SolarCity (SCTY)

[jhm]

SolarCity Corp (SCTY) Stock: Why Baird Sees 60% Upside

solarcity must have had an analyst meeting. Two key bits:

***The recent ABS was oversubscribed and had no pricing pressure. SUNE had all kinds of lack of demand issues for its yeildco spin off recently causing to lower ipo price. Not even close to the success of what Solarcity is doing with ABS, and these facts prove it. Solarcity is expected to continue with ABS very soon and often, so bodes well for continued low cost capital to keep up with current compounding growth.

***the 100MW silevo pilot plant in fremont will be operational by end of this year, which will begin output at 3X more then silevo's current Chinese pv plant. This is a welcome surprise since it will increase product while serving as a warm up to what is required to getting the buffalo factory up and running full 1GW capacity by start of 2017. Very encouraged by this news as it demonstrates how Solarcity will efficiently scale to meet its goals on time. I also see this as a potential boost in cost savings if that 100MW of product is reached within the 2016 timeframe. I wonder if this additional product is calculated into the $2.50/watt all in cost figure by 2017 ITC expiration?

These are both great points.

I like that the asset backed security was over subscribed. I'm not sure I would trust the equity markets to put a proper value on a yieldco. The bond market tends to be much more rigorous mathematically in pricing. Moreover, with Obama's promise of loan guarantees, the next time SolarCity issues an ABS it may well come with a federal guarantee. With this, the bond market may view it as the same risk of a Mortgage Backed Security. (I should ask some of my colleagues who value MBSs how much of a difference this could make.) It may well be that the mortgage GSEs Fannie Mae and Freddie Mac could get involved. The upshot here is that SolarCity and other solar financiers could provide financing at mortgage rates, under 4%.

I am also very enthusiastic about Riverbend coming online. I think it could be a big boost to the stock, but more importantly it will be great for the business.

I continue to suspect that Silevo has a 400W panel. I've been looking at the PowerHub specs trying to figure this out. For some reason, SolarCity is not being explicit about the peak watt rating of the panels. I figure that the smaller array has 50 panels (standard 65 in. by 39 in.). At 24.5% efficiency these panels would have 400W. So the whole array would be 20kW. At 3.3 kWh / kW per day, this yeilds 66 kWh / day under modest insolation assumptions. I could be wrong here, they may be assuming more sunlight than I am and lower watts per panel. But I hold out hope for 400W panels.

If Silevo is ready to mass produce 400W panels, this will be a big deal. I think only SunPower may be a competitor at this high efficiency end of the market.

PowerHub is a good illustration of how critical high efficiency panels can be. Using just moderate efficiency 320W panels in the PowerHub configuration would only generate about 53 kWh per day, 25% less power. This increases the total weight and volume per MW that must be handled in a critical mission. This logistical burden undermine the tactical value of such an energy system in say a military application. At 10,773 pounds for nominal 30 kW output, this is 360lb/kW. Using lower efficiency 320 panels would just increase the weight per kW perhaps by as much as 33%. So wherever logistics may be a critical factor, efficiency matters. I'm looking forward to SolarCity showing off what PowerHub can do. I think there's much more to it than just throwing a few panels on a shipping container.

 

[Foghat]

Mayor Bowser Announces New Solar Financing Program for DC Businesses | mayormb

i think we're going to see PR on Solarcity pace commercial program to Washington, DC soon...

Jhm, I feel being oversubscribed will also put downward pressure on the rates for the next ABS as well. We could see the first sub 4 paper in short order.

silevo pilot factory is in Fremont, literally down the street from the Tesla NUMMI plant. This is the first time I've heard the pilot plant in Fremont pumping out 100MW a year. That's about 134MWs of product from both the China plant and the pilot plant even before the buffalo plant has reached full 2017 production rate. I'm wondering if Tesla is going to get this pilot product for the gigafactory starting next year. I do remember tesla leasing the building right next door to this pilot plant. Could they be developing a co-located battery production line as a pilot for the Gigafactroy and thus developing the Gigafactroy-as-product design?

 

[jhm]

Idaho regulators reduce PURPA contracts from 20 to 2 years | Utility Dive

buffet at it again in Idaho now... He's essentially just cut renewable investment in the state now. He's clearly not happy with renewables that he can't control entering his utitlity's market space. This has been his new trend and he's doing it with a lot of force now. Wasn't like this a couple of years ago. We are witnessing a significant shift in aggressiveness of his posture.

I only expect it to increase from now on. Buffet is making this very clear. I know why he loves regulation... Because he can control and manipulate it to his advantage. Just another example of the downside to legal monopoly utility.

I'm not sure how this impacts distributed solar. The sillinesshere is that the utilities have a compliance need for these contracts. By reducing the length of these contracts they will have a harder time finding willing parties. So the rates they pay will be closer to spot market prices. So the utility is just asking to drive up their compliance costs. Of course, they will pass this coat on to their ratepayers. But it seems this would only drive up grid defection, and in Idaho, I do mean grid defection. Out in the mountains, you and your neighbor can set up a PowerHub and do just fine without the grid. The utility can just eat the cost of powerlines through rough terrain that go unused. Buffet is looking more like a buffoon every day. The fact is, eventually Buffet will have to fight against gird defections. He will need to lower rate. The guaranteed rate of return only works if off-gridding is more expensive. So when Buffet has to compete on price, he will need cheap renewables, but for mere two-year contracts developers will not give him the best terms. He could be in a situation where SolarCity will give better terms to commercial clients than utility-scale developers will offer the utility. Seriously, a two-year PPA just does not work. It seems developers would need to ask for a lot of money down, which does not get refunded at the end of two years. I suspect that developers in Idaho will either leave the state or focus on commercial and industrial customers. When Buffet must compete on rates, I don't see how this could possibly end well for him.

 

[kenliles]

I'm not sure I would trust the equity markets to put a proper value on a yieldco. The bond market tends to be much more rigorous mathematically in pricing

Agree with that. Further (although it will take some years) Yieldcos are doomed as they are valued as if power costs will be underpinned by current fossil fuel rates and Solar will approach that asymptotically. The opposite is true, Solar-Storage will blow through that floor and asymptotically approach zero cost (20 year time frame). Long before that happens however, the market will enlighten itself to that fact, and Yieldco values will collapse. It's my belief that Yieldco is a reverse bond depreciating investment and Solar-Storage will eat it one freely distributed photon at a time...

P.S. Also, agree SunPower best competitor. Efficiency.

 

[Foghat]

http://pucweb1.state.nv.us/PDF/AXImages/Agendas/17-15/6059.pdf

well, well... Looks like the draft interim net metering proposal before the NV public utiltiy commission WILL continue net metering as is, which is exactly what Solarcity wants.

If the commission accepts this draft then no jobs will be lost and NO CAP on net metering customers in the interim between now and December 31st when they must have a permanent net metering rate (and any other charges).

if this draft goes through you better believe Buffet is going to ratchet up the pressure to get his rate pushed through ASAP. Each day Solarcity( and the rest) are selling massive number of leases/ppa/loans the more and more difficult it becomes to maintain anti-DG momentum.

this could reflect well on the market tomorrow. Not sure of the likelihood of he draft becoming the interim rate, but this does give big boost of hope things may not turn out as grime as once thought...

if this goes through, the Dg market is 1000's of MWs instead of the 235MW just last week... At least for the next four months that is... Crazy times

 

[jhm]

Mayor Bowser Announces New Solar Financing Program for DC Businesses | mayormb

i think we're going to see PR on Solarcity pace commercial program to Washington, DC soon...

Jhm, I feel being oversubscribed will also put downward pressure on the rates for the next ABS as well. We could see the first sub 4 paper in short order.

silevo pilot factory is in Fremont, literally down the street from the Tesla NUMMI plant. This is the first time I've heard the pilot plant in Fremont pumping out 100MW a year. That's about 134MWs of product from both the China plant and the pilot plant even before the buffalo plant has reached full 2017 production rate. I'm wondering if Tesla is going to get this pilot product for the gigafactory starting next year. I do remember tesla leasing the building right next door to this pilot plant. Could they be developing a co-located battery production line as a pilot for the Gigafactroy and thus developing the Gigafactroy-as-product design?

Thanks for pointing that out. For some reason the Fremont plant did not register in my mind. I thought they were just in China until Riverbend. I guess for logistics Fremont is super. Perhaps it is even better for manufacturing R&D, keeping most of the talent close in hand.

Co-location makes sense for an integrated product. So I'm not sure if there is an advantage to having panels and batteries built side-by-side. Howerver, Silevo panels and SolarEdge power optimizer could co-locates, and Tesla Powerwalls and SolarEdge inverters might integrate and benefit from co-location. Yet there is something attractive about a huge campus where all this stuff is happening.

Ok, so here's my fantasy business strategy. Somewhere in Nevada Tesla, SolarCity, Panasonic and SolarEdge build up a fleet of military grade PowerHubs. At first, nobody pays attention. Later they say these are just there for disaster response deployments. FEMA and the Red Cross get a few, and it all seems legit. Several GW are amassed. Then when the utilities least expect it, the deployment begins. The Hubs can be located anywhere, for any length of time, rented off-grid power for just 10 c/kWh. Mass defections ensue. People just leave the grid and use the Hubs until permanent installations are complete. The Hubs descend like locust striping ratepayers from the utilities, overwhelming the utilities capacity to cope with change. One by one the utilities go bankrupt. The Hubs pick up the powerlines. Microgrids multiply and interconnect. Piece by piece they integrate the remnants of broken utilities. The Hubs become stronger. And in the end no one seems to care that fossil fuels were just left in the ground. They're having way too much fun in their self-driving solar homes that drift to whatever natural scenery suits their fancy for the day. Once they left the grid, they kept going.

 

[xhawk101]

Thanks for pointing that out. For some reason the Fremont plant did not register in my mind. I thought they were just in China until Riverbend. I guess for logistics Fremont is super. Perhaps it is even better for manufacturing R&D, keeping most of the talent close in hand.

Co-location makes sense for an integrated product. So I'm not sure if there is an advantage to having panels and batteries built side-by-side. Howerver, Silevo panels and SolarEdge power optimizer could co-locates, and Tesla Powerwalls and SolarEdge inverters might integrate and benefit from co-location. Yet there is something attractive about a huge campus where all this stuff is happening.

Ok, so here's my fantasy business strategy. Somewhere in Nevada Tesla, SolarCity, Panasonic and SolarEdge build up a fleet of military grade PowerHubs. At first, nobody pays attention. Later they say these are just there for disaster response deployments. FEMA and the Red Cross get a few, and it all seems legit. Several GW are amassed. Then when the utilities least expect it, the deployment begins. The Hubs can be located anywhere, for any length of time, rented off-grid power for just 10 c/kWh. Mass defections ensue. People just leave the grid and use the Hubs until permanent installations are complete. The Hubs descend like locust striping ratepayers from the utilities, overwhelming the utilities capacity to cope with change. One by one the utilities go bankrupt. The Hubs pick up the powerlines. Microgrids multiply and interconnect. Piece by piece they integrate the remnants of broken utilities. The Hubs become stronger. And in the end no one seems to care that fossil fuels were just left in the ground. They're having way too much fun in their self-driving solar homes that drift to whatever natural scenery suits their fancy for the day. Once they left the grid, they kept going.

Poetically delicious!

 

[30seconds]

Thanks for pointing that out. For some reason the Fremont plant did not register in my mind. I thought they were just in China until Riverbend. I guess for logistics Fremont is super. Perhaps it is even better for manufacturing R&D, keeping most of the talent close in hand.

Co-location makes sense for an integrated product. So I'm not sure if there is an advantage to having panels and batteries built side-by-side. Howerver, Silevo panels and SolarEdge power optimizer could co-locates, and Tesla Powerwalls and SolarEdge inverters might integrate and benefit from co-location. Yet there is something attractive about a huge campus where all this stuff is happening.

Ok, so here's my fantasy business strategy. Somewhere in Nevada Tesla, SolarCity, Panasonic and SolarEdge build up a fleet of military grade PowerHubs. At first, nobody pays attention. Later they say these are just there for disaster response deployments. FEMA and the Red Cross get a few, and it all seems legit. Several GW are amassed. Then when the utilities least expect it, the deployment begins. The Hubs can be located anywhere, for any length of time, rented off-grid power for just 10 c/kWh. Mass defections ensue. People just leave the grid and use the Hubs until permanent installations are complete. The Hubs descend like locust striping ratepayers from the utilities, overwhelming the utilities capacity to cope with change. One by one the utilities go bankrupt. The Hubs pick up the powerlines. Microgrids multiply and interconnect. Piece by piece they integrate the remnants of broken utilities. The Hubs become stronger. And in the end no one seems to care that fossil fuels were just left in the ground. They're having way too much fun in their self-driving solar homes that drift to whatever natural scenery suits their fancy for the day. Once they left the grid, they kept going.

how about next to a factory, cough Fremont, that would use the energy when not deployed elsewhere

 

[atang]

http://pucweb1.state.nv.us/PDF/AXImages/Agendas/17-15/6059.pdf

well, well... Looks like the draft interim net metering proposal before the NV public utiltiy commission WILL continue net metering as is, which is exactly what Solarcity wants.

If the commission accepts this draft then no jobs will be lost and NO CAP on net metering customers in the interim between now and December 31st when they must have a permanent net metering rate (and any other charges).

if this draft goes through you better believe Buffet is going to ratchet up the pressure to get his rate pushed through ASAP. Each day Solarcity( and the rest) are selling massive number of leases/ppa/loans the more and more difficult it becomes to maintain anti-DG momentum.

this could reflect well on the market tomorrow. Not sure of the likelihood of he draft becoming the interim rate, but this does give big boost of hope things may not turn out as grime as once thought...

if this goes through, the Dg market is 1000's of MWs instead of the 235MW just last week... At least for the next four months that is... Crazy times

This ^^ +1000 , BTW Foghat, Like your music as well!

 

[jhm]

how about next to a factory, cough Fremont, that would use the energy when not deployed elsewhere

Ah, yes, the surplus energy feeds the robots that build the Hubs. This is all behind-the-meter, so the utilities never see it coming.

 

[JRP3]

Analyst says Chanos is lying about SCTY http://finance.yahoo.com/news/chano...t-solarcity-s-numbers--analyst-131055907.html

 

[Foghat]

Reviewing the NV interim net metering draft, it is clear rooftop solar stakeholders have a very strong legal case in such situations. Clear Supreme Court prescident in maintaining status quo while due process unfolds. I think today's decision will also be prescident for solar caps in specific and will be a deterrent to future utitlity tactics during cap maxing situations around the country.

What is interesting is now discovery will be able to happen which will shed light on the actual costs the utitlies are purporting as well as discovery for the benefits of roof top solar to the grid. They are nearly a dozen such studies, 8 independent studies done on net metering that reflect an overwhelming majority conclusion that net metering is a worth more then the average retail rate in the county. However, there is no such study from an individual utility that shows the breakdown of those costs that will increase rate payer rates.

As these times bring uncertainty(which reflect in the stock price), they also open the door for further evidence to support the benefit and force utilities to open their books in a more transparent and public way for all to examine and reach longer term conclusions on grid connected rooftop solar. This process of conducting hearing and having discovery will get to the root of the net metering issue and enable greater certainty as to how future disputes will be framed. Arizona is also going through a discovery process right now as well. I feel NV and Arizona hearing processes will send the message to the rest of the country and limit future utitlies ability to delay DG growth.

NV PUC will decide on the draft today, so I feel as I said before, this may become a note worthy win for rooftop solar that creates a successful strategy for net metering policy disputes around the country... and should reflect in the market.

if the draft is accepted:

***interim rate stays the same
***all interim rate payers are grandfathered for life of contract
***no cap on installs

This would be a resounding win, a big improvement on previous policy for the next four months. Solarcity could really set high install expectations when their hands aren't tied.

 

[jhm]

It looks like the shorts are back at it. The price is now under $41. They may be testing Musk's resolve to defend the price. I am contemplating at what price I will buy more and might set up a limit order.

 

[TheTalkingMule]

It looks like the shorts are back at it. The price is now under $41. They may be testing Musk's resolve to defend the price. I am contemplating at what price I will buy more and might set up a limit order.

I'm gonna abandon my dream of leveraging long calls and just buy this stock. At $40 it's an absolute steal, might as well invest the natural way.

5 years from now I can easily envision myself coordinating a microgrid install with SolarCity on behalf of my entire square block. $$$$$

 

[Foghat]

It looks like the shorts are back at it. The price is now under $41. They may be testing Musk's resolve to defend the price. I am contemplating at what price I will buy more and might set up a limit order.

This is is a shake out. Someone is pushing this down to get hands to fold. They will run out of gas when the decision comes down in NV PUC.

Before the shut down the Solarcity now site, I was tracking another record breaking booking quarter trending above 400MW (which then depends on net cancelations). Given the rush to beat the cap, I feel NV had a nice bump that will add into the new interim rate sales that again should be high volume to get it while they can before any changes on January 1st.

There is national legislation to extend the ITC as well as to streamline permitting process. With the president now keenly aware of rooftop solar situation, I think he will be tracking those states that are clearly making the wrong moves. In addition, the federal case involving Solarcity(which has lasted now four years because of federal foot dragging) will be resolved mid 2016. Also, the SRP anti trust case will see movement in the next few months which is another prescident setting event that has significant ramifications. There actually going to be A LOT of major policy/legal catalysts happening over the next 12-18 months so I expect the big swings to continue with possibly increasing frequency. However, I'm betting when the dust settles, we will be much higher then we are today in 2017 and beyond.

 

[jhm]

I'm gonna abandon my dream of leveraging long calls and just buy this stock. At $40 it's an absolute steal, might as well invest the natural way.

5 years from now I can easily envision myself coordinating a microgrid install with SolarCity on behalf of my entire square block. $$$$$

I'm with you. The upside on this is so great that you don't need leverage to get spectacular returns. Moreover, this is a long-term play and the time limitations on options can force you to take a loss. So with shares you can just hunker down for as long as it takes. Shorts know it is easier to threaten call holders than shareholder. So as long as a there are a lot of calls held, they can keep attacking the stock.

 

[drinkerofkoolaid]

Didn't Obama mention something about guaranteeing the safety of existing PPAs at the Clean Energy Summit? Moody's note seems to say a lot of people in California have Solar Systems installed via PPA. If the utilities change the rules in a way that makes the solar assets not cost effective, or if the cost of energy from other sources is cheaper resulting in people defaulting on their obligations, Solar Panel companies might have a problem.

 

[Foghat]

Didn't Obama mention something about guaranteeing the safety of existing PPAs at the Clean Energy Summit? Moody's note seems to say a lot of people in California have Solar Systems installed via PPA. If the utilities change the rules in a way that makes the solar assets not cost effective, or if the cost of energy from other sources is cheaper resulting in people defaulting on their obligations, Solar Panel companies might have a problem.

the only way a rooftop ppa goes under is if the utitlity sells retail electricity for a cheaper $/kWh rate. That's it. Looks at the capital expenditure plans of california utitlies and you quickly conclude there is no chance of that ever happening. The current ppa contracts are all grandfathered so they can not be touched of any future charges/rates are applied at some point in the future. That's why all these systems installed today(and in the past) are worth more down the road to homeowners (reguardless of purchase or ppa). Which, becomes another benefit to going solar. Home values rise with grandfathering. Thus far, grandfathering has an extremely strong prescident across the nation. As a matter of fact, there a zero policies that have ever excluded grandfathering.

so, existing solar ppa's are protected on many levels. The only question is on any future ppa sales, that's where any uncertainty would exist as new policies are enacted.

over the past 5 years solar pv prices have dropped exponentially which you would think, according to that default assumption, would cause Solarcity customers to throw off their system and get a new one. However, Solarcity has doubled every year over the same 5 year period, with 99.985% of all customers making their payments on time and in full. Over 8 years and 200,000 customers later, Solarcity has had a handful of defaults according to this data point. The default assumption has no support, in fact, it is proving to be the complete opposite of what's happening in reality.

over 50% of all households have a credit score of 720 or higher, so Solarcity has a massive prime market work with for a long long time. Any claims of subprime on national TV are slanderous and could be punishable in court.

 

[jhm]

EPM

EIA - Electricity Data

One distortion that FUDsters are floating right now is the idea that utility electricity prices are falling. The link above shows that this is clearly not the case. The average residential rate in 2004 was 9.45 c/kWh, but for the last 12 months ending May 2015, the rate is now 12.63 c/kWh. That is a CAGR of 3.13%. Or compared to the 12 months ending May 2014, 12.32, that is an annual increase of 2.52%, over a year within which oil prices have fallen more then 50%. So in national aggregates the idea that retail electricity is getting cheaper is simply false.

Also not that NV is not a critical market for SolarCity. The average residential rate is

EIA - Electricity Data
The next ploy is to cherry pick areas where rates may have come down. Table 5.6B is good for looking across all the states comparing YTD Y/Y. I'd encourages us to spend some time looking at this and keep an eye out for states where SolarCity installs solar. Notable the North Eastern states have very high rates and these are mostly getting worse. It should be no surprise that SolarCity would enter these states.

There is one state where residential rates have come down 17%. A year ago the average rate was 37.82 c/kWh, but now it's down to 31.27 c/kWh. That state is Hawaii. Two things happenned. Rooftop solar penetration skyrocketed, and diesel prices fell. Residential consumption of grid energy YTD fell from 1024 GWh to 979 GWh, a decline of 4.4%. Clearly lower prices did not lead to higher consumption. The decline in oil was not enough to keep customers happy. This is what massive load defection looks like.

Also note that NV is not a critical state for SolarCity. The average residential rate is 13.31 c/kWh up from 12.90 the year before. There may be particular pocket of opportunity, but 13 c/kWh PPA prices will not have mass appeal across the state. AZ is even less important. Right now the big action is in the Northeast where many rates are above 18 c/kWh. Alaska could be a really interesting market for PowerHubs and microgrids.

 

[jhm]

the only way a rooftop ppa goes under is if the utitlity sells retail electricity for a cheaper $/kWh rate. That's it. Looks at the capital expenditure plans of california utitlies and you quickly conclude there is no chance of that ever happening. The current ppa contracts are all grandfathered so they can not be touched of any future charges/rates are applied at some point in the future. That's why all these systems installed today(and in the past) are worth more down the road to homeowners (reguardless of purchase or ppa). Which, becomes another benefit to going solar. Home values rise with grandfathering. Thus far, grandfathering has an extremely strong prescident across the nation. As a matter of fact, there a zero policies that have ever excluded grandfathering.

so, existing solar ppa's are protected on many levels. The only question is on any future ppa sales, that's where any uncertainty would exist as new policies are enacted.

over the past 5 years solar pv prices have dropped exponentially which you would think, according to that default assumption, would cause Solarcity customers to throw off their system and get a new one. However, Solarcity has doubled every year over the same 5 year period, with 99.985% of all customers making their payments on time and in full. Over 8 years and 200,000 customers later, Solarcity has had a handful of defaults according to this data point. The default assumption has no support, in fact, it is proving to be the complete opposite of what's happening in reality.

over 50% of all households have a credit score of 720 or higher, so Solarcity has a massive prime market work with for a long long time. Any claims of subprime on national TV are slanderous and could be punishable in court.

I'd also add that under a PPA, just as the customer has the option to buy power from the utility at a lower price, SolarCity also has the option to lower the price they offer. So if your PPA has escalated to 14.2 c/kWh while the utility has lowered their rate to 14.0, then SolarCity could easily offer a comptitive rate of 13.9 and retain the customer's business. The operaton cost to SolarCity is negligible, so they can cut rates much lower than the utilities can. SolarCity may forego a slight amount of anticipated revenue, but it will not suffer any real loss. The utilities cannot win a bidding war with existing SolarCity PPAs, so they won't even try.