricity is sold in tiers. The more you use, the more expensive it is. So this applies to the top three tiers, not the bottom two tiers. Excellent, so you've developed a way for people to save money by switching to renewable energy. And what happens at the end of the lease?
If they lease the system from us, in fifteen years we give our customers four options. First option: continue the lease. Second Option: have us take away the system and do nothing, just pay the utility. Option 3: Buy the system and keep it. Option 4: Upgrade to the newest and greatest system.
What do you say to folks who's power bill is less than the cost of the lease?
For small users, or people getting really cheap electricity, the only reason they would do it is environmental. It makes no financial sense. But there are a lot of people in California with electricity bills of $150 or more. By the time we've addressed all those folks, we will have reached a scale where we can start addressing the ones below it. And then innovate further to even address the ones below that.
So give us a few years and we'll figure out a way to address the smaller bills.
Thanks for your time Lyndon, and good luck. Be sure to keep us up to date with any new developments.
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