Five Ways That Apple Is Already Positioned to Be a Car Company By Tim Higgins – Feb 14, 2015, 8:02:51 PM

Five Ways That Apple Is Already Positioned to Be a Car Company
By Tim Higgins – Feb 14, 2015, 8:02:51 PM

Bloomberg Photo Service ‘Best of the Week’: Tim Cook, chief executive officer of Apple Inc., center, arrives to speak with Gary Cohn, president and chief operating officer of Goldman Sachs Group Inc., right, at the Goldman Sachs Technology And Internet Conference in San Francisco, California, U.S., on Tuesday, Feb. 10, 2015. Apple Inc., which began flirting with a record valuation of $700 billion during midday trading in November, ended the day at $710.7 billion, marking the first time a U.S. company has reached that milestone. Shares rose 1.9 percent to $122.02 at the close in New York. Photographer: David Paul Morris/Bloomberg *** Local Caption *** Tim Cook; Gary Cohn

Apple Inc. may already be positioned to evolve into a global automaker in many ways that other Silicon Valley companies aren’t.

The Cupertino, California-based tech company has put a few hundred employees to work on a secretive project to develop an electric automobile, a person familiar with the matter has said. While Apple often tests ideas that don’t get released, the work underscores the company’s long-held desire to play a greater role in the automotive space, which is ripe for more of a merging with users’ digital lives.

“It makes a ton of sense,” Gene Munster, an analyst with Piper Jaffray Cos., said Saturday in an interview. “If you would’ve said 10 years ago, ‘Apple is going to be in the car business,’ I think people would’ve said you’re crazy — because it would’ve been crazy — and today it’s a much different company that’s able to tackle these massive addressable markets.”

Apple, with a market capitalization that’s more than $700 billion, needs to continue growing sales in iPhones, its largest revenue generator, while also expanding into new markets, such as automobiles, if it’s to reach a $1 trillion valuation, Munster said. He added that he doesn’t think Apple would bring out a car in the next five years.

Nonetheless, Apple boasts some advantages versus other Silicon Valley companies with car ambitions. Tesla Motors Inc., which delivers less than 10,000 vehicles a quarter, surprised investors last month when Chief Executive Officer Elon Musk said the company wouldn’t be profitable until 2020.

Apple’s strengths as a potential automaker include:

1. $178 Billion

The automotive industry churns through cash at an astonishing pace. Apple, as it turns out, has a cash hoard of almost $180 billion. As Musk said last week, Apple is “just running out of ways to spend money. They spend money like it’s water over there and they still can’t spend enough of it.”

While the old rule of thumb was that it cost about $1 billion to develop a new car, those costs are now being spread over more vehicles as traditional automakers work to use vehicle platforms for more models, said Dave Sullivan, an automotive industry analyst with AutoPacific. That would be one challenge for Apple, as would a lack of experience building cars, though Thilo Koslowski, vice president and automotive practice leader at Gartner, said they could acquire those manufacturing skills.

“It’s well understood because it has been around for 100 years,” he said of building cars. “What isn’t that well understood are the pieces that Apple would potentially bring to the table.”

2. The Ultimate Mobile Device

Apple has built its fortune on creating products that are compellingly designed and that integrate software in such a fashion that immerses users’ lives deeper into the Apple world, further hooking them for future upgrades. And it already has car-suited technology — mapping software, for instance — ready to go.

“The car is one of the most important and critical pieces of the puzzle that you need to master if you want to interact with customers wherever they are,” Koslowski said. “It’s pretty important to have a phone that’s connected, and can show you your calendar and do all kinds of other things, but now extending it to this other device that happens to have four wheels.”

3. Car Guys?

The car business seems simple to outsiders, tempting some to think they can do better than Detroit, which spent a generation sliding toward bankruptcy reorganizations before re-emerging to new profits.

But the modern automotive industry has a mixed record on how outsiders perform. For every Alan Mulally, who jumped from Boeing Co. to oversee Ford Motor Co.’s renaissance, there’s a Bob Nardelli, the former General Electric Co. executive and Home Depot Inc. CEO, who was at the helm of Chrysler during its bankruptcy. Tesla has so far succeeded while Fisker Automotive, another high-profile electric car company, had its assets sold off in bankruptcy.

Apple, meanwhile, has a unique mix of executives with tech and auto experience. The company has long hired engineers from the automotive space, often with experience in supply chain management, battery technology and user-interface experience.

Luca Maestri, Apple’s chief financial officer, spent 20 years at General Motors in areas of finance and operations. Eddy Cue, the influential senior vice president of Internet software, is a car enthusiast and on the board of Ferrari. Steve Zadesky, vice president of iPhone product design, who is leading Apple’s car effort, spent time working at Ford earlier in his career. Marc Newson, a well-regarded industrial designer who joined Apple’s secretive design team last year, did a high-profile concept car for Ford in 1999.

4. Retail Network

One of the strengths — and weaknesses — of traditional automakers has been their dealer networks. It’s hard to open up store fronts around the world fast enough to get the scale needed to sell cars. In the U.S., there are added complexities such as state franchise laws that often prohibit manufacturers from selling cars directly to customers.

That’s something Tesla has sought to upend. Rather than selling through franchised dealers, the Palo Alto, California-based automaker operates its own showrooms — which were created by a former Apple executive — and takes orders over the Internet. The approach has drawn the ire of franchise dealers and the automaker has butted heads with dealer groups last year in Georgia, Missouri, New Jersey, New York, Ohio and Pennsylvania before reaching compromises.

Apple, of course, already has a giant retail network through its hundreds of Apple Stores worldwide, from Brazil to Sweden to Turkey.

5. Apple Does Global

The automotive business has a global complexity like few other industries, with regulatory, marketing and logistics issues that can trip up the capital-intense business on any given day.

Apple, which designs its products in California but depends upon contractors to assemble them mostly in Asia, is used to managing an on-time supply chain around the world — something Google Inc. doesn’t do in its day-to-day Internet search business — and handling the complexities of currency swings throughout global markets. CEO Tim Cook built his reputation at Apple for his ability to navigate those global operations.

“That would be a huge plus should they decide to manufacture cars,” Tim Bajarin, president of Creative Strategies, said.

He said he remains skeptical that Apple wants to get into the actual business of selling cars, rather than just moving deeper into creating operating systems for automakers.

“Doing cars is not in Apple’s wheelhouse,” Bajarin said. “It’s more likely they are trying to create a richer, more immersive electronics experience tied to iOS where not only the audio system but the information and possibly new levels of security through sensors and cameras would be part of what they would offer to other carmakers.”

Apple could be creating concepts, or reference designs, to integrate technology to demonstrate to automakers, he said.

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Germany’s economic policy is hurting Europe, the world, and itself Business Insider  / The Economist

FROM Washington to Athens, politicians and economists who often have little in common all agree that Germany under Chancellor Angela Merkel is largely wrong about economic policy.

Germany’s apparent economic strengths–the lowest unemployment in two decades; steady, if low, growth; a balanced federal budget–mask weaknesses and policy errors, they say.

A first mistake is to insist that troubled euro-zone countries such as Greece not only make structural reforms to their economies, but simultaneously cut spending and borrowing (depressing demand).

But a second is domestic. Given low interest rates, now would be a golden opportunity to borrow and invest more at home, boosting the economy and providing a Keynesian stimulus to the entire sluggish euro zone. Instead, Germany is investing less than in the past and less than most other countries (see chart).

Raising investment could also deal with another imbalance in the German economy: its current-account surplus, the largest in the world, which has just set another record in 2014 of EUR220 billion ($250 billion), over 7% of GDP. By definition, this surplus measures the excess of savings over investment. Invest more, and the surplus would shrink or even disappear.

Such thinking has fans even in Germany. Marcel Fratzscher at the German Institute for Economic Research in Berlin thinks that German strength is an “illusion” given its large “investment gap”. Public investment in Germany–shared by the federal, state and local governments–has fallen from 6% of GDP in 1970 (in the West) to 2% now. Roads, bridges, broadband internet and much else could do with more money.

The German Marshall Fund has said that 40% of bridges in Germany are in “critical condition”. The Cologne Institute for Economic Research, another think-tank, reckons that the capital stock of German machines has not risen in real terms since 2008. Markus Kerber, director of the German Federation of Industries, a trade association, says that a “long-term investment-offensive is needed” to sustain growth.

But other German economists are sceptical about claims of underinvestment. Christoph Schmidt, chairman of the German Council of Economic Experts, which advises the government, thinks published ratios of investment as a percentage of GDP can be misleading when compared both across time and between countries.

France, for example, has a lot of public housing. Germany does not, and this skews the numbers. Reunification in 1990 caused a one-off investment boom in both parts of the country. And whereas other countries had property crashes, Germany did not. In that case, at least, skimping on housebuilding was sensible.

Yet the trend of declining public and private investment remains clear. A recalculation to fit European Union norms lifts Germany’s investment ratio from 17% to 19%, by including companies’ research and development spending. But that is still low. Why is this?

Most investing is done by private firms. But German ones have for years preferred to invest abroad, not at home. Mr Fratzscher regrets this: he reckons that German investment abroad has yielded an annual return of 10% over 20 years whereas foreign investment in Germany has made more like 15%.

The main reason for low domestic investment, says Michael Hüther, the Cologne institute’s director, is uncertainty and nervousness over the future. Continuing anxiety over Greece and the euro has been especially damaging.

More recently worries about Russia, which is more commercially entangled with Germany than with other big Western economies, have unsettled the business climate. But the biggest problem for many businessmen may be benighted government policies.

These start with Germany’s “energy transition,” a plan to exit simultaneously from fossil fuels and nuclear energy. The main policy is a huge subsidy to solar and wind. The surcharge that many firms have to pay on a unit of energy is larger than the entire cost of electricity paid by firms in America. Half the firms polled by Mr Hüther’s institute claim that this makes any new investment unattractive.

Many also complain, in a country that has an ageing, shrinking population, about a shortage of skilled workers despite Germany’s admired apprenticeship system. Mrs Merkel’s government, under the influence of her Social Democratic coalition partners, has made things worse by letting some workers retire at 63, rather than at 67, as previously envisaged.

In the housing market, owners are put off investment by a cap on rents in many cities. A new federal minimum wage is yet another measure that will add costs for business.

The best way to boost investment is to fix these policy errors, argues Mr Schmidt. On energy, even if the government insists on sticking to its emissions targets, it could leave the choice of technology to the market.

The pension age could be raised again; the minimum wage should be lower. And public investment should be raised. Gustav Horn, head of the Macroeconomic Policy Institute, part of a foundation with links to the trade unions, reckons that a 1% increase in euro-zone public investment would boost GDP by 1.6%.

Yet Germany led resistance to calls for more public money to be put into the European Commission’s planned investment programme. At home it is constrained by the constitutional “debt brake”, adopted in 2009, which requires state governments to balance their budgets by 2020 and the federal one to do so by 2016.

Wolfgang Schäuble, the finance minister, has beaten the timetable, balancing the budget in 2014. He and Mrs Merkel are proud of the “black zero”, which demonstrates that Germans sticks by the rules, as others should. The books may balance, but Germany is a long way from rectifying its investment shortfall at home.

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Tesla Planning Battery for Emerging Home Energy-Storage Market By Dana Hull and Mark Chediak – Feb 11, 2015, 10:48:18 PM

Tesla Planning Battery for Emerging Home Energy-Storage Market
By Dana Hull and Mark Chediak – Feb 11, 2015, 10:48:18 PM

(Bloomberg) — Tesla Motors Inc., best known for making the all-electric Model S sedan, is using its lithium-ion battery technology to position itself as a frontrunner in the emerging energy-storage market that supplements and may ultimately threaten the traditional electric grid.

“We are going to unveil the Tesla home battery, the consumer battery that would be for use in people’s houses or businesses fairly soon,” Chief Executive Officer Elon Musk said during an earnings conference call with analysts Wednesday.

Combining solar panels with large, efficient batteries could allow some homeowners to avoid buying electricity from utilities. Morgan Stanley said last year that Tesla’s energy-storage product could be “disruptive” in the U.S. and in Europe as customers seek to avoid utility fees by going “off-grid.” Musk said the product unveiling would occur within the next month or two.

“We have the design done, and it should start going into production in about six months or so,” Musk said. “It’s really great.”

Tesla already offers residential energy-storage units to select customers through SolarCity Corp., the solar-power company that lists Musk as its chairman and biggest shareholder. Tesla’s Fremont, California, factory is also making larger stationary storage systems for businesses and utility clients. The Palo Alto, California-based automaker has installed a storage unit at its Tejon Ranch Supercharger station off Interstate 5 in Southern California and has several other commercial installations in the field.

Utility Clients

But the even larger market may be utility clients.

“A lot of utilities are working in this space and we are talking to almost all of them,” Chief Technology Officer JB Straubel said on the earnings call Wednesday. “This is a business that is gaining an increasing amount of our attention.”

California sees energy storage as a critical tool to better manage the electric grid, integrate a growing amount of solar and wind power, and reduce greenhouse gas emissions. Utilities like PG&E Corp. are now required to procure about 1.3 gigawatts of energy storage by 2020, enough to supply roughly 1 million homes.

To contact the reporters on this story: Dana Hull in San Francisco at dhull12@bloomberg.net; Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net Terje Langeland

Why Elon Musk’s Batteries Scare the Hell Out of the Electric Company

Why Elon Musk’s Batteries Scare the Hell Out of the Electric Company
By Mark Chediak Bloomberg

December 05, 2014 6:06 PM EST

Climate: Now or Never

Here’s why something as basic as a battery both thrills and terrifies the U.S. utility industry.

At a sagebrush-strewn industrial park outside of Reno, Nevada, bulldozers are clearing dirt for Tesla Motors Inc.’s battery factory, projected to be the world’s largest.

Tesla’s founder, Elon Musk, sees the $5 billion facility as a key step toward making electric cars more affordable, while ending reliance on oil and reducing greenhouse gas emissions. At first blush, the push toward more electric cars looks to be positive for utilities struggling with stagnant sales from energy conservation and slow economic growth.

Yet Musk’s so-called gigafactory may soon become an existential threat to the 100-year-old utility business model. The facility will also churn out stationary battery packs that can be paired with rooftop solar panels to store power. Already, a second company led by Musk, SolarCity Corp., is packaging solar panels and batteries to power California homes and companies including Wal-Mart Stores Inc.

“The mortal threat that ever cheaper on-site renewables pose” comes from systems that include storage, said Amory Lovins, co-founder of the Rocky Mountain Institute, a Snowmass, Colorado-based energy consultant. “That is an unregulated product you can buy at Home Depot that leaves the old business model with no place to hide.”

J.B. Straubel, chief technology officer for Palo Alto, California-based Tesla, said the company views utilities as partners not adversaries in its effort to build out battery storage. Musk was not available for comment.

The Tesla systems are arriving just as utilities begin to feel increasing pressure worldwide from the disruption posed by renewable energy.

Lima Meeting
In Germany, the rapid rise of tax-subsidized clean energy has undermined wholesale prices and decimated the profitability of coal and natural gas plants. Germany’s largest utility EON SE said this week it will spin off its fossil-fuel plant business to focus on renewables in part because of new clean energy competitors coming onto its turf.

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Threats to the traditional utility model come as energy and environment take the world stage at the latest round of United Nations climate talks that began Dec. 1 in Lima. Delegates, backed by global environmental groups, want to leave the conference with a draft agreement to tackle climate change by lowering carbon-dioxide emissions — something that has eluded them for years.

The Rocky Mountain Institute’s Lovins has installed solar on his house in Snowmass and uses it to power his electric car. His monthly electric bill: $25. He has a lot of company.

100,000 Plug-ins
In California, where 40 percent of the nation’s plug-in cars have been sold, about half of electric vehicle owners have solar or want to install it, according to a February survey by the Center for Sustainable Energy, a green-energy advocate. More than 100,000 plug-ins have been sold in California, according to data from HybridCars.com and Baum & Associates, though EVs make up less than 1 percent of all U.S. car sales.

Few homes and businesses use solar and back-up-battery storage, proof for some utilities that the systems remain a hard sell outside of states like California or markets like Hawaii where high power costs make solar competitive.

Still, the Edison Electric Institute, a trade group representing America’s investor-owned utilities, recently announced that its members will help to encourage electric vehicle use by spending $50 million annually to buy plug-in service trucks and invest in car-charging technology.

“Advancing plug-in electric vehicles and technologies is an industry priority,” said EEI President Thomas Kuhn.

Charging Stations
Analysts think the industry has been slow to react. Tesla, SolarCity and green-energy companies are already moving aggressively into unoccupied space. “Some of the more nimble companies that think and move more quickly, they are beating the utilities to the punch,” said Ben Kallo, a San Francisco-based analyst for Robert W. Baird & Co.

Tesla has installed 135 fast-charging stations, some powered by solar, across North America where its Model S drivers can refuel for free. NRG Energy Inc. is building a network of public charging stations in major cities that drivers can access on a per-charge basis or for a flat monthly fee of about $15.

And then there’s the home front. In a July report, Morgan Stanley said Tesla’s home and business energy-storage product could be “disruptive” in the U.S. and in Europe as customers seek to avoid utility fees by going “off-grid.”

‘Sufficient Appreciation’
“We believe there is not sufficient appreciation of the magnitude of energy storage cost reduction that Tesla has already achieved, nor of the further cost reduction magnitude that Tesla might be able to achieve once the company has constructed its ‘gigafactory,’” Morgan Stanley analysts wrote.

Tesla sees itself taking on a grand mission — not just to lower emissions from cars and trucks, but to have a societal impact. “If we only do it on the transportation side, we ignore the utility side, and we are probably ignoring half of our responsibility,” said Mateo Jaramillo, director of powertrain business development at Tesla Motors, at the recent Platts California Power and Gas Conference in San Francisco.

Tesla and Oncor Electric Delivery, owner of the largest power-line network in Texas, have discussed a $2 billion investment in stationary battery storage to solve the problem of fluctuating output from wind and solar. Tesla and SolarCity are separate entities and only share management at the board level.

Tesla fell 2 percent today to $223.71 in New York.

Smart Home
A glimpse of that future can be seen in Davis, California, where Honda Motor Co. has developed a “smart home” that produces more energy than it uses while charging a plug-in car. The home was designed in collaboration with SolarCity, PG&E Corp. and the University of California at Davis to showcase energy-efficient and renewable technologies. It will serve as a home for a member of the UC Davis community and a lab for the study of new businesses and technologies.

SolarCity rival SunPower Corp. is offering its solar and storage systems to buyers of electric cars from Audi AG and rebates for solar-panels to Ford Motor Co. plug-in customers. SunPower also has struck a partnership with homebuilder KB Home to begin installing solar and storage systems in California.

The time when residents can charge their electric cars with excess solar stored in their home batteries is “not decades away, that is years away,” said SunPower CEO Tom Werner.

Holy Grail
Both SolarCity and SunPower say their goal isn’t to move customers completely off-grid, just to reduce their dependence on it. “Grid storage has been the Holy Grail for renewables because the energy is intermittent,” Kallo said. “Finding a way to store that is very powerful.”

For the power companies, the stakes are high.

In June, EEI issued a call to action, saying converting people from gasoline cars to electric vehicles is nearly essential for survival. The report concluded: “The bottom line is that the electric utility industry needs the electrification of the transportation sector to remain viable and sustainable in the long run.”

To that point, executives at some of the nation’s largest utilities from New York to California say they are preparing their grids for more plug-in cars, reaching out to automakers and working with regulators to make sure customers as well as the utilities benefit from the trend.

Natural Partnership
“I read a lot of articles about Elon Musk versus the utility companies,” said John Shipman, who heads electric vehicle programs at New York-based Consolidated Edison Co. “I don’t see it that way at all. There is a natural partnership that can exist there.”

In California, where electric vehicle adoption is the highest in the nation, and Governor Jerry Brown has set a goal of having 1.5 million zero-emission vehicles on the road by 2025, utilities are already in the game.

“The electric grid will be just as important in the years to come because the grid is becoming the platform that makes it possible for people to plug in solar panels, batteries and charging stations,” said Ellen Hayes, a PG&E spokeswoman. “Having a solar panel that isn’t connected to the grid is like having a computer that’s not connected to the Internet.”

Edison International’s Southern California Edison and Sempra Energy’s San Diego Gas & Electric have proposed investing about $500 million in car charging stations. Along with PG&E, they are backing a proposal that would loosen restrictions on utilities owning charging facilities.

Grid Upgrades
There is yet another side to the argument — can utilities manage the load?

“Electric vehicles can be the best thing to ever happen to our industry or the worst thing to ever happen to our industry,” said James Avery, a senior vice president at San Diego Gas & Electric.

Avery doesn’t foresee most customers leaving the grid, but does see the risk of an influx of electric cars that overtaxes the network. SDG&E, whose territory has the highest penetration of plug-ins in the U.S., plans to spend as much as $3.2 billion to upgrade its grid. It already offers cheaper rates for EV owners to charge overnight when power demand is lowest.

Southern California Edison is planning to spend about $9.2 billion through 2017 to allow the two-way flow of electricity on its system, said Edison International CEO Ted Craver.

“We are certainly big supporters of electric transportation,” Craver said.

He added: “That electric car isn’t just going to stay at home. It’s going to go other places. It’s going to need to get charged in other places. And I think our ability to provide that glue for all those things that are going to plug into that network is really how we see our core business.”

Shifting Landscape
Some utilities are more amendable to the shifting landscape than others. Last year, Pinnacle West Capital Corp.’s Arizona Public Service raised the ire of its customers and the solar industry by tacking on a monthly fee of about $5 for residents with solar systems. Adding fixed connection charges or additional fees to such customers may cause more of them to defect, said Lovins of the Rocky Mountain Institute.

“Utilities should look at Elon as a brilliant entrepreneur and innovator who is helping create the new electricity industry and betting against him hasn’t worked so well,” Lovins said. “I would look at ways to benefit from what he is bringing to the market.”

(An earlier version of this story corrected the description of Tesla’s charging stations.)

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Will Wade, Steven Frank
More News: Environment, Leaders, Energy Markets, Municipal Bonds, Transportation, Sustainability

Solar and Wind Energy Start to Win on Price vs. Conventional Fuels NOVEMBER 23, 2014 AT 7:57 PM NYT > Business Day / By DIANE CARDWELL

For the solar and wind industries in the United States, it has been a long-held dream: to produce energy at a cost equal to conventional sources like coal and natural gas.

That day appears to be dawning.

The cost of providing electricity from wind and solar power plants has plummeted over the last five years, so much so that in some markets renewable generation is now cheaper than coal or natural gas.

Utility executives say the trend has accelerated this year, with several companies signing contracts, known as power purchase agreements, for solar or wind at prices below that of natural gas, especially in the Great Plains and Southwest, where wind and sunlight are abundant.

Those prices were made possible by generous subsidies that could soon diminish or expire, but recent analyses show that even without those subsidies, alternative energies can often compete with traditional sources.

In Texas, Austin Energy signed a deal this spring for 20 years of output from a solar farm at less than 5 cents a kilowatt-hour. In September, the Grand River Dam Authority in Oklahoma announced its approval of a new agreement to buy power from a new wind farm expected to be completed next year. Grand River estimated the deal would save its customers roughly $50 million from the project.

And, also in Oklahoma, American Electric Power ended up tripling the amount of wind power it had originally sought after seeing how low the bids came in last year.

“Wind was on sale — it was a Blue Light Special,” said Jay Godfrey, managing director of renewable energy for the company. He noted that Oklahoma, unlike many states, did not require utilities to buy power from renewable sources.

“We were doing it because it made sense for our ratepayers,” he said.

According to a study by the investment banking firm Lazard, the cost of utility-scale solar energy is as low as 5.6 cents a kilowatt-hour, and wind is as low as 1.4 cents. In comparison, natural gas comes at 6.1 cents a kilowatt-hour on the low end and coal at 6.6 cents. Without subsidies, the firm’s analysis shows, solar costs about 7.2 cents a kilowatt-hour at the low end, with wind at 3.7 cents.

“It is really quite notable, when compared to where we were just five years ago, to see the decline in the cost of these technologies,” said Jonathan Mir, a managing director at Lazard, which has been comparing the economics of power generation technologies since 2008.

Mr. Mir noted there were hidden costs that needed to be taken into account for both renewable energy and fossil fuels. Solar and wind farms, for example, produce power intermittently — when the sun is shining or the wind is blowing — and that requires utilities to have power available on call from other sources that can respond to fluctuations in demand. Alternately, conventional power sources produce pollution, like carbon emissions, which face increasing restrictions and costs.

But in a straight comparison of the costs of generating power, Mr. Mir said that the amount solar and wind developers needed to earn from each kilowatt-hour they sell from new projects was often “essentially competitive with what would otherwise be had from newly constructed conventional generation.”

Experts and executives caution that the low prices do not mean wind and solar farms can replace conventional power plants anytime soon.

“You can’t dispatch it when you want to,” said Khalil Shalabi, vice president for energy market operations and resource planning at Austin Energy, which is why the utility, like others, still sees value in combined-cycle gas plants, even though they may cost more. Nonetheless, he said, executives were surprised to see how far solar prices had fallen. “Renewables had two issues: One, they were too expensive, and they weren’t dispatchable. They’re not too expensive anymore.”

According to the Solar Energy Industries Association, the main trade group, the price of electricity sold to utilities under long-term contracts from large-scale solar projects has fallen by more than 70 percent since 2008, especially in the Southwest.

The average upfront price to install standard utility-scale projects dropped by more than a third since 2009, with higher levels of production.

The price drop extends to homeowners and small businesses as well; last year, the prices for residential and commercial projects fell by roughly 12 to 15 percent from the year before.

The wind industry largely tells the same story, with prices dropping by more than half in recent years. Emily Williams, manager of industry data and analytics at the American Wind Energy Association, a trade group, said that in 2013 utilities signed “a record number of power purchase agreements and what ended up being historically low prices.”

Especially in the interior region of the country, from North Dakota down to Texas, where wind energy is particularly robust, utilities were able to lock in long contracts at 2.1 cents a kilowatt-hour, on average, she said. That is down from prices closer to 5 cents five years ago.

“We’re finding that in certain regions with certain wind projects that these are competing or coming in below the cost of even existing generation sources,” she said.

Both industries have managed to bring down costs through a combination of new technologies and approaches to financing and operations. Still, the industries are not ready to give up on their government supports just yet.

Already, solar executives are looking to extend a 30 percent federal tax credit that is set to fall to 10 percent at the end of 2016. Wind professionals are seeking renewal of a production tax credit that Congress has allowed to lapse and then reinstated several times over the last few decades.

Senator Ron Wyden, the Oregon Democrat, who for now leads the Finance Committee, held a hearing in September over the issue, hoping to push a process to make the tax treatment of all energy forms more consistent.

“Congress has developed a familiar pattern of passing temporary extensions of those incentives, shaking hands and heading home,” he said at the hearing. “But short-term extensions cannot put renewables on the same footing as the other energy sources in America’s competitive marketplace.”

Where that effort will go now is anybody’s guess, though, with Republicans in control of both houses starting in January.

Two Big Trends Will Fuel The Renewable Energy Boom For Years

This is the big picture.

Carlos Barria/Reuters
The renewable energy revolution is happening faster than many expected.
According to recent report from Citi Research, renewables will continue their market share grabs from coal and gas forSome of this can be explained by the need for cleaner energy.

“Environmental pressures on coal consumption are rising not only in Europe and North America, but also in China and other emerging markets,” according to the Citi analyst’s note. “The most significant change has been in China, where increasing regulations and the establishment of carbon markets should limit the attractiveness of coal power. Moreover, the country is aggressively pursuing an ‘everything but coal’ development plan for the power sector, with rapid growth in capacity for alternative energy sources.”

Coal power plants are increasingly being pushed into “retirement.”

Most people have been expecting natural gas to be coal’s major substitute. However, Citi’s forecast suggests that growth in natgas demand is going to be way less than previously anticipated.

Renewables should take ever-increasing amounts of market share in an environment like this, according to the report.

In the figure above, you can see that coal’s utilized capacity (measured in GW) is projected drop from 198 GW in 2011 down to 181 GW by 2020. Natural gas slightly increases from 115 GW in 2011 to 132 GW by 2020, although that number is less than previously expected (and you can see there’s a dip from 2012 to 2014). Nuclear sees no major change in either direction, starting at 90 GW and ending at 92 GW.

On the flip side, renewables in 2011 were at 50 GW and are expected to rise to 68 GW by 2020.

two reasons.

First, renewables are rapidly becoming cost-effective, and second, environmental restrictions are becoming an increasingly high hurdle.

Renewables Are Getting Cheaper

Thanks to tech advances, the cost of renewables is finally dropping to affordable levels, which is allowing them to proliferate, according to Citi.

“Costs for solar and wind energy are falling rapidly, with learning rates of around 30% for solar and 7.4% for wind,” the report states.

Wind power has already achieved cost parity with the most expensive coal power plants in Europe (slightly above $80/MWh), and by the end of the decade it’s expected to reach cost parity with the majority of plants (around $70/MWh).

Solar is still the most expensive major electricity source at the moment (around $160/MWh), but Citi is projecting that by 2020 solar will drop to wind’s current prices (slightly above $80/MWh).

“Natural gas has already eroded coal’s cost competitiveness in the US, with decreasing costs for wind, solar and ex-US natural gas to follow,” according to Citi.

Below is the global electricity cost curve.

Citi Research
Environmental Restrictions Favor Renewables

Historically there has been a correlation between economic growth and electricity demand growth. But right now we’re seeing the opposite: during a period of economic growth, electricity demand growth has been relatively flat or declined for some regions.

Some of this can be explained by the need for cleaner energy.

“Environmental pressures on coal consumption are rising not only in Europe and North America, but also in China and other emerging markets,” according to the Citi analyst’s note. “The most significant change has been in China, where increasing regulations and the establishment of carbon markets should limit the attractiveness of coal power. Moreover, the country is aggressively pursuing an ‘everything but coal’ development plan for the power sector, with rapid growth in capacity for alternative energy sources.”

Coal power plants are increasingly being pushed into “retirement.”

Most people have been expecting natural gas to be coal’s major substitute. However, Citi’s forecast suggests that growth in natgas demand is going to be way less than previously anticipated.

Renewables should take ever-increasing amounts of market share in an environment like this, according to the report.

In the figure above, you can see that coal’s utilized capacity (measured in GW) is projected drop from 198 GW in 2011 down to 181 GW by 2020. Natural gas slightly increases from 115 GW in 2011 to 132 GW by 2020, although that number is less than previously expected (and you can see there’s a dip from 2012 to 2014). Nuclear sees no major change in either direction, starting at 90 GW and ending at 92 GW.

On the flip side, renewables in 2011 were at 50 GW and are expected to rise to 68 GW by 2020.

The Musk Family Plan for Transforming the World’s Energy

It’s all about ending Global Warming.

So buy a Tesla and install a Solar City panel on your house to support an end to Global Warming

Hedge against Electricity BlackOuts from storms like Hurricane Sandy or Hot Summers.

By CHRISTOPHER MIMS
Elon Musk and his cousin, Lyndon Rive, have always been close. Their mothers are twins, and Messrs. Musk and Rive grew up together.
“We’ve known each other for as long as we’ve been conscious,” said Mr. Musk, speaking at a panel this week at a private conference in New York.
There is an obvious, almost brotherly affection between the two men. Mr. Musk says Mr. Rive “is an awesome guy and really hardworking and driven, and you can trust him with anything.” And when Mr. Rive recounts the drive to Burning Man in 2004 when Mr. Musk told him his next venture should be in solar power, Mr. Rive says that when Mr. Musk tells you what area to get into next, you get into it.
Their closeness continues, and if Messrs. Musk and Rive can achieve their shared vision, the result will be a transformation of the world’s, or at least America’s, energy infrastructure.
The companies the two men run—Tesla Motors Inc. and solar energy system provider SolarCity Corp.—are uniquely compatible. It isn’t just a product of the affiliation of their founders, but is also a consequence of Mr. Musk sitting on the board of SolarCity and being its largest individual shareholder.
Tesla makes cars, but it also—in the not too distant future—will make batteries. Lots of them. Tesla is building a $5 billion “gigafactory” in Nevada for batteries, one so large that it will, says Mr. Musk, be larger than the whole of earth’s current capacity for manufacturing lithium-ion batteries, most of which currently go into phones, tablets, laptops and other mobile devices.
At the conference Wednesday, Mr. Musk disclosed that a portion of the gigafactory’s capacity will be set aside for building “grid-scale storage.”
In other words, Tesla is going to continue its tradition of manufacturing battery packs for SolarCity, only on a much grander scale.
Up to now, SolarCity has sold Tesla-built battery packs to a handful of corporate and residential customers. The rationale is simple: The sun doesn’t always shine, so the best way to manage solar power on-site is to save it up for cloudy days and overnight.
SolarCity’s revenue has been growing 100% a year since its founding in 2006, and Mr. Rive says his goal is to maintain that pace for as long as possible. To that end, SolarCity announced in June the acquisition of Silevo, a Silicon Valley-based maker of solar panels that Mr. Rive insists is capable of producing at scale the most efficient solar panels on the market.
Mr. Musk said that while his gigafactory won’t exclusively sell grid-storage batteries to SolarCity, conversations with the company are “our best feedback as to deciding what the product would look like.”
Mr. Musk went even further, describing “the product” as a bank of batteries that “looks good,” is about 4-inches thick and can be mounted on the wall of the garage in a home.
Thanks to the economies of scale that will come from Tesla’s gigafactory, within 10 years every solar system that SolarCity sells will come with a battery-storage system, says Mr. Rive, and it will still produce energy cheaper than what is available from the local utility company.
Mr. Musk also noted that in any future in which a country switches fully to electric cars, its electricity consumption will roughly double. That could either mean more utilities, and more transmission lines, or a rollout of solar—exactly the sort that SolarCity hopes for.
America’s solar energy generating capacity has grown at around 40% a year, says Mr. Rive. “So if you just do the math, at 40% growth in 10 years time that’s 170 gigawatts a year,” says Mr. Rive. That’s equivalent to the electricity consumption of about 5 million homes, which is still “not that much,” he says, when compared with overall demand for electricity. “It’s almost an infinite market in our lifetimes.”
There are almost innumerable barriers to the realization of Messrs. Musk and Rive’s plan. For Tesla, there is the possibility that a superior battery technology could come to market soon after Tesla and its partner, Panasonic Corp., build their gigafactory, rendering their $5 billion investment obsolete. And SolarCity has almost the exact same problem with its ambition to build its own solar panels. While Mr. Rive says that Silevo’s technology is “next generation” and can compete with the cheap panels that China has been exporting to the rest of the world, the oughts are littered with the carcasses of U.S. solar panel manufacturers who claimed they could do the same, including Solyndra Inc.
And while this is a threat to shareholders rather than his aims, there is also the risk that Mr. Musk will find other, more efficient routes to reaching his stated goals, which include moving the world onto electric transport and solar power generation as quickly as possible.
For example, when asked whether or not the U.S. should erect trade barriers designed to protect American solar-panel manufacturers, Mr. Musk said: “If the Chinese government wants to subsidize the rollout of solar power in America, OK, it is kind of like ‘thank you’ is what we should be saying.” And in a subsequent interview at The Wall Street Journal’s offices in New York, Mr. Musk emphasized that “the reason I created Tesla was to accelerate the transition to sustainable transport. And I made that clear to investors.”
Despite the dumping of solar panels by China representing a substantial threat to SolarCity’s $750 million bet on Silevo—which includes a $350 million acquisition cost and an estimated $400 million to build a solar panel manufacturing plant in Buffalo, N.Y.—Mr. Rive agrees with Mr. Musk that there should be no barriers to trade in solar panels.
“Any extra tax on solar is just bad,” says Mr. Rive. “We have a big problem to solve—let’s solve that problem.”
That “big problem” is climate change. And Mr. Rive has been no less public than Mr. Musk about the purpose of his company being more than turning a profit. It’s one more thing their companies—and the two men—have in common.
—Follow Christopher Mims on Twitter @Mims or write to him at christopher.mims@wsj.com.
Christopher Mims