SCTY Acquisition makes no strategic, financial or operational sense!

[Foghat]

Solarcity new loan product is basically mypower 2.0. Which they will use 3rd party financers for the loan and get paid upfront for a "cash sale".

They are aiming for something near 100mws of mypower 2.0 by year's end 2016 and obviously if it unexpectedly takes off better then that, above 100mws.

Key here is its a cash sale and someone else is financing.

 

[Perfectlogic]

I know that solar installation is all about soft cost, I was the one that brought this up in this thread and remind everyone that any discussion of Chinese PV panel cheaper than SolarCity's panel are pretty pointless. My statement was suggesting that you seem to be all over the place in terms of your argument, even within this latest reply. For example, what do you mean by Buffalo plant is not able to compete with chinese?? SCTY will be using tons of the panel produced in the Buffalo plant for SCTY customers. It is not like they produce tons of these and sitting around the factory just coz the Chinese less-efficient panel are cheaper. SCTY makes these new and better panels for themselves, it is not like they rely on some other solar installers to choose their panel. The demand for these panel are there and guaranteed already even before the panel are made.

Just because the panel is only 20% of SCTY's cost doesn't mean it's pointless to discuss. Every tiny bit of margin counts, especially in the business SCTY is in. If their competitors have an advantage in buying modules from the Chinese then this is a problem for SCTY. Shutting down the plant after finding out it isn't competetive is also a problem.

 

[Perfectlogic]

So I did my research: it doesn't look that they are at 37c/watt, though it was predicted. Are you confusing cell prices and module prices?
Here's the prediction:
Here’s How Chinese Firms Will Produce Solar for 36 Cents per Watt
Here's slightly out-of-date data, showing *cell* costs at 37c/watt, but not module costs:
Solar Module Prices Reached 57 Cents per Watt in 2015, Will Continue to Fall Through 2020
More recent data:
IHS examines 22% price gap between modules from China and global rivals

China's only at 47 cents/watt at module level. A lot of that is believed to be from economies of scale which Silevo should have.

Anyway, Silevo has been targeting 50c/watt MODULE for the panels, though Musk seems to think he can cut that further. A lot of the costs will be in the factory rather than the materials. The design does avoid silver, but uses copper instead. SunPower still sells panels profitably, so "nearly as good as SunPower" should enable Silevo to charge some premium over the general market. Silevo also advertises better hot-weather performance. And they really should get some balance-of-systems benefit out of using more efficient panels and from using Zep racking.

Most of SolarCity's high cost structure is their ludicrously high cost of sales.

But it remains a highly competitive market, and I'm not terribly optimistic about it. First Solar promises utility-scale prices under $1/watt by 2017:
First Solar CEO: ‘By 2017, We’ll Be Under $1.00 per Watt Fully Installed’
SolarWorld and Trina both have their own 22% efficient designs:
SolarWorld hits 22% PERC efficiency
Trina sets a new world record of 21.25% efficiency with multicrystalline silicon

I'd still be OK with Tesla placing a bet on SolarCity if they weren't so damn *leveraged*. But the high leverage makes SCTY much riskier.

I applaud you for doing some research, refreshing compared to many others here. First link is 2 years old and second is on ASP. If you want to get the latest in house production cost it's best to go onto the investor's page of Jinko solar, Trina solar, Canadian solar and JA solar. I have listened in to the latest earnings call of all of those 4 and they are all around the 37c/watt inhouse cost of Jinko solar. Trina solar for example is at just 35c/watt inhouse, but their blended cost is higher due to more outsourcing and higher tariffs on US sales as they don't have much production in tariff free countries like Malaysia.

 

[Perfectlogic]

NV Energy wants to buy excess solar juice for less than 3 cents, then turnaround and sell it to the next door neighbor for 11.83 cents. All while charging an extra $45 for the privilege.

If that solar excess weren't there, where does that kWh come from? An NV Energy peaker plant who receives somewhere between 8 and 14 cents. That is essentially theft.

The alternative to buying the excess power from rooftop solar owners isn't a peaker plant. You don't use peaker plants when you have the least demand of the day.

The California `Duck Curve' That Will Jolt Its Power Grid (second time I'm linking this, I wonder how many it will take before you stop spreading misinformation)

It doesn't take very much solar to make the sunniest time of the day the time where power is the most abundant, and going forward it will only get worse. Judging by this fact 3 cents actually seems reasonable, a bit less than their average cost for a ressource with a bit lower value.

These are the facts whether you like them or not.

 

[Gerardf]

I agree with ggnykk that "discussion of Chinese PV panel cheaper than SolarCity's panel are pretty pointless"

Perfectlogic, you can come up with all kind of calculations etc, etc. for all you are worth, and as many times three-posts-in-a-row as you want. To be honest I am not reading all those posts. As it is not the current cents-per-Watt, lobbying / corruption in legislation or what the chinese do that matters.

This is a very very fast changing market, where strategic positioning and innovation are far more important than these details.

Fact is that both residential and utility solar installations are growing, growing faster every year. It is exponential growth.

File:PV cume semi log chart 2014 estimate.svg - Wikipedia, the free encyclopedia
Growth of photovoltaics - Wikipedia, the free encyclopedia

And as Solar keep growing, prices will keep going down and the the market where Solar is economic will grow even much faster than prices will go down.

In some cases the reason to install solar it is due to lower costs, in some cases it is to be prepared in case of power ourtages, in some cases it is out of a choice not to add to poluting the world. And I can easily think of several more. The fact that there is a very diverse set of reasons to move to Solar is why it will be very hard to stop that trend. Some stakeholders invested in fossile fuels can try to delay growth by lobbying legislation, spreading FUD etc, etc. However delay is their best case, and will just make it hurt more for them once the inevitable happens. Actually IMHO we are already way past the tipping point.

I think very few people doubt that solar will grow, and also very few people will not agree that it is a strategically great move for Tesla to position itself there now. Solarcity offers a big marketshare in USA, an almost-ready Solar-panel-GigaFactory, innovative solar-cells and an installation force. Thus most will agree say that SolarCity is the natural choice and indeed perfect strategic fit.


You state :
"Just because the panel is only 20% of SCTY's cost doesn't mean it's pointless to discuss. Every tiny bit of margin counts, especially in the business SCTY is in. If their competitors have an advantage in buying modules from the Chinese then this is a problem for SCTY. Shutting down the plant after finding out it isn't competetive is also a problem."

There are no signs that the solarpanels that will be comming from the highly automated factory will be too expensive. You spread such fear, but do you have knowledge what the production costs at the new factory will be ? Of what innovative technology and production methodes Tesla and SolarCity are working on... Or what will happen with import taxes for chinese panels in the next 5 years ?
On that last subject I guess nobody knows, but on all the other the Tesla & SolarCity board know all, and we know very little. I trust that the board knows what they are doing over you just doing some wild guessing.


Note that exponential growth means that being in even just a little bit earlier can make a very big difference on the later market-share and profits. So actually even the SCTY aquisition price does not matter to much. Many do call this aquisition a no-brainer indeed, some understand that now, others will only once the exponential solar growth is a bit further along.

For those that are in TSLA or SCTY for the long run THAT is all that counts.

Those that were hoping to gain from TSLA (or SCTY) in short term have had plenty of warnings that short-term profit is not an expression to be found in Elon's book.

 

[Perfectlogic]

Perfectlogic, you can come up with all kind of calculations etc, etc. for all you are worth, and as many times three-posts-in-a-row as you want. To be honest I am not reading all those posts. As it is not the current cents-per-Watt, lobbying / corruption in legislation or what the chinese do that matters.

So what you are saying is that you don't care about calculations based on current costs we know to be true? All you care about is speculation about the future based on absolutely nothing but hope? You are talking like the cost trend of residential vs utility scale solar favors residential in the future but that is not the case. SCTY is cutting cost 6% per year while utility scale is moving faster than that while already having a huge lead being a quarter of the cost. Do you have anything, even the tiniest bit of hard data showing that residential solar is catching up to utility scale in cost? I mean you must have a large amount of clear cut evidence if you really believe such a large shift in cost will take place. Funnily enough I haven't seen a single shred of evidence so far, all your talking points are intangible nonsense.

It's amazing how you guys can just ignore the facts completely. You don't even try to disprove the numbers I'm using that literally proves residential to be very expensive today, you just disregard everything that isn't in agreement with your bullish residential solar assumption and keep living in fantasy land. If nothing else at least this has been an interesting case study in the incredibly powerful grip of confirmation bias.

There are no signs that the solarpanels that will be comming from the highly automated factory will be too expensive. You spread such fear, but do you have knowledge what the production costs at the new factory will be ? Of what innovative technology and production methodes Tesla and SolarCity are working on... Or what will happen with import taxes for chinese panels in the next 5 years ?

Again you completely ignore reality and apparently haven't even read my posts. If you had done the tiniest bit of research you would find that SCTY has said they expect the cost of their Silevo modules to reach 55c/watt when they have ramped up production at some point in the future. This is 50% more expensive than the production cost of the Chinese today, and they are still cutting cost 10% per year. This is the data we have, this is what I build my reality on. We don't know for certain that the Silevo modules won't be competetive and we don't know for certain that they will, but judging by their own cost expectation, it clearly is a very dicey venture.

 

[TheTalkingMule]

The alternative to buying the excess power from rooftop solar owners isn't a peaker plant. You don't use peaker plants when you have the least demand of the day.

Well that's a new one. The sun doesn't shine at peak in the dessert? Peak may be at 7-8pm, but every active moment for solar is still backed up almost entirely by natural gas in Nevada. That natural gas supply at wholesale is 8-14 cents.

It doesn't take very much solar to make the sunniest time of the day the time where power is the most abundant, and going forward it will only get worse. Judging by this fact 3 cents actually seems reasonable, a bit less than their average cost for a ressource with a bit lower value.

Worse? Oversupply at peak is not "worse", it's the goal. You take your perspective from the utility side who is now the servant after 100+ years of being the master. The servant cannot dictate the mix, nor are we creating the mix to optimize the profit of the servant.

We allow regulated utilities to do a job for us and add a percentage of profit on top of their costs. That job is now wildly different that it was 5 years ago, they either need to do the job or be replaced.

All the German utilities learned this lesson as solar hit 5% of supply. Some complied, others were essentially eliminated by their refusal to comply. The days of sitting back and raking in the production profits are over, there are simply too many alternatives now.

 

[Perfectlogic]

Well that's a new one. The sun doesn't shine at peak in the dessert? Peak may be at 7-8pm, but every active moment for solar is still backed up almost entirely by natural gas in Nevada. That natural gas supply at wholesale is 8-14 cents.

When the sun shines the net demand for the utilities in CA is now the lowest during the day, that is what the graph in my link shows. You are saying that the wholesale cost of electricity is the same as retail cost, that is literally impossible. Why do you keep making stuff up, do you have no shame?

Worse? Oversupply at peak is not "worse", it's the goal. You take your perspective from the utility side who is now the servant after 100+ years of being the master. The servant cannot dictate the mix, nor are we creating the mix to optimize the profit of the servant.

Having a higher supply than demand is never the goal, having supply = demand is the goal. When supply is higher than demand like what is now the case when solar is producing, then the power becomes less valuable as it costs money to save that power for later. And it costs money when you have to shut down nat gas plants for a few hours during mid day because of solar.

 

[Alketi]

SCTY has said they expect the cost of their Silevo modules to reach 55c/watt when they have ramped up production at some point in the future. This is 50% more expensive than the production cost of the Chinese today, and they are still cutting cost 10% per year.

Keep in mind that the panel cost is a non-majority percentage of the total installation cost, especially for residential. I had panels installed last year for $4.30/W, which was the best price I could find for the panels I wanted (pure black variety, AC microinverters). The cheapest installed prices for junk panels in MA is probably in the $3/W range. So, there is plenty of cost overhead that can be trimmed. The panel price for residential is not the longest pole in the tent. Not in the U.S.

 

[Perfectlogic]

Keep in mind that the panel cost is a non-majority percentage of the total installation cost, especially for residential. I had panels installed last year for $4.30/W, which was the best price I could find for the panels I wanted (pure black variety, AC microinverters). The cheapest installed prices for junk panels in MA is probably in the $3/W range. So, there is plenty of cost overhead that can be trimmed. The panel price for residential is not the longest pole in the tent. Not in the U.S.

I know, I have already said that it is about 20% of the total cost for SCTY. But in business small margin differences are very significant, especially for the low moat industry SCTY is operating in. For some businesses a margin increase of a few percent could double their valuation.

@Mule

If you were wondering the actual cost of electricity from nat gas is around $52-$78/mwh https://www.lazard.com/media/2390/lazards-levelized-cost-of-energy-analysis-90.pdf and that is at a cost of $3.5/MMBtu which is higher than it is today. When the demand is lowest the real cost is effectively lower than the average because it costs money to shut down and restart a plant. So the excess solar power utilities are forced to buy at mid day is probably worth less than 5c/kwh to them, perhaps even much less than that.

 

[neroden]

I applaud you for doing some research, refreshing compared to many others here. First link is 2 years old and second is on ASP. If you want to get the latest in house production cost it's best to go onto the investor's page of Jinko solar, Trina solar, Canadian solar and JA solar. I have listened in to the latest earnings call of all of those 4 and they are all around the 37c/watt inhouse cost of Jinko solar. Trina solar for example is at just 35c/watt inhouse, but their blended cost is higher due to more outsourcing and higher tariffs on US sales as they don't have much production in tariff free countries like Malaysia.

I'm highly skeptical due to a lack of outside validation. That said, First Solar is apparently at 40 cents / watt. That's US, so no tariffs. Not the easiest thing for SCTY to compete with: Cheaper Than China Again, First Solar Vindicates U.S. Investment

On the other hand, SunPower continues to sell its panels profitably despite having among the highest cost-per-watt in the business. This is through prestige, by having highly-efficient, highly-durable US made panels which people will pay a premium for. It sounds like Musk wants to try for that business.

 

[neroden]

Tax equity investors pay *up front* for the tax credits and part of the cash flows once installed. This amounts to 1.60/watt up front before install.

Solarcity also receives .08/watt *up front* from rebates and prepayments.

So this is very helpful. About $1.68/watt upfront -- it's the balance of costs after that which is being financed.

The new bank loan scheme, financed in advance, essentially addresses all my financing worries, so I'm really only looking at the financing of panels which are under lease or PPA.

Thanks for the info...

 

[Perfectlogic]

I'm highly skeptical due to a lack of outside validation. That said, First Solar is apparently at 40 cents / watt. That's US, so no tariffs. Not the easiest thing for SCTY to compete with: Cheaper Than China Again, First Solar Vindicates U.S. Investment

On the other hand, SunPower continues to sell its panels profitably despite having among the highest cost-per-watt in the business. This is through prestige, by having highly-efficient, highly-durable US made panels which people will pay a premium for. It sounds like Musk wants to try for that business.

We know they sell the modules for, they would be bankrupt by now if their cost was higher than they say it is, lets try to keep the conspiracy theories to a minimum in this thread. The First Solar modules are also produced in Malaysia. Sunpower is losing market share rapidly, so that argument doesn't work very well.

 

[electracity]

Tesla will be the only solar provider that has retail foot traffic looking at its products.

 

[neroden]

If the market were ready for just straight installs,

I actually believe it is, though it probably wasn't back in 2006. *shrug* I've actually seen several sets of numbers which indicate that if the markup to cover sales costs were cut, solar power would sell itself in many parts of the US. Banks are now totally comfortable financing panels the same way they finance houses and cars.

 

[Vitold]

It's depressing to see such logic thrown around in a thread where you would think people know better. The FUD has taken hold and in turn has created an environment where it takes $.67/W of sales effort to fight back through it. What a truly American system we have.

NV Energy is planning to charge a residential solar customer $45 per month plus essentially steal and resell all their excess electricity at peak. Does it costs thousands of dollars a year to maintain one single house's grid connection in the middle of the dessert? That is simply absurd.

Solar behind the meter removes chunks of demand and also adds tons of supply at peak when utilities make all their profit. When that peak profit disappears we are under no obligation to replace it.

I think you agree that Utilities need to be reimbursed for maintenance and support. The issue is that so far no one has figured out how to bill correctly and in case of Nevada they are using the fees to suppress rooftop solar.

Here's a novel idea: charge all customers flat maintenance/support/meter fee.

 

[Perfectlogic]

I think you agree that Utilities need to be reimbursed for maintenance and support. The issue is that so far no one has figured out how to bill correctly and in case of Nevada they are using the fees to suppress rooftop solar.

The issue is that if people with rooftop solar pays their part for using the grid infrastructure and only gets paid a fair amount of 5c/kwh or a bit less for the excess power produced at mid day the model simply isn't viable. Only with the extremely favorable terms of getting paid fully for excess power produced is SCTY able to offer a rate just below the utility. And the market isn't even convinced that SCTY has a sustainable business on these terms.

Edit: Generally I have focused on SCTY since this is the company TSLA is acquiring, but even without net metering I'm sure rooftop solar could be a profitable investment if the homeowner installed the modules themselves (making it a fraction of the cost of buying it from SCTY) and the system was a small one where the residents could use all the power generated. And we are talking sunshine states like CA of course.

 

[TheTalkingMule]

I actually believe it is, though it probably wasn't back in 2006. *shrug* I've actually seen several sets of numbers which indicate that if the markup to cover sales costs were cut, solar power would sell itself in many parts of the US. Banks are now totally comfortable financing panels the same way they finance houses and cars.

I 100% agree that this price/cost/behavior dynamic is everything, we just disagree on PPA value. We can all agree that in a true democratic capitalist society we would have this market fully mature by now. Corruption has unfortunately kept our sales costs locked at the $.55-.91/W level and is greatly hindering the nationwide scale up. If sales cost were driven down from $3k-6k to perhaps $500 per install as it is in Germany, all sales methods would instantly come to scale in the vast majority of markets. That's the Catch-22.

You're of the opinion that once the market is nearly to scale everything should naturally gravitate toward straight sales, traditionally financed or otherwise. I think there's about a 50/50 natural marketshare split between self-managed purchases and full service solar-as-a-service products. SCTY is so far ahead of everyone else that I'm not sure it even matters at this point. Active renewable energy management and storage at both the point-of-use and grid level will clearly be the sweet spot moving forward. And the market for those services worldwide is almost too high to calculate.

SCTY as an organization and the entire US solar industry simply needs to eliminate half it's sales cost in short order to get this thing to scale. Whether that's through federal regulation or by the consensus value of solar catching up to reality is the difference between 1 year and 3 years. Once on their way to scale, all models work(can be financed with ease) and the market will do it's job.

 

[Vitold]

I applaud you for doing some research, refreshing compared to many others here. First link is 2 years old and second is on ASP. If you want to get the latest in house production cost it's best to go onto the investor's page of Jinko solar, Trina solar, Canadian solar and JA solar. I have listened in to the latest earnings call of all of those 4 and they are all around the 37c/watt inhouse cost of Jinko solar. Trina solar for example is at just 35c/watt inhouse, but their blended cost is higher due to more outsourcing and higher tariffs on US sales as they don't have much production in tariff free countries like Malaysia.

Since you provided no reference I googled and found none. Do you have any links to support what you've written?

 

[TheTalkingMule]

The issue is that if people with rooftop solar pays their part for using the grid infrastructure and only gets paid a fair amount of 5c/kwh or a bit less for the excess power produced at mid day the model simply isn't viable.

For one thing, I'm not entirely sure that's true. SCTY can be profitable even at a 5 cent payback in some markets and you're ignoring the elephant in the room with the 357 Magnum. Once Powerwalls are integrated into the "Tesla Energy" solar PPA product, payback doesn't become an issue. That's $3k in hardware to completely negate that seemingly insurmountable issue. There is nothing the utility can do to beat solar+storage in Nevada. They MUST adapt.

For another thing, how is 5 cents or less "fair" when the alternative at that exact moment is for NV Energy to pay itself 8-14 cents at wholesale? That's essentially theft and goes completely against the monopoly utility model's mandate of securing power cheaply.