Elon Musk announced last week that he wants Tesla, his electric-car company, to acquire SolarCity, the rooftop-solar company he helped found and now serves as chairman. The result would be a single "end to end" energy behemoth. "As a combined automotive and power storage and power generation company," Musk said, "the potential is there for Tesla to be a $1 trillion company."

Reaction was, by and large, skeptical. (Tesla stock dropped 10 percent the following day.) Over at Stratechery, Ben Thompson says Tesla already faces "very long odds of achieving its plans." Adding SolarCity’s negative $2.6 billion cash flow to Tesla’s already negative $1.5 billion is no help to Tesla, though it might save SolarCity. Thompson thinks Musk wants it because he’s "highly exposed to SolarCity’s plummeting stock." Otherwise it makes no sense, he says, because Tesla and Solar City have "zero business synergies."

Analysts at research firm UBS, in a pair of briefs, echo that critique, arguing that there’s little these businesses offer one another that they couldn’t get from some kind of cross-marketing agreement.

I’m not qualified to comment on the near-term business merits of the deal. It may well prove to be a disaster. But I think Thompson and other critics are underestimating the synergies. They are limited now, but they will grow over time. (Over at Greentech Media, Julia Pyper also has good piece on this.)

How fast will the synergies grow? That depends on factors largely outside either company’s control.

That’s the big risk of this deal: Even assuming the merged company could get past its short-term challenges, its long-term fate rests on policy and regulatory decisions it can’t predict or determine. It’s a merger based on hope.

Synergy depends on future markets

The kinds of markets in which electric cars, home batteries, and solar panels could fully, uh, synergize do not currently exist in most places. They are precluded by the way the US structures its electric utility sector, as a patchwork of monopolies and quasi-monopolies.

Dynamic, competitive power markets have to be created, through legislation and/or utility reform, the way New York is opening up its electricity sector to more competition. (Texas, California, and Hawaii are also making big strides.)

In such markets, where energy services are more fairly and transparently compensated, a Tesla/SolarCity whole-home energy suite (including an EV) could be an attractive product (for reasons I explain below).

There just aren’t that many of those markets yet; even the pioneers have only taken the first, halting steps in that direction.

It’s the right direction for the electricity sector. There’s probably no way to integrate enough renewable energy to hit US carbon targets without power-market reform of some kind. It’s likely that tech and business developments around distributed energy are going to force utilities to support these kinds of reforms anyway, lest they wither.

In other words, there’s a good case to be made that there will be sophisticated, competitive energy markets in the US at some point. In those markets, the products Tesla and Solar City make will be, you know, synergistic.

And perhaps now is the moment to be first mover in that space. Looking way down the road is kind of Musk’s signature thing.

But merging into an enormous, vertically integrated company based on markets that mostly don’t exist yet is an enormous gamble, to say the least.

There’s a customer-side electricity ecosystem coming together

So, what might these synergies be? To see them, we have to peer a bit down the road.

One of the most important trends in the energy world today is the rapid development of an ecosystem of distributed power technologies on the customer side of the electricity meter ("behind the meter," in the argot).

It used to be that electricity was carried almost exclusively from big power plants over transmission lines, dumped into distribution grids, and then dumped into buildings, to be used by relatively dumb appliances. It was a one-way cascade. As long as electricity was cheap, demand was met with brute force, i.e., more supply.

These days, homeowners have much more control over their power. They can generate their own electricity, store it, and manage it via software and web-connected devices and appliances. In a sense, every home can become a little minigrid — a mini-utility competing with its own larger utility.

And if you imagine a group of those minigrid homes linking up with one another, sharing power and energy services, grouping together behind a single meter, you have a microgrid — which is also competing with its larger utility.

This is what SolarCity ultimately wants to do: help create these minigrids and microgrids, little competitors to utilities.

To achieve that, people need more than solar panels. That’s why the company has begun selling batteries, smart thermostats, and even smart water heaters alongside its solar panels.

And for larger customers, it has GridLogic, a turnkey solution that can fashion a community of homes and/or businesses into a microgrid.

Up there in the top left, the connection to the larger grid is labeled "optional." In reality, most microgrids can’t function on their own, autonomously, at least not forever. They don’t have enough power generation or storage for that.

What they can do is "island" themselves off from the larger grid for some period of time (ranging from minutes to days) in the case of blackouts caused by severe weather, terrorist attacks, or squirrels.

Being part of a microgrid also gives customers more control over the kind of power they use and how they use it.

Anyway, that’s the right way to think about the space SolarCity is in: not just solar panels, but minigrids and microgrids.

Electric vehicles can play a part in that ecosystem

Now, a gasoline vehicle has nothing to do with any of this; it draws on a different energy infrastructure.

But an electric vehicle (EV) fits right in. It plays two roles.

First, it shifts energy demand from gasoline to electricity, upping the amount of clean, self-generated power a mini- or microgrid can use.

And second, it serves, like home batteries, as "dispatchable demand," able to store power and return it to the grid as needed. Dispatchable demand can allow more self-generated power to be consumed, but it can also allow excess clean power to be stored when it’s cheap and sold back to the grid when it’s more valuable (arbitrage).

The batteries of individual EVs can also be aggregated together with thousands of others, via software, to serve as one big virtual mega-battery, providing a range of energy services to the grid. (The aggregator pays the owners of the individual batteries for their participation.)

Now imagine a city-sized microgrid, connected to the larger regional grid but able to island itself if necessary. Imagine the role a fleet of self-driving electric vehicles could play in that grid, wirelessly exchanging power with the grid according to its minute-by-minute or second-by-second needs.

The point of all this is, EVs will be connected to the grid. "There will likely come a time when mobility and distributed generation are better integrated," Costa Samaras, a clean energy researcher at Carnegie Mellon University, told me. "Now is not that time, but Musk is betting it will be sooner than later."

Whether sooner or later, EVs will eventually be part of the same electricity ecosystem that SolarCity is focusing on. To put it in language more familiar to today’s techies: EVs, home batteries, solar panels, smart appliances, and mini/microgrid energy management software are all part of a platform.

So yes, there are potential synergies between Tesla and SolarCity. There are huge opportunities for the companies that define that platform and make its coherence and breadth evident to customers through smart design, marketing, and branding. Tesla has a lot of skills in all those areas, and a lot of brand equity. If any company could do it today, it would be Tesla.

But it’s not clear that any company could do it today.

Software is fast. Elon Musk is fast. Utilities are slow.

Right now, as I said, all those little minigrids and microgrids are competitors to utilities. For every bit of energy they generate, manage, share, and consume on their own, islanded off from the larger grid, the less they need the utilities. That is a direct threat to most utilities’ bottom line.

It’s not that utilities are venal or greedy, it’s just the way they’re regulated. They make money by investing in more centralized power and more grid infrastructure; minigrids and microgrids are designed to use less of both.

That’s an inherent conflict that’s going to stymie and stifle customer-side electricity markets until it’s resolved.

The places that are resolving it, like New York, have realized that distributed energy resources (DER) are actually healthy for the grid. They can ease grid congestion, prevent the need for expensive infrastructure, cut demand, and smooth out fluctuations in grid power. And they are more resilient in the face of severe weather or attack.

So New York is trying to set its utilities up as DER managers. Its utilities are going to track and coordinate DERs. They’re going to structure and oversee markets in which the services that DERS provide are transparently priced. And they’re going to make money by providing those market services to DER owners and aggregators.

"There’s no question the aggregation business will grow," says Sonia Aggarwal of policy research firm Energy Innovation, "it’s just a question of how quickly policy can catch up to technological and business model innovation."

Creating a dynamic market in which companies can compete to provide minigrid and microgrid services is going to unleash serious growth. In a market like that, a company with Tesla/SolarCity’s head start, established expertise, and end-to-end branding has a chance to really flourish.

But in most places in the US, there are no such markets. In most places, the decrepit utility monopoly model remains in place, and distributed energy depends on special policy carve-outs like net metering (which, as UBS notes, works against the value of home energy storage). Even those carve-outs are under attack.

Elon Musk clearly thinks that’s going to change, or that he can change it. He sent rockets to space and landed them on floating drone ships, so he probably thinks he can do anything (except escape a Matrix-like reality simulation).

But there was nothing between Musk and space but imagination, money, and hard work. Between Musk and a clean, smart, distributed electricity system are power utilities, which have been stifling competition and innovation since before Musk was born. They’re pretty good at it.

I’m not sure which way to bet. But Musk is right that there’s a pot of synergistic gold at the end of this technology rainbow, for whoever can get there first.