Given that growth, it’s somewhat surprising to learn that Kennedy and Sungevity aren’t taken very seriously by their larger competitors. Kennedy’s activist past and his willingness to wear his commitment to the solar industry quite literally on his sleeve are viewed by some as a liability in an industry desperate to demonstrate its seriousness. Thanks to increased Chinese production of photovoltaic panels, innovative financing techniques, investment from large institutional investors and a patchwork of semi-effective public-policy efforts, residential solar power has never been more affordable. But even with pricing that requires no initial capital outlay from consumers and guarantees lifetime savings — and even occasional opportunities to make money, by selling power back to the grid — Americans still aren’t buying into solar in significant numbers.
Two factors have hurt the industry’s growth. The first is abstract and well ingrained in the American psyche: the negative association of “green” technologies with inefficiency and idealistic, hippie-fueled impracticality. The second is concrete and recent: the sleek, vacant headquarters of Solyndra, the infamous federally subsidized solar-panel manufacturer that went bankrupt in 2011. The glassy campus sits just off the Nimitz Freeway, visible to commuters between San Francisco and Silicon Valley as they battle rush-hour traffic each morning, surreptitiously checking their phones.
Though the failure of Solyndra has dominated the political and social discourse around solar power, the reality of the industry — as evidenced by the enormous investments that companies like Google and Bank of America are making in residential solar power — is that it has rapidly become a smart, practical and profitable investment. Despite a lack of widespread acceptance, the market is growing and the competition is getting tight.
Where Kennedy will ultimately fit into all of this remains to be seen. He told me: “We don’t need missionaries anymore. We need mercenaries.” As the industry grows, big investments don’t necessarily flow toward the people with the deepest environmentalist roots. No matter how much orange Kennedy wears or how dedicated to corporate branding he appears to be, his bleeding heart still shows through. Missionary, mercenary: can he — can anyone — be both?
Of the residential solar-power companies with national aspirations, Sungevity is among the smallest in terms of market share. Sunrun, one of the market leaders, is led by Lynn Jurich and Edward Fenster, two Stanford Business School graduates who got into the business, as Jurich told me, in part because “the numbers worked.” SolarCity, another market leader, was founded by the brothers Lyndon and Peter Rive; Lyndon had previously founded Everdream, a software company that was eventually bought by Dell. The venture is also backed by Elon Musk, the Rives’ cousin and more notably a founder of PayPal; Tesla, the electric-car manufacturer; and SpaceX, a private space-exploration company. In 2004, Lyndon Rive was in a car with Musk on the way to Burning Man in Black Rock Desert, Nev., when the idea of getting into the solar business first hit him. (SolarCity also has a commercial solar-power business and is planning an initial public offering later this year, which could value the company at $1.5 billion.) Another company, SunPower, which is also a solar-panel manufacturer, does a big business in the residential market in California, through its dealer network. Kennedy and Sungevity run, roughly, fourth in California — which, because it’s the biggest market, most of these companies view as a proxy for the rest of the nation. But because of Kennedy’s background with Greenpeace, his big Australian personality (he was born in the United States but identifies as, and sounds like, an Australian) and some of his high-profile connections, he and Sungevity have received a fair amount of media attention. The actress Cate Blanchett was an early investor, and the actor Mark Ruffalo recently began leasing a system from the company, which he discussed in an appearance on “The Colbert Report” in March.
This clearly rankles Kennedy’s competitors. John Ordona, the director of communications at Sungevity, interviewed with another large solar company before taking the job at Sungevity. “They basically said that Danny was a tree-hugger and that Sungevity had no real business plan,” he told me. When I visited Sunrun, I was shown a graph indicating the size of their lead in California. When I asked about Kennedy and Sungevity directly, I was told by a marketing person, through a tight smile, “Their mind share is bigger than their market share.”
Compared with the relatively smooth and recent road that some of his competitors took to arrive at the business of residential solar-power installation, Kennedy’s path has been unusual. He has been fighting against oil and coal for most of his adult life. He got his start as an environmental activist at age 12, when he fought, as part of a landmark victory for conservationists in Australia, against the construction of a dam in Tasmania. After attending college, he worked for Greenpeace in Papua New Guinea, where he observed the efforts of villages to resist exploitation by international oil companies. There, in 1993, he nearly died after contracting malaria while trying to document the environmental damage Chevron was causing in the region. He was saved only after villagers rowed him, delirious with fever, upriver in a dugout canoe to the secluded home of a young Japanese anthropologist who happened to have a rescue agreement with Chevron. She lighted a signal fire, releasing a plume of colored smoke, and within hours a small helicopter airlifted Kennedy to Chevron’s base camp, where an American doctor administered the drugs that saved his life. Once he was on the mend, Kennedy left Chevron’s base camp and went right back to his efforts to expose the actions of the company that had just rescued him. “I stayed out in the field and continued to work,” he says. “Went back to the village and told them, ‘Everything’s cool, thank you very much for getting me out of there.’ ”
Kennedy left Greenpeace in 1995 and the next year founded Project Underground, which could be more flexible than Greenpeace and was more narrowly focused on issues of social justice and human rights. A year later, he was detained for three days by Indonesian intelligence. He suspected that a courier reported him for trying to ship water samples abroad — water samples that would demonstrate the environmental abuses at the enormous Grasberg gold mine in Irian Jaya. These were the days of Suharto’s repressive regime, and Kennedy says intelligence officials deprived him of sleep and forced him to dictate his version of events over and over again. At one point, he said, they threw him into a jeep and drove him to an old prison complex, where they told him to get out and walk around, despite a tropical thunderstorm. As he got out of the car and felt the men’s eyes on his back, he assessed his chances of running for the forest line and escaping somehow. He thought they might try to shoot him. Instead, they loaded him back into the car, took him back to the cell and asked for his statement again. “Messing with my head,” Kennedy says.
In 1999, as part of his work with Project Underground, Kennedy helped coordinate the visit of a young activist named Terry Freitas to Colombia, in an effort to prevent an Occidental Petroleum development there. On his way to the airport for his flight home, Freitas was kidnapped by FARC, the leftist guerrillas active in Colombia’s hinterlands. “We thought it was going to be a hostage deal,” Kennedy says, so he spent a week trying to raise a ransom. But FARC wasn’t after money; Freitas was shot in the back and killed, along with two other Americans. Kennedy said he suspected but had no proof that the oil business was somehow behind the murders, and he worried about continuing to risk his own life. His first daughter, Aiko, was conceived that very week. “Her middle name is his middle name,” he says of Freitas. “He was a really amazing kid.” Kennedy began the slow turn away from front-line activism that would eventually lead him to residential solar power. He had been aware of the potential of solar energy since the early ’90s, when he noticed that one village in Papua New Guinea had a health clinic that was able to provide immunizations because it had a few solar panels up, enough to power a refrigerator to keep the vaccines cold. He returned to work for Greenpeace in 2000 and the next year led its effort to support a ballot initiative in San Francisco that empowered the city to issue $100 million in revenue bonds to finance renewable-energy projects.
Five years later, on his way from Australia to Amsterdam, Kennedy stopped to deliver a report on behalf of Greenpeace at the Solar Power International conference in San Jose, Calif. He was struck by a speech given by Arnold Schwarzenegger, who was then the governor, about his ambitions for solar power in the state. “There are people pumping their fists and standing on chairs,” Kennedy told me. “By this point in my life, I’ve been to dozens of solar conferences in various countries. And here you have the can-do American entrepreneurial heartland — this is the San Jose conference center, Silicon Valley, ingenuity and know-how and risk capital all combined — going crazy. And it was just kind of like, ‘This is awesome.’ ” Soon after that, he spent a night with a friend, Alec Guettel, whom he met years earlier, in 1990, at meetings in London to address the issue of ozone depletion. (Guettel was a protester outside the event, dressed as a soon-to-be-extinct penguin; Kennedy, attending as a youth delegate from Australia, wandered outside and ended up getting a beer with the penguin.) Kennedy had been searching for a way to convert his activist beliefs into a business that could make money and benefit the planet. A year after Schwarzenegger’s speech, he, Guettel and Andrew Birch, a former banker and executive at BP Solar, started Sungevity.
When I visited Sungevity’s offices in January, Kennedy kept asking if I had been across the street yet. “Have you taken him?” he asked a colleague. “When are we taking him?”
Eventually, Kennedy took me himself. We walked out of Sungevity’s main offices and across the cobbled street to an abandoned Barnes & Noble. When he opened the doors, I understood why he wanted me to see it: there before me, in one great room under a vaulted ceiling, were row after row of headset-wearing Sungevity employees tapping away at banks of high-resolution computer screens. Sungevity’s massive installation, interconnection and service teams — what Kennedy calls “project management,” meaning everything that has to be done once the solar system has been ordered — worked here. Though they have since moved into a different office space, as of January there were about a hundred people working in that abandoned bookstore, nearly as many as there were in all of Sungevity’s vast headquarters across the street.
The operation demands this many people because the permits required to put a solar array on your roof vary from city to city, even within California. “Some agencies want an AutoCAD drawing of the proposed installation as a digital file,” Kennedy said, pointing at the various people at work at their monitors. “Others want a single line electrical drawing as a piece of paper in a folder somewhere. And somebody’s got to do all that.”
When I asked Lyndon Rive if SolarCity had a similar operation, he said: “There’s a lot of complexity with permitting and everything else. We’re trying to hide the customer from that pain.” Lynn Jurich at Sunrun told me that the work it takes to arrange permits for an installation adds $2,500 to the cost of each system. Looking out at the Sungevity work force in that former bookstore, it wasn’t hard to believe. It was a living, moving picture of the inefficiencies created by fragmented policy — but it was also a lot of jobs. I kept trying to move farther and farther back, just to get some sense of the scale. As we walked out, Kennedy said: “This business is a baby growing up so fast, forget childhood. It’s straight into adolescence and beyond.”
The innovation that has pushed Sungevity and the rest of the residential solar industry straight into adolescence over the past five years was financial, not technological. Solar technology, though it retains a kind of Jetsonian aura, is hardly new. In 1954, Bell Labs discovered that purified silicon, doped with arsenic and sliced into thin wafers by a high-powered diamond saw, was capable of converting sunlight into electricity. The Bell Solar Battery was conceived as a way to power telephones with a cheap renewable resource, but the people at Bell sensed that they were on to something bigger. “The dream of ages has been brought closer,” a print ad read at the time. “If this energy could be put to use — there would be enough to turn every wheel and light every lamp that mankind would ever need.”
They weren’t exaggerating. Enough sunlight falls on the earth’s surface every hour to meet the entire world’s energy needs for one year. A plot of roughly 100 miles by 100 miles in the American Southwest, if covered with today’s industry-standard 15-to-20-percent-efficient solar panels, could generate enough power for the entire United States. This is not the whole story, of course; the sun shines only during the day, and as yet we have no efficient way to distribute and store the power that such a plot would generate (so that the energy could be used at night, for example). But the potential of the sun as a power source is nearly unlimited.
When we burn coal, gas or oil, we are simply harnessing an archived version of that same energy from the sun, stored in plant and animal life, compacted and preserved under the earth’s crust. As Kennedy puts it in his passionate but rational way: “Think about it this way. We’re killing people in foreign lands in order to extract 200-million-year-old sunlight. Then we burn it . . . in order to boil water to create steam to drive a turbine to generate electricity. We frack our own backyards and pollute our rivers, or we blow up our mountaintops just miles from our nation’s capital for an hour of electricity, when we could just take what’s falling free from the sky.”
That’s a hard argument to refute. Since the 1950s, solar cells based on Bell’s battery technology have powered craft as big as space stations, but they have yet to define our lives in the way that Bell Labs envisioned. Solar technology in particular has carried unfortunate political baggage for the last three decades. During the comparatively oil-rich 1980s, Ronald Reagan removed the solar water-heating system that Jimmy Carter had installed on the roof of the White House, a symbolic swipe at liberals. In 2011, Solyndra’s disastrous bankruptcy played right into the hands of politicians and pundits, who have gleefully pegged it to an anti-solar and anti-renewable narrative: solar isn’t reliable, we’re not good at it, the Chinese are better at it anyway, and so drilling and fracking are the pragmatic, job-creating ways forward.
The reason that the residential solar industry has begun to buck this general trend is because, instead of appealing to our heartstrings, it has begun to appeal to our checkbooks. The innovation that made this possible — selling solar services instead of solar panels — was pioneered in the commercial market by Jigar Shah. Though Shah was trained as a mechanical engineer, his most important bit of engineering was financial: in 2003, he started a company called SunEdison, which offered something called a solar-power purchase agreement (P.P.A.) to commercial customers.
Instead of having to pay all of the money for a solar installation up front and then having to carry that payment as a debt on their balance sheets, which no publicly traded company wants to do, companies like Whole Foods and Staples contracted with SunEdison to have solar panels put up at no initial cost. SunEdison then charged the companies for the amount of energy that the panels produced at a fixed rate for a period of 20 years — a rate that was less than what the companies were already paying the utilities, and that would ultimately save them even more money as energy prices inevitably rose over time. The bold stroke was that they were selling the power, not the hardware.
The revenue stream from the 20-year P.P.A. contracts allowed SunEdison to raise capital from outside investors like Goldman Sachs, Wells Fargo and MetLife. The banks pay for the solar systems and then reap the returns on their investment through tax credits and a negotiated share of the monthly P.P.A. payments. Everybody wins: Staples gets cheaper energy for no money down, SunEdison sells the systems to the banks at a profit and charges recurring maintenance fees and the banks have a reliable revenue stream that also offsets their tax burdens. Shah was so convinced of his model’s efficacy that when companies came to SunEdison looking to buy solar equipment outright, he referred them to his competitors.
Though there are debates about who was the first to bring Shah’s model into the residential marketplace, all that matters is that for the time being Shah’s conceptual model prevails. (Though, in most jurisdictions, the national residential installers have moved toward offering straight leases — a fixed payment every month — instead of P.P.A.’s, which vary according to the amount produced.) Five years ago, third-party-owned systems accounted for none of the residential solar market. In the first quarter of 2012, according to the Solar Energy Industries Association, 63 percent of new solar systems in California were third-party-owned, and in Colorado, that number was as high as 80 percent. The solar lease has been a key driver for the explosive growth in the residential solar market in California and, increasingly, across the country.
Lyndon Rive, the head of SolarCity, said: “People don’t buy gas stations. People don’t buy utilities. Why are we having them buy solar equipment?” The premise of the lease is simple. You go online to one of the installers and enter basic information about your location and your previous year’s energy usage. The installer then uses satellite and aerial imagery to assess how viable your rooftop is for solar use — too many trees are a problem, southward-facing roofs have the most exposure to sunlight over the course of the day — and whether they can put enough of a system on your roof to make it worthwhile.
If they can, the basic value proposition is this: Say you have been paying your utility, on average, $100 a month. The solar company installs solar panels on your roof, maintains them, monitors them and repairs them for the life of the lease. The output will reduce your utility bill to roughly $20 a month, and you pay around $65 a month to lease the equipment (and the power the equipment produces, along with maintenance). You’re now paying $85 a month total, 15 percent less than you were, the installer has a revenue stream that it can use for cash flow or sell off to an investor and everybody is playing his part in reducing the burning of fossil fuels.
“The most frequent question I get,” Kennedy says, “is: ‘What’s the sting? Where’s the trap?’ ” Lyndon Rive says he still goes to dinner parties, where people know all about SolarCity and what he does, and at the end of his pitch about the solar lease, somebody will say: “So how much does this cost again? What’s the payback period?”
“‘You haven’t heard me!”’ he shouted to me, over the telephone, spelling out his frustration with those kinds of questions. “You get cheaper electricity! Full stop!’ ”
A lot of major players in the economy get it, and they are betting on the potential of renewables and on the power and profitability of the residential solar-lease arrangement. This includes Google, which has created two residential solar funds totaling $355 million. (The willingness of these large companies to invest in the residential solar market via leasing arrangements is one reason that the installers would much rather lease you a system than have you buy one, even though buying one is usually a better deal if you can afford it. The average price of a system has come down to $25,000 or so from $50,000 over the last five years, but Sunrun won’t sell you a system even if you want it to, and SolarCity and Sungevity make clear from their pricing structures and maintenance options that, for now, they would rather offer you a lease.)
But all of this institutional money flowing into residential solar leases and the solar field in general does not fit the impression that the coverage of Solyndra has left in anybody’s mind. “The thing that bugs me the most about the way the press has covered all this stuff is that we can’t physically grow any faster,” Jigar Shah told me. He pointed to industry data that showed that over the last five years, revenue in the global solar-energy industry has increased to $93 billion in 2011 from $17 billion in 2007. “No one knows that, right?” he said. “People are complaining to me that we don’t have enough stuff on roofs. Right? I mean — ” and here he concluded with various expletives.
“I’m kind of caught on the turning of the corner of the old to the new,” Kennedy confessed at one point over dinner. The pivot from activist to entrepreneur, in his mind, has been a smooth one. Nonprofits and activists think they can change the world, and so do entrepreneurs.
In the industry’s eyes, this isn’t a race to see who wins by the third quarter of 2012. It’s a transformation that, if it comes, will come over decades, as electric vehicles reinforce the need for cheaper electricity and solar panels become ever cheaper and more widespread. Already the residential solar market has begun to deploy building-integrated solar, with roofing shingles that double as solar panels. This will eventually extend to your windows and other surfaces, and it will become easier and cheaper until — if you believe in the vision of the solar promoters — your contractor and your local roofing company will install solar as standard equipment.
Silicon Valley has done a great job of talking about its disruptive potential, but there issomething truly disruptive about solar: a fully distributed model of energy generation. We currently rely on the centralized hub-and-spoke delivery systems of the utilities, many of which are outdated and suffer tremendous losses as electricity travels from power plants, along transmission and delivery lines and into our businesses and homes. There is a massive infrastructure of regulation and enforcement in the energy market to underwrite the utilities; it’s one of the most highly regulated and noncompetitive markets in the country. Imagine a world in which homeowners and business owners are miniature power plants, with the full ability to sell power back to the grid at retail prices — power, literal and figurative, would be wrested from the hands of monopolistic, polluting utilities and their ancillary industries: mining, fracking and the like.
The advantages of such a system are obvious. Not only would Americans pay less for energy, but with solar they would also provide power back to the grid at peak hours, when utilities are the most taxed — and when they turn to their most expensive and dirtiest “peak” power plants, which are standing by for just such occasions. We would also avoid some blackouts, because fewer houses would be reliant on the grid, and transmission failures wouldn’t cascade in the same way. By some estimates, 500 megawatts of rooftop solar — roughly the total amount of solar that California installed just last year, equivalent to about 80,000 residential systems — would have prevented the blackout of 2003 and saved the U.S. economy several billion dollars.
The utilities are too stuck in their ways to do this themselves. An effort by Duke Energy in North Carolina to experiment with distributed generation and residential solar ended with only seven actual residential installations, after finding the process cost-prohibitive. An employee of a major utility in California told me that solar is “kind of a pain.” The employee said the core competency of the utility was “acquiring lots of power and gas, building a plant and distributing it.” He added: “If you want to aggregate thousands of people and [install] solar, it’s a low-margin business. Go ahead.”
Everybody I spoke with in the solar industry stressed the need for all companies to act in ways that benefited the industry as a whole, in the belief that there is room for them all to succeed as long as they keep their standards high. “Most of the world gets that climate change is real,” Kennedy said. “The weather is changing, wacky stuff is happening, and we need something other than fossil-fuel dependency.”
And so they are all, really, still missionaries. They talk about market share, but their main task is a common one: persuading people to change the way they think about energy, and to believe that the more we can do for ourselves, the better. The solar companies can make all the financial and clean-energy arguments they want to, but they still have to impel average consumers to switch energy providers for their own homes.
Which brings us back to the orange that Danny Kennedy wears as a uniform most days. “I’m sure there are people who look at you and say, ‘Gimme a break,’ ” I said to him, as we were finishing dinner on my last night in California.
He laughed. “Yeah, there probably are,” he said. “I haven’t really thought about it, but yes.” A moment later, he added: “Humanity needs to be reminded that the sun’s putting out four hundred trillion trillion watts every second of every day, and we should tap that. Let’s wear it, be proud of it, push it. That’s the real motivation, I think. We’ve got to brand the sun.”
He and his team at Sungevity might not have all the answers or the most scalable model, but who knows? And why not try? Why not compare yourself to Steve Jobs without irony if you dare? And why not celebrate the fact that you were trying to do something good for the planet at the same time? Well, at least we can try.
“We need to build a sense of identity that roots people in the future, which is inevitable. It seems impossible today that it could be there, but it will be, and this” — he pulled at his orange shirt — “this helps, maybe. Even if it’s just for the staff, and I think a lot of it is, it’s like: ‘Carry on. This is a struggle.’
“I’m sorry, I’m raving now,” he went on, leaning forward, “but will we make it? Will other companies make it? Very good questions. Yet that the overall march of this will get to its destination? That will happen.”
