Solar City and Tesla Hatch a Plan to Lower the Cost of Solar Power

At an event hosted in New York this week by Solar City, CEO Lyndon Rive and chairman Elon Musk announced that within five to 10 years every set of solar panels that Solar City installs will come with a battery pack to help deal with the intermittency of solar power—one of the key factors limiting its use. Musk says his company Tesla Motors will supply at least some of those batteries.

Solar City, one of the largest solar panel installers in the United States, announced earlier this year that it intends to build the country’s largest solar panel factory in New York. The company currently installs and leases solar panels, and it already sells small battery packs for backup storage to some of its customers.

Rive and Musk, who are cousins, also said at the New York event that within the same time frame electricity from solar power would become cheaper in the U.S. than power produced from natural gas. To meet that target, the pair both plan to build two major manufacturing operations that will feed off each other. One of Musk’s other companies, Tesla Motors, announced plans earlier this month to build a vast factory for producing lithium-ion batteries in Nevada (see “Does Musk’s Gigafactory Make Sense?”). This factory will supply batteries for its electric vehicles as well as to Solar City. While some lithium-ion batteries and solar cells are made in the U.S. today, the vast majority are made in Asia.

Both companies’ manufacturing plans are ambitious but also risky, given the recent track record of U.S. energy companies, and because unexpected technology advances could quickly render the components produced in those plants outmoded. In the case of solar panels, there is also the continued threat of heavily subsidized competition from China. For both companies, the bet is that rapidly growing demand will allow new economies of scale to lower the cost of manufacturing these components, which in turn will lower the cost of solar power.

Although Solar City has only one small factory so far, it’s negotiating with New York State and potential partners to fund one about as big as the largest one in Asia. Rive says he plans to follow this with factories 10 times as large. At such a scale, assuming solar cell efficiencies can be steadily improved, the cost for installed solar panel systems would be cut by about half, from $2.30 per watt to $1.20, Rive says.

At full capacity, the battery factory that Tesla plans for Nevada would eclipse all of the current lithium-ion battery production in the world. Musk believes his factory will help lower the cost of batteries to less than $100 per kilowatt hour of storage—down from what analysts estimate is about $300 now.

Solar City only decided to get into the business of making solar panels, instead of just installing and maintaining them, this year. In June it bought a startup called Silevo that has technology that improves the efficiency of silicon solar panels without complicating manufacturing (see “Startup Silevo Scales Up Even As Others Shut Down”).

Other ambitious solar and battery projects have failed in recent years. The U.S. government attempted to foster an automotive battery industry, but demand failed to materialize and projects were abandoned or delayed. It also helped fund solar panel startups, including most notoriously the solar panel maker Solyndra, whose failure cost the government $535 million. Likewise, many venture capitalists have lost hundreds of millions of dollars on solar startups that haven’t been able to compete with cheap panels from Asia.

One key difference for Solar City is the technology it is using. Whereas Solyndra and others attempted to commercialize novel materials, Solar City is making a new kind of silicon solar cell. That should be easier because silicon manufacturing techniques are already well established.