Exceptional magazine: Americas edition, July 2013
The solar energy market is notoriously volatile, yet SolarCity is thriving. CEO Lyndon Rive explains why failure is no option
If Lyndon Rive knows how to stand still, he’s not letting on. The CEO of California-based energy company SolarCity drums his fingers on the desktop as he talks and jogs to and from meetings. He puts in an 80-hour workweek, and in his downtime he snowboards, kite surfs and plays underwater hockey - a little-known sport that involves jumping into a pool wearing a snorkel and hitting a lead puck.
He’s been chosen as one of the top innovators under 35 years old by MIT Technology Review and has set his sights sky-high for his company: to extend clean energy to every American home and business for less than dirty energy costs and give established utility companies a serious run for their money.
Today, solar energy supplies less than 1% of America’s energy needs.
It’s barely seven years since South African-born Rive co-founded SolarCity with his brother Peter (the company’s COO and CTO) and their cousin Elon Musk (CEO of Tesla Motors and SpaceX, and Chairman of SolarCity).
Yet the company went public in December 2012, bucking the trend for solar energy companies, and its stock has since more than doubled.
In recent years, a number of high-profile solar manufacturing start-ups have failed due to an increase in inexpensive panels from China. One of the main reasons for SolarCity’s success is that the company is a buyer, not a manufacturer, of solar panels.
Building an energy infrastructure
While other manufacturing companies were going out of business, SolarCity took advantage of these low-cost solar panels, as well as the ease of installing them, taking the up-front investment out of the equation for customers and charging a monthly fee that undercuts the utility companies.
It has gained investor confidence, says Rive, by meeting or exceeding every objective it has put in place. No doubt the interest of investors was also piqued by the fact that, prior to SolarCity, the brothers founded the industry-leading software company Everdream, which they sold to PC giant Dell in 2007 (making Lyndon a millionaire by the age of 30).
Still, the success of SolarCity is remarkable given the unconventional nature of its business model.
“Most people look at us and say we’re a solar installation company that does financing,” he explains. “Look at our balance sheet, look at our cash flow statement. We own all these systems, and we are building an energy infrastructure. So it’s not obvious to most that we are becoming an energy company.”
With more than US$1b of contracts already locked in for 20 years and plans to multiply its customer base, Rive intends to turn SolarCity into a significant energy company.
“We have a guaranteed recurring revenue stream for 20 years,” he explains. “We have cash flow coming to us every month, and if we decide not to invest in future projects, we still have this recurring revenue stream. So we are highly stable - almost as stable as a utility.”
The company’s growth has been fueled by financing from BofA Merrill Lynch and Google, as well as the 30% federal tax credit for solar installation that came into effect in 2005.
In fact, Rive admits, SolarCity couldn’t have existed without it. When the tax credit is reduced to 10% in 2017, it will present a challenge to the company, but Rive plans to make up the difference by reducing costs.
Breaking the monopoly
SolarCity currently has more than 3,000 employees and operates in 14 states.
The company chose them on the basis of three factors: how much customers there pay in utility rates, how much sun they get and whether there is a state incentive or rebate program.
In the immediate future, Rive sees the company’s biggest opportunities for growth lying in these states. While it has diversified into energy management, SolarCity’s primary focus is still selling electricity, and the market is huge.
In the longer term, it plans to expand into further states and internationally, but “where to?” is a question Rive wrestles with, and he admits he doesn’t know the answer yet.
Utility companies have had a monopoly on electricity sales for close to a century, and this is something he hopes to change. “There are many other solar companies,” he says, “but they are not our true competitors. The true competitors are the utilities.
Historically, customers have never had a choice. Now we are giving them a choice. I sell it cheaper and cleaner. They sell it more expensive and dirty. We’ll see who wins.”
We have to get to a point where we are selling more clean energy than dirty energy is being sold.
The utility companies may want to pay attention. Rive admits he is “extremely competitive. I have to win. Second place is a bad place to be.”
He attributes his success to “not taking ‘no’ for an answer, punching through the difficult times, not doing the fun things that your friends have done, and being willing to make those personal sacrifices such as canceling vacations - whatever it takes to get the job done.
“I was fortunate enough that my wife didn’t know anything else,” adds Rive, who married his high school sweetheart 12 years ago. “The only person she ever knew was the guy who runs companies, so in her mind, 80-hour workweeks are the norm. Elon works 100-hour workweeks, I don’t know how - that’s rough.”
Challenges Rive has had to overcome include obtaining a green card to work in the United States, a country he feels fosters entrepreneurial spirit better than anywhere in the world, though it’s ironic he was eventually granted a green card based on the fact that he and his wife were both members of the US national underwater hockey team, rather than his achievement in building a company (Everdream) employing 280 people. Another challenge was getting through the recession of 2008 and 2009.
“Today,” he adds, “the biggest challenge we have is growing. We’re hiring roughly 8 people a day; we need to ramp that up to about 14. We’re changing an infrastructure that took 100 years to build. This is not like software, where you can easily scale it; it requires infrastructure. Our challenge is to hire talented people.”
The company is focusing on key areas: residential sales and photovoltaic (the method of converting solar radiation into electrical power) installation and operations.
He is often asked where the company will go next. “What do you mean, next? This is it! I view the six years before we went public as training for the marathon. Most people who run want to finish and improve their personal time.”
“Very few people plan to actually win the marathon. But we have to win this marathon. We have to get to a point where we are selling more clean energy than dirty energy is being sold. I think we can do it in 26.2 years - that’s the length of a marathon.”
“If I could leave this world for my kids similar to the world I grew up in, that’d be a fantastic outcome. Not a better place - that’s too big a milestone,” he says, laughing. “Just not a worse place.”