Dealing with Gov Legal Battles, Thriving Customer Base and Reputation | Solar City CEO Lyndon Rive

Have you been able to continue to focus on what's really important, which is the customer, or are they distracting you so much that you're going from one state to another trying to fight them, fight off those battles, and you're losing all the creativity and energy that goes into having happy customers?

Yeah, you've got to bifurcate it. So 2 different teams. I have a policy team So right now, I have about 30 people in the company, 30 people, full-time job is to fight policy. That's amazing. Coming from the software business, didn't even have one.

Do your investors know you're spending that much?

Exactly. The question is, are we spending enough? I don't know. So we have that team 100% focused on that, and then the only way we can win is by It goes back to what you're mentioning. You've got to just deliver a better service. The company's grown 100% every year for the last 7 years. We have to continue that way.

Now, your customers still get a rebate, right?

No. Most places, the rebates are gone.

Oh, is that right?

Yeah.

You're making it in the marketplace without any of that benefit, the goodwill benefit that the government set up in the first place?

There's 2 different incentives. There's the state incentives, which are rebates, and then there's the federal incentive, which is a 30% tax credit. So for the most part— on the East Coast, there's still some state incentives available, but for the most part, all the state incentives are gone. So you can make solar work without it. Now then the question is, when will you be able to do it without the federal tax credit? Based on our cost curve reduction, we'll hit it by the time the credit drops down. It drops down in 2017. It goes from 30% down to 10%. But I will say that today— so we have one tax credit. Today, in the tax code, there's over 13 tax credits for fossil fuel. 13.

Wow.

And it blows my mind when everybody says, when will solar stand on its own two feet? I was actually on a panel with one of the head natural gas guys with fracking, and we were debating about the incentives. And so one of their incentives is they can depreciate the asset, 100% of the asset, in year 1. So that's one. The other one is they have access to master limited partnerships, so you don't get exposed to double taxation. As a company, when you make money, you pay tax. If any of you— if you distribute that, the next profits, whoever gets that income pays tax again. So there's 2 layers of tax. With an MLP, master limited partnership, which is only for energy, you don't—

Only for their kind of energy.

Yeah, actually, I'll get there. This is how amazing the tax code is, just to back your understanding. How strong policy can actually influence things. This tax code says this is only available for energy, brackets, excluding wind and solar, close brackets. It's like, whoa, you actually got that excluded. It's nuts. So you talk about all these things, and I'm busy discussing this with the CEO of that natural gas company, and he goes, Those aren't incentives. That's just the way we account for it. Like, he absolutely believes those are not incentives and it's the way you account for natural gas. And I was blown away and I was trying to think in my head, how could he really think that? And so then I realized these incentives have been around for so long that you can actually believe that's the way it's accounted for. And the only similarity I can give it to is the mortgage industry. Today, when you get a loan for a house, the first million dollars is tax deductible. Most people don't think of it as an incentive. You think of it— that's the rules for the first million dollars. It's a big incentive, by the way. It is a tax incentive to be able to deduct your first— the interest payments of your first million dollars. But because it's been around for so long, you don't really view it as an incentive. And that's the only way I could relate it to that. The people in the fossil fuel industry, the incentives have been around for so long that they don't understand that it's an incentive, and they just view it as the entitlement that they are— the way you accounted for.

So, okay, another sort of going back to the service. Now, if I put solar panels on my roof, I get a lot of energy when there's a lot of sunshine and then I don't get very much when there isn't. So this seems like it would be very, you know, a good service for the southern states, not so good necessarily for the northern states. Is there anything that's going to make it so that you actually can collect more solar power when they've got a cloudy day?

Yeah, so we've just launched our storage offering. So Tesla announced the storage pack. It's called Powerwall. It's essentially— the reason why it's called Powerwall is power on a wall. It's a really slick-looking battery pack. So when you combine solar and a battery, you solve all the problems. That is the Holy Grail. But you still don't want to go off-grid. The future of the utility sector is going to change. Right now, every house is a dumb terminal. All that happens is you receive energy. There's no way for you to do anything other than just receive energy. There's no way to communicate back to the utility to go, is this the best way to receive energy? That's going to change. So when you have solar combined with a storage device, You are a little power station. You can firm up energy any time of the day or night. And so policy will change to allow— instead of somebody, a utility, building out a big new peaker plant, they would be way better off enabling all those solar systems with the battery to deliver that peaker service. And so then what actually happens is the grid becomes more stable because you've got highly distributed power systems.

Right.

across the country. And then it's instantly available. And so actually, the cost for the ratepayer will go up, and the homeowners will make more money.

So now, as I understand it, that Powerwall can receive and transmit energy. But there was something they were knocked in the press for, which was that it only works— what was it? It had something to do with only working—

I think I know what you're referencing. There's one reporter that's really focused on there's no payback for the battery. If you were to use the battery to arbitrage the time of use of your rate plan, it would be a bad financial investment. So I think that's what you're referencing.

Yeah, so this is more of a comfort and security investment than it is a payback.

Exactly. So he's trying to get a financial payback on a backup system. And it just— you're comparing apples and oranges. The battery backup is competing against a generator. So if you want a backup solution, you have 2 choices. What flavor do you like? Flavor one, which is the generator, is dirty, high maintenance, noisy, and there's a chance that in the time of emergency, the fuel won't actually be available. OK. So that's option 1, take as much as you like. Option 2, a beautiful-looking thing stuck against your wall. You don't need to find a special place for it. Zero noise and instantaneous and always renews. So it provides you the energy. Then the sun comes out the next day, it recharges the battery and provides you the energy again. So that's option 2. Pick your flavor.

And—

But neither one talked about payback. But eventually, storage and solar, as soon as policy can change where you can actually provide those services to the grid, there will be a payback.

This was what I heard. If the grid goes down, the battery doesn't fire up.

Oh, that's wrong.

Oh, OK, good. Because I was thinking, why don't you just route around it and figure it out?

No, no, no, it's instantaneous. That's not correct.

Okay.

Oh, this is—

what would a deregulated utility landscape look like? Completely deregulated.

The East Coast is moving in that direction. Most of it is deregulated. The company still managing the lines is still regulated, and they're still a monopoly. You don't want to have too many lines going into the the neighborhood, so that's still the case. But I think that's where all utility businesses should go to. They should allow competition for the consumer. Who provides the best service to the consumer should win the consumer and sell them the energy. And then who actually generates the energy, may the lowest cost provider generate the energy. But if you have a utility that provides all 3, generation, transmission, distribution, and then actually owning the end customer, They're highly incentivized to inflate the cost. In fact, the only way they make money is by getting a regulated return on your cost. So, the more your cost, the higher your return. It's not a good incentive model.

Now, I can charge my phone by putting it on one of those tables with the— where the electricity goes through wirelessly. Is there any hope for that? I mean, I was thinking competition for the wire lines might be wirelessly sending electricity. How far off is that, and does that make any sense?

No, not yet. Ah!

So if there's a good entrepreneur out there, they're going to hear you and they're going to say, maybe we do that.

Then you're going to become the disruptive one, and then I'm going to leverage all my political power to stop you. That's not going to happen.