by Julian Spector
November 05, 2019

Any business venture involves some degree of faking it until making it; a company must stake out a vision for something new, then go out and make it real.

The gap between the promise and delivery then becomes a barometer for the company's credibility. As I covered recently, Tesla's hotly anticipated solar roof has, thus far, remained more in the realm of promise than delivery. The product Elon Musk originally showed off to investors turned out not to be real, and Musk lately revealed that the units his company supposedly had been installing the past three years weren't really up to snuff. Now Tesla has jumped to Version 3, and it's great — if you trust the company line.

As it turns out, some readers got a bit testy when I pointed out that the solar roof has a poor track record of coming into existence. They called it bias, or a cynical cover for short-selling, or something. I see it as the application of history and market context to a product that has been attempted many times over and never satisfactorily accomplished.

Indeed, Musk inched closer to recognizing the vastly difficult task of commercializing a solar roof tile when he got around to relaunching the product, a day after he said he would. He revealed that Tesla is open to partnering with existing roofing companies to carry out the installations. That avoids the very plausible strategic blunder of insisting on fully in-house installations, which would force Tesla to become a national roofing company on top of manufacturing and delivering cars and building stationary energy storage. The solar roof has endured enough delays in getting to market; it doesn't need another bottleneck from arbitrarily limiting the population of roofers allowed to touch it.

The recognition that launching the solar roof has "been quite hard" does not address a separate concern: that Tesla has done a lousy job running a conventional solar business. 

It inherited the rooftop solar market leader when it acquired SolarCity, and in the years since, Tesla has turned it into a distinctly less impressive competitor. Tesla's Q2 solar installations dropped to nearly one-tenth of SolarCity's peak quarterly deployment, suggesting that Tesla literally decimated the business, even as the rest of the residential market posted modest growth. The looming question for Tesla is this: If conventional solar is so hard for the company, how can it pull off an even harder version?

One might counter that the decline of SolarCity had more to do with Tesla's existential struggle to launch the Model 3 than with its management prowess. With Model 3 shipments in record-breaking territory (though still potentially short of the annual target), now could be the time for a renewed push on solar.

Tesla's energy storage business has taken a markedly better trajectory than its solar unit over the last few years. The company already shipped a remarkable 1,121 megawatt-hours of stationary storage this year. Two factors are crucial to understanding this disparity in energy ventures.

First, Tesla's storage product evolved directly out of the core electric vehicle product. Solar power fits conceptually with the clean energy brand, but has little to do with the business of building cars or engineering cheap and reliable battery packs.

Second, rooftop solar is a largely commodified space where one company's product isn't that different from another's. That's a different situation than Tesla's cars, which beat the competition soundly on style and substance, and the batteries, which set the benchmark for cost-effective home storage.

The solar roof does not change the structural relationship between solar and the rest of Tesla's business activities, but, if it actually exists as promised, it would set Tesla Energy apart from the crowd of conventional rooftop installers and manufacturers.

That was the promise embedded in the flashy 2016 launch of the product, right before shareholders voted on the SolarCity acquisition. Three years have passed, and that promise remains just a bit out of reach.

Meanwhile, in Austin...

Last week I got to reflect on another product that launched around the same time as the original Tesla solar roof — but this one actually materialized. That would be Greentech Media's Power & Renewables conference, which set out to make sense of how increasing wind and solar power alters the broader power markets.

It was a bit of a gamble at the outset, an attempt to pair GTM Research's knowledge base with the resources of then-new parent company Wood Mackenzie. But the years since have proven the premise increasingly vital: Renewables really are colliding with the grid's market structures in ways that could not have been anticipated just a few years ago.

We're now up to seven states plus Washington, D.C. and Puerto Rico that have made legal commitments to carbon-free grids. The installed wind capacity in the U.S. surpassed 100 gigawatts this week; solar power zoomed past 2 million installations this spring. And that process is playing out globally — as we covered last week, eight other countries besides the U.S. have cracked the $25 per megawatt-hour solar price point. These zero-marginal-cost resources are putting pressure on market designs built around thermal generation, and nobody seems to be in a hurry to update the rules.

With that in mind, here are takeaways from the analysts and industry leaders who spoke in Austin last week. And if you want the full experience, Squared subscribers can watch all the panels in high-definition digital video; they'll be up later this week.

Mexico market on hold

We've previously covered how Mexico jumped to the forefront of global solar markets with market reforms that brought competitive auctions and record-low prices to its decidedly sunny landscape. With those hundreds of megawatts coming along, energy storage for renewables integration was supposed to be not far behind.

Then Andrés Manuel López Obrador won the presidential election last year and put all that on hold.

We hosted a Mexico solar event before the Power & Renewables conference, and the key theme was how to manage uncertainty with the auctions canceled and the energy sector reforms brought to a halt.

The previously awarded solar and wind projects are still coming online, but no new major deployments are likely to get started anytime soon. The work of large-scale renewables development has shifted to the policy arena, where the industry must find a way to convince the administration that world-class clean energy is a good thing to have.

Another idea that needs correction: Some in the AMLO administration believe that, since renewables are inconsistent generators, they should be paired one-to-one with thermal generation. In fact, Mexico has plenty of capacity, and even more thanks to the government's efforts to keep old, expensive plants running longer. With the influx of new renewables stymied and no shortage of dispatchable capacity, it's hard to visualize the flourishing of Mexican energy storage that once seemed possible.

The only bright spot would be the large commercial and industrial market. After all, that's where the first grid-scale battery in Mexico came to market, backing up a car-factory microgrid in Monterrey. As more companies seek clean energy, power quality and a way out of expensive utility rates, that project may become the model for getting storage built. It's certainly the best option at the moment.

Green hydrogen: Maybe a real thing?

It's easy to view hydrogen with some healthy skepticism, especially after tracking Eric Wesoff's serial roundups of the most profitable fuel cell companies, lists which always ended up blank.

But I became convinced to give the technology a second look after watching WoodMac analyst Ben Gallagher's research presentation on the topic. It won't be a major economic force anytime soon, but there is some serious potential there.

The premise is that renewable power can fuel electrolyzers that create carbon-free hydrogen. This store of energy can then be used, in theory, to decarbonize nearly any imaginable process, in the same way that energy storage theoretically is able all those things shown on the famous Rocky Mountain Institute color wheel.

The first problem is that the electrolyzers have such miniscule market penetration today that most key ingredients are still made by hand. But the Paris climate accord kicked off a wave of corporate interest in piloting the technology, and the contracted pipeline for the next five years is 12 times larger than the cumulative installed capacity by Ben's count.

The longer-term challenge is that electrolyzers that only charge from the periodic bursts of surplus renewables will not be economic relative to steam methane reforming, the incumbent, carbon-intensive technique for producing hydrogen. Hydrogen also likes to escape captivity, so there are some questions about roundtrip efficiency when power is converted to hydrogen storage, moved around and later returned to electricity. 

So this won't rival lithium-ion for storing renewables anytime soon, but keep it on the horizon for the following decade. With the right application of manufacturing scale and innovation, this could pick up some tasks that are harder for electrical storage to handle.

High-profile flow battery funding

Nothing happens in a vacuum, though, so the decade it takes for green hydrogen to scale up may be enough time for flow batteries to prove their worth in the marketplace. 

A few big investors signed onto that vision last week. Iron flow company ESS raised $30 million from Bill Gates-backed Breakthrough Energy Ventures and Masayoshi Son's SB Energy (a renewables subsidiary of SoftBank), as well as a few others. 

The cash represents a vote of confidence in the long-simmering technology, which ESS has been cultivating since 2011 with research grants and a lean supply of venture capital. The company has avoided the cycle of outlandish claims and premature bankruptcy that sank several of its competitors. Bill Gates himself has familiarity with that process as an investor in failed saltwater battery company Aquion and compressed air tank startup LightSail Energy.

ESS still needs to prove it can close business at the megawatt scale, and the company says it will break that threshold in the coming year. If it keeps going and delivers long-duration storage based on iron and water, we can save the green hydrogen for more rarified tasks than grid storage. Until then, try the green hydrogen vs. flow battery matchup at your next industry happy hour.