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Climbing the solar mountain

SAN MATEO, Calif. – Lyndon Rive doesn’t look at solar energy as an alternative power source. ¶ He views it as the energy source of the future. ¶ If he’s right, solar energy someday could generate two-thirds of our electricity, shoving conventional fuel sources such as coal and natural gas, which now account for two-thirds of all current power generation, to a backup role powering generators that run only when supplies are tight. ¶ “It really can become the alternative source of energy and kick in whenever it’s needed,” Rive, co-founder and CEO of SolarCity, the nation’s leading installer of residential solar energy systems, said in an interview at the company’s headquarters here. ¶ “How big can it get? I’d say 60 to 70 percent of our energy needs,” said Rive, the native of South Africa who co-founded SolarCity with his brother, Peter, on Independence Day nine years ago. ¶ The choice of July 4 was no coincidence, Rive said. ¶ “We could have started any day. We chose this specific day to become independent of our fossil fuel dilemma,” Rive said. “My goal is to make fossil fuel the alternative energy source. I’m convinced we can achieve it.” ¶ With concerns growing about climate change – and the role greenhouse gas-emitting fossil fuels play in it – Rive said he sees solar energy as a solution. ¶ “It makes perfect sense. You want fossil fuel to be the alternative energy source.

You want it to back up and kick in the generator when you need it. You don’t want it to be constantly on. What you want to be constantly on is the sun, or wind or hydro.”

That’s a bold vision, especially considering that solar energy, despite its rapid growth in the last four years, is just a little player in the nation’s power-generating industry. Solar power today accounts for less than 1 percent of all generating capacity in the United States – compared with 38 percent for coal and 28 percent for natural gas – according to the latest data from the U.S. Energy Information Administration.

Faced with a tall order

Even though solar has been growing rapidly – accounting for almost a third of all new electric generating capacity installed in the United States last year, second only to low-cost natural gas, according to Greentech Media and the Solar energy Industries Association – supplanting fossil fuels from the power grid will be a tall order.

Then again, the Rive brothers – and their cousin, and SolarCity chairman, Elon Musk – have never been afraid of taking bold steps.

Their mothers are twin sisters, and the cousins all shared an entrepreneurial bent. Musk made his way to California in the late 1990s and went on to become a founder of what became PayPal. He later launched SpaceX, a space travel and cargo company, and went on to found electric car maker Tesla Motors.

The Rives followed not long after. A world-class underwater hockey player, Lyndon Rive first traveled to California in 1998 as a member of the South African national team, competing in a sport where players hold their breath for as long as they can and use foot-long sticks to move a puck on the bottom of a swimming pool.

Rive liked California, so he went back to South Africa and sold the business he had started in high school selling homeopathic medicine. Deciding against going to college, he returned to the United States two years later and worked with Peter and his older brother, Russell, to launch the information technology services company Everdream. It eventually grew to almost 300 employees, but its success didn’t prevent Rive from almost being sent back to South Africa when his visa was running out, not long after the terrorist attacks of Sept. 11, 2001.

That’s where underwater hockey proved to be even bigger to Rive than he could have imagined.

Both Rive and his wife, Madeline, were skilled underwater hockey players, and with deportation looming, they learned of an exemption in U.S. immigration law that made it possible for artists, athletes, musicians and others with “exceptional ability” to stay in this country longer. Rive, who later played for the U.S. national team, and his wife both applied for the exemption, but Madeline, who played for both the U.S. and South African underwater hockey teams, was the only one accepted. Still, Rive, as her spouse, also was allowed to stay, giving him the time to earn his green card and, ultimately U.S. citizenship.

Amid the visa process, the seeds for SolarCity were planted. It happened in 2004, during a talk between Rive and his by-then-successful cousin, Musk, as the cousins were driving to the Burning Man Festival, an art and free-spirit gathering held each year in the Nevada desert.

By then, Musk already had co-founded PayPal and sold it to eBay in 2002 for $1.5 billion. As they drove, Musk suggested that they look into the solar industry.

Making solar affordable

Rive and his brother, who also worked at Everdream, spent almost two years researching the solar industry. They decided the best opportunity wasn’t in the highly competitive business making solar panels or other equipment. It was in delivering solar energy to consumers, and on Independence Day 2006, they launched SolarCity.

A year later, they sold Everdream to Dell Inc. for $120 million, allowing them to focus solely on their new solar energy venture.

With Musk, now SolarCity’s chairman and biggest shareholder, as an early financial backer, the company came up with a novel way of selling solar energy systems that made it affordable for everyday homeowners, as well as businesses, from Walmart to Intel.

At the heart of SolarCity’s business is a program that allows consumers to lease the solar energy systems installed on their rooftops in a financing arrangement that requires no upfront investment on their part. Instead, SolarCity bears the upfront costs and is repaid over a 20-year period as excess electricity generated by the solar array is sold back to the local utility, typically at retail prices that outpace the cost of generating the power. It rolled out a similar program for small- and medium-size commercial customers earlier this week.

“We were convinced that if we made solar affordable, and make it easy to adopt, that the adoption rates would be high,” Rive said. “Why wouldn’t you do that? If you had a choice of paying more for dirty energy or less than clean energy, which one would you take. If you can make that process that simple, then everyone should eventually flock to solar.”

Potential for ‘a lot of growth’

Not everyone shares Rive’s vision about solar overtaking fossil fuels. The U.S. Energy Information Administration, in a report issued in April, projected that solar still will account for just 2 percent of all U.S. power generation by 2040, even though the amount of electricity generated from solar will have increased almost six-fold during that time. Its projections have coal and natural gas still being used to generate nearly two-thirds of the nation’s electricity in 2040.

A revised projection from the EIA in May, which includes President Obama’s efforts to fight climate change, took a more optimistic view of solar and other renewables. It forecast that coal’s role in power generation could drop by nearly a third from its April prediction. Natural gas use initially would replace lost coal, with wind power and other renewable energy sources taking a greater share of U.S. electricity production in later years, the EIA said.

Others, see a vast market for the solar industry. With less than 1 percent of the current power-generating market, the demand for solar energy is robust, with the systems making economic sense in 32 of the 50 states, mostly those with the highest electric bills, said Patrick Jobin, an analyst at Credit Suisse. He notes that solar energy costs have dropped by 40 percent during the past four years, and costs are likely to keep falling as the industry grows and new financing options reduce borrowing costs.

Shalye Kann, a senior vice president at GTM Research, estimates that there currently are about 9 million homeowners who have sufficiently strong credit, a solar-friendly roof that is largely unshaded and faces to the south or west, and live in one of the 20 states that currently have a meaningful solar market. With just 700,000 individual residential solar installations completed industrywide so far, Kann estimates that SolarCity and its competitors have tapped just 7 percent of the potential market.

“Clearly, there’s a lot of growth that could occur there,” said Kann, who detailed his projections during an industry conference in April.

The vast, untapped solar market, coupled with SolarCity’s own break-neck growth pushed the company to acquire Silevo, the fledgling Silicon Valley high-efficiency solar panel manufacturer, for up to $350 million last year. With that deal, SolarCity inherited Silevo’s plans to build a solar module factory in Buffalo. SolarCity immediately increased the scale of the Buffalo factory to an annual capacity of 1 gigawatt – five times its original size – and reached a deal with state officials to bring 2,900 jobs to the region, with roughly half at the factory and half at its suppliers and service providers, in exchange for a $750 million state investment to build and acquire the equipment for the plant.

High-volume production

SolarCity, by venturing into manufacturing, hopes to drive down its costs and make its solar energy systems less reliant on federal and state incentives to compete against utility-generated power. It also wants to create its own in-house source of solar panels, using a technology that promises to be more efficient at converting energy from the sun’s rays into electricity than most of the panels used today.

The company will need enough panels to generate 920 megawatts to 1 gigawatt of electricity on the solar energy systems it expects to install this year alone – a full year before the Buffalo factory is scheduled to hit full production in 2017.

Musk is a big fan of high-volume production. His Tesla Motors business is building a giant battery factory in Nevada to help reduce the cost of the electric cars it sells to compete with conventional vehicles. And the factory’s batteries also can be used to store the electricity generated by SolarCity’s rooftop solar systems – a combination that the two companies recently rolled out. The batteries could let homeowners use power from solar panels at night.

“If we don’t do this, we felt there was a risk of not being able to have the solar panels we need to expand the business long term,” Musk said during a conference call last year to discuss the Silevo acquisition. “We’re seeing high-volume production of relatively basic panels but not high-volume production of advanced panels, so we think it’s important that the two be combined.”

Ambitious expectations

Rive doesn’t see SolarCity’s growth stopping.

“Our limit will be our growth,” he said. “Our limit will be how many people can we hire? How many people can we bring on? How many people can we train? That’s our limit.”

And he doesn’t think SolarCity, with its rapid growth and its expansion into new areas, such as the Buffalo manufacturing plant, is biting off more than it can chew.

“We do so much volume that I don’t think there’s anyone better than us. So it’s like, do we lose our secret sauce? No,” Rive said.

But that doesn’t mean he doesn’t worry.

“It’s not easy,” Rive said.

“The growth worries me. The competition worries me,” he said. “I think the paranoid survive.”

email: drobinson@buffnews.com