CitizenRe, real or imagined -- a challenge
Recently I opened up a surprising can of worms with a blog post about CitizenRe wondering if they had finally solved the problem of making solar power compete with the electrical grid. At that post you will see a substantial comment thread, including contributions by executives of the firm, which I welcome. At first, I had known little about CitizenRe and the reputation it was building. I thought i should summarize some of the issues I have been considering and other elements I have learned.
CitizenRe's offer is very appealing. They claim they will build a plant that can make vastly cheaper solar. Once they do, they will install it on your roof and "rent" it to you. You buy all the power it produces from them at a rate that beats your current grid power cost. Your risks are few -- you put down a deposit of $500 to $1500 depending on system size, you must cover any damage to the panels, and they offer removal and replacement for a very modest fee if you need to reroof or even move. You lock in your rate, which is good if grid rates go up and bad if grid rates go down or other solar becomes cheaper, but on the whole it's a balanced offer.
In fact, it seems too good to be true. It's way, way cheaper than any offering available today. Because it sounds so good, many people are saying "show me." I want to see just how they are going to pull that off. Many in the existing solar industry are saying that much louder. They are worried that if CitizenRe fails to deliver, all their customers will have been diverted to a pipedream while they suffer financial ruin. Of course, they are also worried that if CitizenRe does deliver, they will be competed out of business, so they do have a conflict of interest.
Here are some of the things to make me skeptical. * CitizenRe is marketing through a "multi-level marketing" system. MLM has a very shady reputation. It is used in some legitimate businesses (like Amway) but even in those cases it comes with a taint. It has recruited all sorts of "Ecopreneurs" to market CR to their friends and neighbours, and elicited the aid of major green charities as well.
MLM has this taint for a good reason. It inspires unscrupulous marketing, often exploits the lower level people in the pyramid, and provides little value to the customer. It's great for those high on the pyramid. * CR's offer is already so good that people are skeptical about its validity. It hardly needs MLM to promote it. As I have said, if this is real, people will shout it from their panel-covered rooftops for free. I can't imagine why a good company with a truly incredible product would want to throw up a wall of doubt by using MLM. Perhaps, if MLM is such a useful marketing tool for solar, they can consider adopting it if they find they can't sell all their capacity with other methods. * CR is a fairly secretive company. They promote that they have lined up $650M of financing from major banks in order to pay for all these solar installs. However, closer probing reveals the financing isn't closed, though they don't say that very loudly. They claim they will close soon and then disclose about it. * Their new plant, which they claim will be the largest in the world, is also shrouded in mystery. They have not yet broken ground. Their original projections of delivering systems in September of 2007 are now abandoned, but this message has not gotten out fully yet. With permitting, construction and more it seems it will be some time before they can deliver systems, and they are starting to admit that. Yet they have 7,500 customer signed up, and around 750 MLM agents still selling. * If CR is any example, PV is going to get cheaper and cheaper with time, and eventually grid power has to get cheaper with it or be unable to compete. (Grid power will start coming from PV if nothing else.) Most of CR's math and marketing rely on the belief that power is going to get more expensive over time, so now's a great time to lock in. However, they do leave the choice up to the customer. * On the previous thread, you'll see a link to a powerpoint presentation made by one of their sales affiliates. He's very worried about how the company will deliver on its promises, and makes some compelling arguments. The company has said an answer is forthcoming. * They claim if you want out, for example because new panels are even cheaper, they will let you go for just your security deposit. I'm astounded that their backers would allow such an attitude. That doesn't just sound too good to be true, it is too good to be true. A company following that sort of approach will be bankrupted by any serious drop in the price of solar below their own claimed low price. If I were a banker, and I believed they could make the panels for what they cost, I would consider investing but would be worried about customers cutting loose even if they weren't allowed to do that.
Investors put in money and expect cashflows back. CR's customers are bound to buy all the output of their panels at a fixed rate, which could deliver those cashflows. But not if a reason develops for a sizeable number of them to want to bail, if there is no disincentive beyond the deposit.
RECs and other credits
I did find some positive things. For example, a market is coming in RECs -- Renewable Energy Certificates. These exist because some states demand that their utilities do a certain fraction of their generation from renewable sources. In some states, they can "accomplish" this by buying proof-of-generation from other suppliers, including solar arrays. Where these credits are tradeable, they can range up to 15 cents per kwh, and even higher. This is enough to make solar highly commercially viable.
However, the REC market is young. It is uncertain where trading in these will go. CR, however states their plan does not depend upon RECs, though they do plan to exploit them where they can. They even suggest that customers may get some benefit from them.
There are other credits as well. In many states, there are rebates for solar installs. ($2.50/watt in California from PG&E for example.) Federally there is a 30% tax credit on solar which corporations can claim fully while homeowners are capped. This helps the CR plan make much more sense, as it's an economy that only works with their plan. In addition, you can write off the cost in just a few years, even though the panels would normally be depreciated over 25-30 years. That's something you can sell in the world of finance.
There are also a few clean generation credits, of around 1.5 cents/kwh and a few other credits. Together they help a lot, but they don't bring today's real $8/watt installed cost of solar down to the und er $2/watt cost CR requires to sell power for 7 cents/kwh in the midwest.
The financial magic
Many customers are attracted to CR by the idea of getting into solar without much money down. They are told they are "renting" the panels. That's a bit misleading however, since at least in the contract it's a long term rental with a commited price. It's really very much like buying the panels with a loan underwritten by the vendor and secured by the panels -- not unlike a car loan. This is fine, and it is why it makes me doubt their ability to just let you out of the contract for your deposit as their CEO promised. You certainly can't get out of a car loan just because your car depreciated very rapidly. You still owe the money no matter what.
Unlike a car loan, however, they own the panels when the term is done. It's hard to say what their value will be then, of course. Most people don't seem particularly concerned about that.
My challenge to CitizenRe
I don't know if CR is real or not. Some people are hopeful, some accuse them of deliberate fraud. Some just say they are taking a dangerous gamble with the future of the PV industry. I don't know which is right.
What I do know, as a businessman, however, is that if the company is real, they should at this point jump through hoops to make everybody feel good. They need to admit that their earlier policies like MLM and extreme secrecy, while they seemed like good ideas at the time, are just generating negative goodwill, distrust, fear and all levels of doubt and accusations. They might not have planned for people to become so skeptical, but that they are is a reality. And the reality must be dealt with.
It's possible it can be dealt with by allowing it to stew, and then boldly proving all the doubters wrong. But that's a pretty risky course. The safer course is to take the risks that come from opening the kimono a bit earlier. Letting the competition see things a bit earlier is not your biggest danger. It's not letting the public see it and conclude the worst. Threads like the one on my blog are springing up everywhere. Customers and investors who type your name into search engines will not be hidden from these questions.
If you are real, show it sooner rather than later. You don't have to show everything but you should also give credible reasons why you must hide things. Consider halting sales or the taking of deposits until you get back on track -- I doubt you will lose any business over that, it might even make you more desired. Much of the world would love your promise of cheap, grid-competitive solar to be real. Don't disappoint them.
Update: This Telegraph Story outlines some of the future hopes for cheap PV, which would indeed beat CitizenRe's planned price and give us economical solar. It's not quite here yet, though.
I've produced a solar economics spreadsheet to help people understand the math behind solar energy.
(Once again, while I welcome contributions from CR ecopreneurs and especially officials, MLMers must not put affiliate links in their comments or as their home page. All financial interests should be disclosed.)