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Rooftop solar is a prime example of free market development

Lyndon Rive

Lyndon Rive

I want to respond to APS CEO Don Brandt, and what he wrote in a recent opinion piece in another publication last week entitled “APS serves Arizona. Solar guys? Not so much.”

He describes our business model as being overly reliant upon subsidies. But there is no bigger subsidy than the monopoly status granted to APS and other utilities, which are given a guaranteed rate of return and a captive customer base.

Utilities are all subsidy. They do not need to make an effort to attract customers by striving to deliver the best product. If they faced competition they would not earn 10% returns. Their returns would drop to market rates closer to 6%. This difference between these numbers is a massive subsidy.

Guaranteed profit removes any incentive to cut costs, improve efficiency, improve service, or develop innovative products and services. Telecommunications is another example of an industry that stagnated for decades under cost of service regulation, and it wasn’t until competition was introduced that we got the innovation that ultimately brought us the iPhone, the app economy, and better products than we could have ever imagined.

Meanwhile, rooftop solar is one of the most free market developments in the history of U.S. electricity. It has offered American consumers one of the first meaningful choices they’ve ever had when it comes to electricity. While solar is federally subsidized, it is largely driven by consumer choice, and in places like Arizona and California, it has scaled to such an extent that it no longer relies on state incentive programs. Today, our success or survival depends largely on the quality of our products and our service.

SolarCity needs to reduce its operating costs by a minimum of 5% each year in order to remain competitive. Meanwhile APS refuses to reduce its own costs to account for a tiny 0.73% revenue loss. It insists on asking others to fix the problem of its competition. So which company is the one resting on its laurels, living high off the hog on subsidy?

Mr. Brandt criticizes my company’s service, accusing us of aggressive sales tactics. SolarCity offers full transparency to our customers. Every one of our customers knows what they are going to pay for the solar energy or lease for the next 20 years. No utility offers this transparency. A utility can change pricing and force its customers to pay it. A rooftop solar company would never be able to do this to its customers.

SolarCity has been a recognized name in Arizona solar since 2008. When people go solar, it is highly likely that they are not the first people they know to do so. Referrals are a key sales strategy for the solar companies, and people will not refer your company if they are not happy with your service. I urge you to give the people of Arizona some credit—they know how to make smart investments for their families. They also care about the positive impact of going solar. Thousands of them have taken the time to contact the Arizona Corporation Commission over the years to tell the commissioners how they feel about issues important to solar in Arizona. No customer base is 100% satisfied, but ours is largely satisfied, and passionate.

Finally, Mr. Brandt didn’t respond to the central point of my Arizona Republic column: that APS’ displeasure at losing 0.73% of its annual revenue to rooftop solar, while making no effort to reduce its costs to make up for it, does not justify policies that would not allow Arizonans to go solar, or would not allow them to keep their jobs. I still hope for a response on this question, as do the 9,000 people who live in Arizona and work in its solar industry.

— Lyndon Rive is founder and CEO of SolarCity.

2 comments

  1. “Guaranteed profit removes any incentive to cut costs, improve efficiency, improve service, or develop innovative products and services.”

    Not only that, but APS’s guaranteed profit, its guaranteed rate of return on ‘capital improvements,’ is a perverse incentive for APS to waste money on expensive, unneeded projects like the “smart” grid boondoggle.

    It is also ironic that APS can whine about a 0.73% revenue loss yet APS has millions to throw at politics and “charitable donations” (which are just more influence peddling).

    And last I checked, Don was making over $10M per year — to run a business with no competition. What a sad joke on Arizonans!

  2. Mr. Rive’s claim that “Meanwhile, rooftop solar is one of the most free market developments in the history of U.S.” is completely preposterous. Solar gets a 30% federal subsidy, NET metering subsidies (forcing utilities to over pay by a factor of ~3 for solar energy) and various mandates which force utilities to use solar. Roof top solar is actually one of the least free market developments in the industry.

    Solar is crony capitalism at its worse and Solar City is drinking deep from the trough.

    The DOE’s report show solar to be about 3x too expensive to be viable without subsidies in sunny states like Arizona. See: http://www.eia.gov/forecasts/aeo/electricity_generation.cfm
    But compare levelized cost of solar to variable O&M of traditional plants to make a correct comparison.

    Read this to understand that subsidies to solar are not only a waste of resources, but counterproductive to finding real solutions to our energy challenges:

    http://www.thebigquestions.com/2012/08/06/paging-diogenes/

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