Tesla-SolarCity

Multinational Corporation · Customer Aquisition

Islands have been considered prime candidates for renewable energy microgrids from market inception. To date, solar-storage and other types of distributed, hybrid systems have been installed on Hawai’i, the South Pacific, Indian Ocean, Mediterranean, Atlantic and Caribbean islands, but the market is really just beginning to take on well-defined shape and form.

Tesla-SolarCity

Along parallel lines, Tesla made waves in the power and energy industry last year when it announced its modular stationary Powerpack and Powerwall lithium-ion battery (LiB) energy storage systems. More recently, shareholders approval of Tesla’s acquisition of SolarCity creates a vertically integrated corporation capable of manufacturing, designing, engineering, installing and financing solar-storage microgrids from the residential to utility-scale.

Announcements made in recent weeks makes it clear that Tesla has been working to win LiB storage and solar-storage microgrid contracts worldwide for some time. 

Islands in the Sun – The Tesla-SolarCity Flagship Island Microgrid Project

Tesla-SolarCity Island MIcrogrid

*KIUC

Tesla and SolarCity have been collaborating on solar-storage microgrids from the start. Back in 2015, the two companies entered into one of the first utility solar-storage power purchase agreements (PPA) in the U.S. with Kaua’i Island Utility Cooperative (KIUC).

Designed to provide emissions-free electricity from local solar, hydro and biomass day and night at $0.14 per Kwh, more than 50 percent lower than the average $0.33 retail cost of electricity in the state.

At the time, KIUC, Hawai’i’s only member-owned electric utility, said it expected local renewable energy resources would provide 37 percent of electrical power generation in 2016.

SolarCity, which had been chosen to supply the solar PV for the KIUC project, announced Tesla would supply the 13 MW/52 MWh Powerpack lithium-ion (Li-ion) battery-based energy storage solution that will enable solar energy from a PV array to be stored and dispatched to KIUC’s grid to ¨shave¨ peak demand in the evenings from 5-10 pm.

In the South Pacific, the Mamanuca Group and PowerSmart earlier this month unveiled the initial configuration of a solar-storage microgrid that ultimately is to provide all the electricity for Vunabaka, a new luxury resort and residential complex on the Fijian island of Mamolo.

Consisting of 20 Tesla Powerpack lithium-ion battery energy storage modules (4 MWH), and 1 MW of solar PV, the mini-grid entered an initial phase of production in October, providing emissions-free electrical power for freshwater supply, staff quarters, a commercial kitchen, boat shed and several multimillion dollar residences.

Island Microgrids: Can Tesla-SolarCity tip the market? 

Tesla-SolarCity are also providing the solar PV and LiB energy storage capacity for a utility microgrid on the island of Ocracoke off the North Carolina coast.

Connected to North Carolina Electric Membership Corporation’s power plant, the solar-storage microgrid will serve as a field lab to test the ability of the microgrid to better serve the community, as well as enhance Tidewater’s larger grid operations. “We’re setting up here for the electricity of the future,” NCEMC project manager Bob Beadle was quoted in a news report.

“This is a learning laboratory for Tideland,” added spokesperson Heidi Jernigan Smith. “We’re exploring the potential for a microgrid.” She added that Ocracoke’s challenging coastal environment offered an ideal experiment site.”

When connected to the grid, the batteries are charged during periods of low demand and store energy. The electricity is available to the grid when demand peaks and power is more expensive. While the batteries do not have the capacity to power Ocracoke during an outage, they will be able to assist the generator.

“The Tesla batteries could potentially help us get over that start-up load,” Smith said. “It will be interesting to learn what benefits can be derived from the various microgrid components over time,” Smith elaborated. “This is new territory for everyone…We’re gaining valuable information for the future.”

In ‘Before The Flood,’ Elon Musk tells Leonardo DiCaprio that just 100 Gigafactories would be enough to move the entire world to sustainable energy.  While critics scoffed, Tesla and SolarCity were busy building the prototype.

Just days after the Tesla-SolarCity merger was finalized, SolarCity announced a microgrid in T’au.  The island in American Samoa now runs on nearly 100% solar energy with over 5,300 solar panels & 60 Tesla Powerpacks.  According to SolarCity CEO Lindon Rive, “Ta’u is not a postcard from the future, it’s a snapshot of what is possible right now. Renewable power is an economical, practical solution for a growing number of locations and energy needs, and islands that have traditionally relied on fossil fuels can easily transition to microgrids powered by solar and storage today.”

Islands are an attractive and somewhat obvious market for renewable energy microgrids.  First, islands are microgrids by default, having no grid connection to a larger grid.  Like other remote areas, islands struggle with the high cost of transporting diesel fuel to run their conventional energy infrastructure.  As seen on postcards, many islands have some of the best solar resources in the world.

The microgrid provides around-the-clock power to the 600 residents of Ta’u.  The microgrids batteries charge during the day making the solar energy available at night.

Tesla Powerpacks

The project was funded by the American Samoa Economic Development Authority, the Environmental Protection Agency, and the Department of Interior, and is expected to allow the island to save significantly on energy costs. The system is expected to offset the use of more than 109,500 gallons of diesel per year. Factoring in the escalating cost of fuel, along with transporting such mass quantities to the small island, the financial impact is substantial.

The Ta’u Microgrid is a substantial step towards Musk’s goal of simplifying the buying process of a microgrid.  “Just because a product is big doesn’t mean the whole process needs to be complex. Bigness and complexity are not the same thing. Our utility customers have been quite pleasantly surprised by just how easy it is to implement. And it’s going to get a lot easier in the future.”

In a  recent investor call, Musk insisted that utilities and large corporate customers appreciate fast, simple, and easy purchase options as much as regular consumers.  “They don’t have to go through this big laborious process that’s a pain in the butt for them.  It blows their mind when they can just click a button and then we install their [microgrid] and it works.”

This represents Musk’s affinity for productizing things.  “I think it’s always good to productize things — you can click here and buy your microgrid versus having a tailored situation for all over the place. If you can productize it, it can happen so fast. I think that productizing a microgrid — just click here and get a microgrid and it just works — I think that’s a good way to go.”

TESLA Makes Bid To Buy SolarCity To Become Vertically Integrated Clean Energy Company

TESLA made a surprise offer today to acquire SolarCity in an effort to become a vertically-integrated clean energy provider.  Noting that their mission has always been sustainability, TESLA notes that while they offer electric vehicles and energy storage, their customers “still need access to the most sustainable energy source that’s available: the sun.”

SolarCity and TESLA have partnered in the past including the world’s first Solar-Storage PPA, the CEO of SolarCity, Lyndon Rive is Elon Musk’s cousin and Elon Musk himself is heavily invested in the company.  It is unlikely that the offer comes as a surprise to SolarCity’s leadership, and seems likely that the deal has already been agreed to behind the scenes.

The merger would allow Tesla to offer “click-to-buy-microgrids” for large corporations, communities, and electric utilities.

SolarCity’s stock went up nearly 20% in after-hours trading following the announcement while TESLA shares have plunged.  Though shareholders are spooked, TESLA suggests the following benefits to shareholders, customers and employees if the deal goes through:

  • We would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers. This would start with the car that you drive and the energy that you use to charge it, and would extend to how everything else in your home or business is powered. With your Model S, Model X, or Model 3, your solar panel system, and your Powerwall all in place, you would be able to deploy and consume energy in the most efficient and sustainable way possible, lowering your costs and minimizing your dependence on fossil fuels and the grid.
  • We would be able to expand our addressable market further than either company could do separately. Because of the shared ideals of the companies and our customers, those who are interested in buying Tesla vehicles or Powerwalls are naturally interested in going solar, and the reverse is true as well. When brought together by the high foot traffic that is drawn to Tesla’s stores, everyone should benefit.
  • We would be able to maximize and build on the core competencies of each company. Tesla’s experience in design, engineering, and manufacturing should help continue to advance solar panel technology, including by making solar panels add to the look of your home. Similarly, SolarCity’s wide network of sales and distribution channels and expertise in offering customer-friendly financing products would significantly benefit Tesla and its customers.
  • We would be able to provide the best possible installation service for all of our clean energy products. SolarCity is the best at installing solar panel systems, and that expertise translates seamlessly to the installation of Powerwalls and charging systems for Tesla vehicles.
  • Culturally, this is a great fit. Both companies are driven by a mission of sustainability, innovation, and overcoming any challenges that stand in the way of progress.

TESLA’S OFFER TO BUY SOLARCITY

June 20, 2016

Mr. Lyndon R. Rive Chief Executive Officer SolarCity Corporation 3055 Clearview Way San Mateo, CA 94402

Dear Lyndon:

We are pleased to submit to you and the SolarCity board of directors a proposal to acquire all of the outstanding shares of common stock of SolarCity in exchange for Tesla common shares.  Subject to completing due diligence, we propose an exchange ratio of 0.122x to 0.131x shares of Tesla common stock for each share of SolarCity common stock. This proposal represents a value of $26.50 to $28.50 per share, or a premium of approximately 21% to 30% over the closing price of SolarCity’s shares, based on today’s closing price of SolarCity’s shares and the 5-day volume weighted average price of Tesla shares. We believe that our proposal offers fair and compelling value for SolarCity and its stockholders, while also giving SolarCity’s stockholders the opportunity to receive Tesla common stock at a premium exchange ratio and the opportunity to participate in the success of the combined company through their ongoing ownership of Tesla stock.

The board of directors of Tesla is excited at the prospect of a potential combination of SolarCity’s business with Tesla. We believe that the possibilities for product, service and operational synergies would be substantial, and that a combination would allow our companies to build on our respective core competencies and remain at the forefront of delivering innovative approaches for sustainable transportation and energy. We believe that a combination would generate significant benefits for stockholders, customers and employees of both Tesla and SolarCity.

We are committed to a possible transaction that is fair to SolarCity’s and Tesla’s respective stockholders.  To help ensure that, Tesla is prepared to make the consummation of a combination of our companies subject to the approval of a majority of disinterested stockholders of both SolarCity and Tesla voting on the transaction. In addition, as a result of their overlapping directorships, Elon Musk and Antonio Gracias have recused themselves from voting on this proposal at the Tesla board meeting at which it was approved, and will recuse themselves from voting on this proposal at the SolarCity board as well.  We believe that any transaction should be the result of full and fair deliberation and negotiation by both of our boards and the fully-informed consideration of our respective stockholders.

Our proposal is subject to the satisfactory completion of due diligence, the negotiation of mutually agreeable definitive transaction documents, and final approval by the Tesla board. While a transaction would be further subject to customary and usual closing conditions, we believe that Tesla is well positioned to negotiate and complete the transaction in an expedited manner. We do not anticipate significant regulatory or other obstacles in consummating a mutually beneficial transaction promptly.

In light of Elon Musk’s SEC disclosure obligations in his individual capacity as a stockholder of SolarCity this proposal will be publicly disclosed, but Tesla’s intention is to proceed only on a friendly basis.

We look forward to discussing a potential transaction with you, and hope to expeditiously enter into a definitive agreement.

Sincerely,

The Board of Directors of Tesla Motors, Inc.

SolarCity and Tesla Package First Solar-Storage PPA To Deliver Solar Energy On Demand in Kaua’i

Solar energy, which is increasingly the cheapest source of electricity is now addressing its’ Achilles heel by combining batteries that can discharge on demand. SolarCity and Tesla have introduced the solar-storage PPA at an affordable rate for member-owned KIUC in Hawaii.

.14Price of Solar-Storage PPA (KWH)
.33Retail Price of Electricity In Hawaii (KWH)

Kaua’i Island Utility Cooperative (KIUC) has been at the forefront of the wave of technological change and policy/regulatory reform that’s sweeping across the U.S. and power industry and markets worldwide. Thirty-seven percent of electricity generated on Kaua’i will come from solar, hydro and biomass power generation in 2016, according to KIUC, the only member-owned electric utility in Hawai’i.

What’s billed as the U.S.’ first utility-scale solar PV-energy storage system is to be a big contributor. SolarCity on February 16 announced that it had selected sister company Tesla to supply the 13 MW/52 MWh Powerpack lithium-ion (Li-ion) battery-based energy storage solution that will enable solar energy from a PV array to be stored and dispatched to KIUC’s grid to ¨shave¨ peak demand in the evenings from 5-10 pm.

More efficient and less costly than relying on natural gas-fired ¨peaker¨ plants, the grid-connected solar-energy storage system will reduce KIUC’s use of imported fossil fuels it had been using to fire diesel generators, thereby cutting costs and lowering greenhouse gas (GHG) emissions.

Emissions-Free Power Grid Emerging on Kaua’i

As per the terms of a 20-year power purchase agreement (PPA), KIUC is to pay $0.14/kWh for the emissions-free renewable power SolarCity’s solar-energy storage system dispatches to the grid. That’s ¨only slightly¨more than KIUC pays for clean power from two 12 MW SolarCity PV arrays that aren’t able to dispatch electricity on to the grid in the evenings, management notes. To be built on 52 acres of land owned by Grove Farm Co., the 52 MWh solar-energy storage system is situated adjacent to KIUC’s Kapaia power station just north of Līhu‘e, which will simplify and reduce the cost of grid interconnection.

*Tesla

“SolarCity is excited to bring the first dispatchable solar storage system to the island of Kaua‘i. Hawai‘i has been and continues to be at the forefront of new technology and research for solar and storage,” SolarCity director of Policy and Energy Markets’ Jon Yoshimura was quoted. “This solution will allow for more efficient load balancing and will reduce dependence on fossil fuel-based power.”

One of 930 electric co-ops serving more than 36 million members in 47 states, KIUC serves 33,000 customers on Kaua’i, Hawai’i’s northwestern-most island with a major population. KIUC currently has 10.5 MW of battery-based power storage capacity on its grid. That includes 6 MW of storage from a Li-ion battery system at the Anahola solar array.

The pioneering SolarCity project awaits approval from the Hawai’i Public Utilities Commission, having received most of what’s required at the county and state levels. KIUC and SolarCity have requested an accelerated review process so that construction can commence in April and be in commercial operation by the end of the year.

Tesla’s CEO and chairman of SolarCity Elon Musk is leading a grand strategic vision that entails the two corporations working together very closely to fuel the evolution of a distributed clean energy future for society. SolarCity awarding Tesla the Kauai’i energy storage contract might raise some ethical questions, however.

SolarCity sought to assuage any such concerns in its press release, stating that the contract had been awarded after it had conducted ¨a comprehensive competitive solicitation in the battery marketplace.¨

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