SolarCity (SCTY)

[fatjohn]

Anyone noticed that while calculating net retained value, which I have seen quoted as "cash coming to solarcity over the next thirty years" they include off course the contracts that have thirty year periods (or 20 years plus an expectation of renewals in the following ten years) minus their debt.

but then when you look at the debt profile, this is a lot shorter term probably around 10 years on average.

thoughts on this?

 

[SBenson]

Deaccelerating growth in a high demand 2016 market should allow them to concentrate on higher margin sales. They should be able to improve all financial measures, although I have no idea if they will go cash flow positive late next year. With no ITC extension they may be reducing sales expense by Q3. Good individual sales people only need to have many real buyers to make their numbers.

Chanos will be proven right or wrong by how SC responds as states replace NEM 1.0.

Thanks. If I may, what is your current position? Short, neutral, long? What conditions would you be looking to change positions (to go long, or further long, I presume)

 

[TheTalkingMule]

Hey Mule, As you threw a curve ball, I am trying to bring the conversation back to a reasonable point to further the discussion. If you were to look at my post 3105 now it might make more sense.

That's all very well and good, but do "you honestly think down payment necessity will be a barrier to success for SCTY"?

...because that's what you implied in your post. When you don't answer and link to an unrelated post, that does not do much to calm my concerns about the forthright nature of your posting. There's simply no way down-payment requirements will be a concern here, I'd like some deeper detail around your concept that it might be.

You're poking holes in corporate communication of numbers and profit scheme logic and it's been a great exercise to challenge these notions. But when you appear unwilling to directly address questioning of your own logic, that's where I feel people might start to question your authenticity. Accentuate the bad, deflect on the good. How am I supposed to interpret that?

 

[Foghat]

How would he have any idea of the impact of attached PPA's on a home? How would he have data on potential buyers who walked away? How would he know when owners had to cut the price in negotiations?

Leased solar panels can complicate a home sale - LA Times

This only gets worse as solar gets ultra cheap in the next decade.

Lyndon has the facts on all home sales of his systems, which by solarcity's account is an average of 20 a day. I would say Solarcity is the closest to the data then anyone else possibly could.

Just read this article that came out today: Rooftop Solar Brings Higher Home Appraisals | Greentech Media

maybe since 70% of all installs are lease/ppa in the U.S., Lyndon has support for claims it appears.

- - - Updated - - -

Hey Mule, As you threw a curve ball, I am trying to bring the conversation back to a reasonable point to further the discussion. If you were to look at my post 3105 now it might make more sense.

- - - Updated - - -



Foghat, Thanks for being patient. I overlooked the main point you are trying to make, as I was blinded by the -pilot- project terminology. My bad.

So if we were to adjust my simplified model, we would be adding an extra step in between, right?

Step-1) Take SolarCity's current economics

Step-2) Remove renewal portion (as it is NOT financ'able/bankable)

Step-3) Add in the impact of ITC drop

Step-4) Add in the cost savings

Step-5) Factor in the impact of Net-Metering scale back. Whether it is lower FIT or adding battery costs

Step-6) Add in any additional revenues or utility/state credits for added batteries

Step-7) Is there still 20% profit margin left?

Answer: Yes - SolarCity can continue to operate in the state. The model is bankable.

Answer: No - The contract is not bankable. Thus SolarCity will need to pull back from the state.

** Even with this, my original point remains. How do we measure or even guess this new step-6? Do we have any clues?

This is my point. You either believe solar+battery is a valuable tech to solarcity's business growth/success or you don't. Solarcity is at the forefront of the new energy system transition, they are going to be creating a new way to make money, so you either believe it or not. That's investing in Solarcity is to me. again, in this time of transition, uncertainty is not very model friendly, so I understand some having reservations about things. Great, enter when you feel comfortable. For me, I believe solar+storage how Solarcity is implementing it (along with tesla) is worth my dime and patience. I clearly see the writing on the wall and have made a long term investment. It's not just the business, but the entire approach to vertical integration and supply chain development within a 1% penetrated trillion dollar industry is a clear advantage, along with technical brain trust as well as founder continuity and long term mission oriented innovative culture. I feel this is a winning combination within an uncertain market environment. That to me is worth the short term risks of policy transition.

 

[SBenson]

That's all very well and good, but do "you honestly think down payment necessity will be a barrier to success for SCTY"?

...because that's what you implied in your post. When you don't answer and link to an unrelated post, that does not do much to calm my concerns about the forthright nature of your posting. There's simply no way down-payment requirements will be a concern here, I'd like some deeper detail around your concept that it might be.

You're poking holes in corporate communication of numbers and profit scheme logic and it's been a great exercise to challenge these notions. But when you appear unwilling to directly address questioning of your own logic, that's where I feel people might start to question your authenticity. Accentuate the bad, deflect on the good. How am I supposed to interpret that?

ok.. we are running fast on a huge misunderstanding.

Let me re-state my thesis while I answer your question.

- For SolarCity to survive their business model needs to be bankable.
- Bankable means SolarCity will be mortgaging the contracts, through various means like ABS, Solar Bonds on website, Collateralised bank loans etc.
- SolarCity can NOT put the entire contract up for a loan. It needs to hold some portion of it (Equity) while it mortgages the rest.
- I estimated (or speculated) that will be 20%
- So in effect it needs to have 20% profit margin on an all-in costs basis
- If it doesn't, where would that 20% come from?
- In short run, it could come from mortgaging the existing book, but in the long run (over 2 quarters) it is NOT sustainable
- And hence, the profit margin is directly related to bankability

Hope that makes sense.

 

[electracity]

Solarcity needs to to not run out of cash for operations. They don't have to finance all of each contract because they have a profit margin. They probably need to finance 3/4 of each contract, which is where the 20% comes from.

That's why understanding the true profitability of the average sale each quarter is critical. If they are truly selling profitable business to creditworthy customers, then financing should not be a problem.

The beauty of complex financial products is twofold: It distorts the buyer's evaluation of product value, and it makes understanding financial statements difficult.

 

[TheTalkingMule]

ok.. we are running fast on a huge misunderstanding.

Let me re-state my thesis while I answer your question.

- For SolarCity to survive their business model needs to be bankable.
- Bankable means SolarCity will be mortgaging the contracts, through various means like ABS, Solar Bonds on website, Collateralised bank loans etc.
- SolarCity can NOT put the entire contract up for a loan. It needs to hold some portion of it (Equity) while it mortgages the rest.
- I estimated (or speculated) that will be 20%
- So in effect it needs to have 20% profit margin on an all-in costs basis
- If it doesn't, where would that 20% come from?
- In short run, it could come from mortgaging the existing book, but in the long run (over 2 quarters) it is NOT sustainable
- And hence, the profit margin is directly related to bankability

Hope that makes sense.

Install costs vs. contract value is a vast chasm of cash, so what's the problem? Do you honestly think whatever derivative product comprised of 20 years of people paying grid rates to SCTY + net metering + SREC value is not far far far far far greater than the total install costs plus all overhead including financing?

SCTY has their cash ready to rock up front via low cost bonds that have wide appeal. What you're saying is calling into question the viability of the entire model, not even necessarily that it will be profitable. If it was bankable a year ago when install costs were 12.3% higher, why would it not be bankable a year from now when install costs are down another 5-10% and other soft costs are cut by half or more and the market is many times larger?

I just don't see a viable concern there. Or certainly not a concern specific to SCTY or solar in general.

- - - Updated - - -

Solarcity needs to to not run out of cash for operations. They don't have to finance all of each contract because they have a profit margin. They probably need to finance 3/4 of each contract, which is where the 20% comes from.

That's why understanding the true profitability of the average sale each quarter is critical. If they are truly selling profitable business to creditworthy customers, then financing should not be a problem.

The beauty of complex financial products is twofold: It distorts the buyer's evaluation of product value, and it makes understanding financial statements difficult.

Hence the communications issues. It's a tough story to explain, but it's very easy for me to understand the level of skepticism in light of the communications/education gap at SCTY. Lyndon apparently addressed this yesterday, I guess he's reading this board after all.

SolarCity CEO Says He Wishes Strategy Pitched Differently

Less than two weeks after its shares slid by a record, SolarCity Corp. Chief Executive Officer Lyndon Rive said he wishes he had explained a strategic shift to investors differently to better illustrate the value the company is still creating.


The biggest U.S. rooftop solar provider on Oct. 29 discussed plans to shrink growth and focus on becoming cash-flow positive by the end of next year. It’s part of an effort to calm investors worried about the company’s ability to raise financing going into 2017, when a federal tax credit that covers 30 percent of rooftop systems’ costs drops to 10 percent.


The response was not what Rive expected, he said. SolarCity sank 22 percent the next day, the biggest loss since its initial public offering in December 2012.

“I would have done it differently,” Rive, 38, said in an interview Wednesday in San Francisco. “What I would’ve done is come out with the full picture -- come out with, ‘Here’s our new cost target, and this new cost target is significantly lower, and here’s the extra value that we’re creating.’” Tesla Motors Inc. Chief Executive Officer Elon Musk is Rive’s cousin and SolarCity’s chairman.

(For the record, I'm not a fan of this public mea culpa either. At the end of the day this is 90% the result of short disinformation.)

I'm fairly convinced there's nothing to hide, so more transparency would be a net positive. Some of the hesitancy may come from the brokerage mentality that this business model has. You're obviously going to be hesitant to share too much detail when you're technically charging people vastly different amounts for the same product. I think the consumer can handle it though, especially now that install costs are so much lower and it doesn't feel like you're paying for the privilege of making future installs cheaper.

 

[Foghat]

Solarcity needs to to not run out of cash for operations. They don't have to finance all of each contract because they have a profit margin. They probably need to finance 3/4 of each contract, which is where the 20% comes from.

That's why understanding the true profitability of the average sale each quarter is critical. If they are truly selling profitable business to creditworthy customers, then financing should not be a problem.

The beauty of complex financial products is twofold: It distorts the buyer's evaluation of product value, and it makes understanding financial statements difficult.

They have $372mln in cash, with $669mln in ready to abs assets right now. With somewhere around 1.25Gws coming in 2016 to abs/aggregate, they are looking at the billion mark in cash going into 2017. This also includes approx. 50% deceleration in hiring and sales growth savings and a "meaningful reduction in cost targets" which leads to dramatic improvements in quarterly profitability. Not to mention the 1.25Gws worth of assets for abs offerings next year...

so, a billion in the bank with dramatically less need for financing installations at 1.25Gws levels... All January 1st 2017 post ITC.

Solarcity has investment grade ratings by the most reputable rating agencies in the country. It has received 99.4% of all payments due over the course of its history and each of its offerings have been well oversubscribed.

Net metering contracts are grandfathered for term of each contract.

lots of glaring evidence on solarcity's ability to finance its operations post ITC.

Im actually looking at the problems facing sun run potentially since they not even close to solacity's cost structure. I could see Solarcity absorbing many of their employees as 2017 approaches... Not sure if a aquistion is in the cards, but for the right price...

 

[Rarity]

They have $372mln in cash, with $669mln in ready to abs assets right now.

They have $327 million in cash plus the $566 million that they raised in October.

 

[jhm]

Why distributed batteries beat utility batteries on cost

Utilities think that they can cut network costs and save ratepayers money by building utility batteries at a cost of $3000/kW. Let that price sink in a moment.

Let's try to back into this. A 100 kWh Powerpack costs $25k and can output 25 kW. This puts the price of the battery at $1000/kW. But on a utility application the cost of siting the battery and adding inverters and other balance of system costs add another $1000/kW. Finally the installer needs to gross 20% to 35%. So the price tag to the utility comes to $2500 to $3000 per kW. Now the regulated utility is limited to making no more than a 10% profit on assets, so naturally they prefer higher asset values, and they go with $3000/kW fully installed cost. Now again because this is a regulated utility it can provide financing at 10%. The duration of a 10 year annuity at 10% discount is 6.76 years. So the annual cost of this kW comes to $443.79 = 3000/6.76. But wait! That's not all the utility still gets to make it's 10% profit margin, so the retail cost ratepayers is $493 = 443.79/.90 per year. According to the utility business model all ratepayers are morally obligated to pay their fair share of $493/kW/year.

Amazingly, utility batteries at this price will actually reduce utility costs and ratepayers will benefit. I actually believe that is true. Not because $493/kW/year is a super retail price for storage, but because everything in the grid is marked up like this and batteries really do make the grid more efficient. Moreover considering that batteries both charge and discharge at this rate, the flexibility is double. So paying $493 is comparable to $20/kW/month in monthly demand charges times 2, or $480. This is the going rate for my utility.

But what if a commercial ratepayer were to install their own Powerpacks along with their own solar system. The battery still costs $1000/kW, but siting, inverter and BoS is pretty much all included in the solar system. So the incremental cost just depends on the mark up of the installer. Naturally, this commercial ratepayer wants to limit their costs as much as possible because they do not profit from inflating energy assets. So the go with an installer that only marks this incremental component up 20%. The installed cost per kW is just $1250. Suppose they finance this at 6% over 10 year. This loan has duration 7.80 year, whence their annual payment is just $160/kW/year = $1250/7.80. Moreover, this business gets to use this battery for free as long as it lasts beyond 10 years. But wait! There's more. While the ITC is at 30% and this is a component of a solar system, the net cost is $112/kW/year.

So we see that the utility retails a kW of storage for $483 per year, while a commercial ratepayer can install and finance directly at $112 net of ITC or $160 excluding ITC. The kW of storage may save the ratepayer as much as $240 in demand charges alone. So clearly this is the better deal for the commercial ratepayer. But what about the rest of us? Would we rather pay our "fair share" of $493 from the utility or $112 to $160 from distributed storage? It seems pretty obvious to me. The utility model is broken.

 

[Rarity]

Don't know that it was mentioned in either. I picked it up because a post earlier in the thread linked to it and said that SolarCity's bonds were offering 11%.

Bonds Detail

I have heard that some investment banks have had troubles placing takeover bonds recently, so I am interested in hearing more about what would happen if SolarCity lost bond market access.

 

[tlo]

They have $327 million in cash plus the $566 million that they raised in October.

From the shareholder letter, they have $372 million in cash, plus:

"We currently have solar assets totaling $669M in our Financing Receivables eligible to move into
aggregation and/or ABS facilities over the next few quarters."

 

[Foghat]

Utilities think that they can cut network costs and save ratepayers money by building utility batteries at a cost of $3000/kW. Let that price sink in a moment.

Let's try to back into this. A 100 kWh Powerpack costs $25k and can output 25 kW. This puts the price of the battery at $1000/kW. But on a utility application the cost of siting the battery and adding inverters and other balance of system costs add another $1000/kW. Finally the installer needs to gross 20% to 35%. So the price tag to the utility comes to $2500 to $3000 per kW. Now the regulated utility is limited to making no more than a 10% profit on assets, so naturally they prefer higher asset values, and they go with $3000/kW fully installed cost. Now again because this is a regulated utility it can provide financing at 10%. The duration of a 10 year annuity at 10% discount is 6.76 years. So the annual cost of this kW comes to $443.79 = 3000/6.76. But wait! That's not all the utility still gets to make it's 10% profit margin, so the retail cost ratepayers is $493 = 443.79/.90 per year. According to the utility business model all ratepayers are morally obligated to pay their fair share of $493/kW/year.

Amazingly, utility batteries at this price will actually reduce utility costs and ratepayers will benefit. I actually believe that is true. Not because $493/kW/year is a super retail price for storage, but because everything in the grid is marked up like this and batteries really do make the grid more efficient. Moreover considering that batteries both charge and discharge at this rate, the flexibility is double. So paying $493 is comparable to $20/kW/month in monthly demand charges times 2, or $480. This is the going rate for my utility.

But what if a commercial ratepayer were to install their own Powerpacks along with their own solar system. The battery still costs $1000/kW, but siting, inverter and BoS is pretty much all included in the solar system. So the incremental cost just depends on the mark up of the installer. Naturally, this commercial ratepayer wants to limit their costs as much as possible because they do not profit from inflating energy assets. So the go with an installer that only marks this incremental component up 20%. The installed cost per kW is just $1250. Suppose they finance this at 6% over 10 year. This loan has duration 7.80 year, whence their annual payment is just $160/kW/year = $1250/7.80. Moreover, this business gets to use this battery for free as long as it lasts beyond 10 years. But wait! There's more. While the ITC is at 30% and this is a component of a solar system, the net cost is $112/kW/year.

So we see that the utility retails a kW of storage for $483 per year, while a commercial ratepayer can install and finance directly at $112 net of ITC or $160 excluding ITC. The kW of storage may save the ratepayer as much as $240 in demand charges alone. So clearly this is the better deal for the commercial ratepayer. But what about the rest of us? Would we rather pay our "fair share" of $493 from the utility or $112 to $160 from distributed storage? It seems pretty obvious to me. The utility model is broken.

Well not so much under aggregation model. Firm power provided just for peak demand alone saves the need to build out peaked nat gas plants that take many years to get on line and contributing to the grid. DER aggregation is quicker more resilient source of firm power on demand. Utilities will be forced to adapt as this is already being proved out in California as I write this. The compensation for whole sale firm power is shared with the customer of solarcity's energy. Solarcity is the aggregator of these targeted assets for firm power distributed the compensation(like net metering credits) to its customers which lowers their retail cost per kWh.

supports the transition to grid as service.

if some people actually think about this for a minute, the light bulb moment might happen...

If a utility is needing to respond to a spike in demand somewhere on the grid, is it easier to fire up a peaker plant in some far off location or is easier to call up power at or near the demand from an array of distributed batteries at or near the area of need? Which is more efficient use of capital resources? A billion dollar peaker plant used 3 to 4 times a year or minimal to no capital investment in paying for access to firm power at or near the place of demand 3 or 4 times a year? things just can't get more obvious to me.

its Solarcity as Apple Music monthly subscription fee to access music catalogue... Utilities pay a monthly fee for access to power on demand when they need it. No need to buy whole albums all at once individually when you can pay less per month for all the music you need.

 

[electracity]

Hellooooo subprime:

"SolarCity Corporation (NASDAQ:SCTY) [Detail Analytic Report] reported that it wants to lower the credit score that homeowners need to qualify for its systems. Lyndon Rive, Chief Executive Officer of SolarCity stated that the firm may lower the FICO score requirement for customers to less than 650 in two quarters. The average score for SolarCity customers is 750. Rive added today, their floor is 650,he still don’t like that floor."

Avon Products Inc. (NYSE:AVP) Falls Down to Knees on Dividend Slicing View- Amedica Corporation (NASDAQ:AMDA), SolarCity Corporation (NASDAQ:SCTY) | Streetwise Report

 

[aznt1217]

Hellooooo subprime:

"SolarCity Corporation (NASDAQ:SCTY) [Detail Analytic Report] reported that it wants to lower the credit score that homeowners need to qualify for its systems. Lyndon Rive, Chief Executive Officer of SolarCity stated that the firm may lower the FICO score requirement for customers to less than 650 in two quarters. The average score for SolarCity customers is 750. Rive added today, their floor is 650,he still don’t like that floor."

Avon Products Inc. (NYSE:AVP) Falls Down to Knees on Dividend Slicing View- Amedica Corporation (NASDAQ:AMDA), SolarCity Corporation (NASDAQ:SCTY) | Streetwise Report

Right because you know... buying a house is the same as getting a Solar Panel System installed.

 

[jhm]

Well not so much under aggregation model. Firm power provided just for peak demand alone saves the need to build out peaked nat gas plants that take many years to get on line and contributing to the grid. DER aggregation is quicker more resilient source of firm power on demand. Utilities will be forced to adapt as this is already being proved out in California as I write this. The compensation for whole sale firm power is shared with the customer of solarcity's energy. Solarcity is the aggregator of these targeted assets for firm power distributed the compensation(like net metering credits) to its customers which lowers their retail cost per kWh.

supports the transition to grid as service.

Right. The economics dictate that utilities will have to adopt DER aggregation. That is how the utilities deliver the benefits of storage at lowest cost. The bulk of batteries are sited at lowest cost and greatest benefit at the point of consumption. Aggregation assures that the benefits of distributed batteries are made available to all ratepayers, not just those who physically have the batteries.

This turns the whole net metering debate on its head. True or not, the utilities have maintained that distributed solar shifts costs to other ratepayers, and they even buttress their contention by arguing that residential solar is more expensive to install than utility solar. But with batteries it is just the opposite. Distributed batteries are cheaper to install and finance than utility batteries, and they reduce total network cost most when they are aggregated well. So the refusal of utilities to aggregate distributed batteries would in fact impose high costs on all ratepayers than would be obtained under aggregation or utility ownership of distributed batteries.

So if batteries flip the issues regarding distributed solar, what should we make of dispatchable distributed solar, i.e., solar plus storage plus aggregation? In this light, NEM is bad policy because it offers no incentive to add batteries or aggregation. If may have made sense prior to the the Gigafactory, but it will make increasingly less sense post-Gigafactory. None of the NEM 2.0 proposals make any provision for dispatchable distributed batteries. So NEM 2.0 will be obsolete by the time it is implemented. It seems that it may be best to force utilities to continue NEM as is, with the provision that they can innovate alternative schemes for compensating batteries that customers can voluntarily opt into. Basically if they want to avoid NEM, they need to reward batteries. The basic argument here is that it costs less to induce solar customers to get batteries and provide grid services than for the utility to operate centralized battery banks to firm up NEM. The value of distributed solar goes way up when it is made dispatchable. So that is the economic way out for the utilities. The answer to NEM is not to make distributed solar more costly to its owners, but to make dispatchable solar more valuable to all ratepayers. It is in the economic interest of all ratepayers to pay to keep dispatchable solar on the grid. The tables are turned.

 

[Foghat]

Hellooooo subprime:

"SolarCity Corporation (NASDAQ:SCTY) [Detail Analytic Report] reported that it wants to lower the credit score that homeowners need to qualify for its systems. Lyndon Rive, Chief Executive Officer of SolarCity stated that the firm may lower the FICO score requirement for customers to less than 650 in two quarters. The average score for SolarCity customers is 750. Rive added today, their floor is 650,he still don’t like that floor."

Avon Products Inc. (NYSE:AVP) Falls Down to Knees on Dividend Slicing View- Amedica Corporation (NASDAQ:AMDA), SolarCity Corporation (NASDAQ:SCTY) | Streetwise Report

who pays the operational costs on a foreclosed house?
Does a solar system provide marketability to potential buyer of a foreclosed home?
What is the payment history of energy bill payments for subprime homeowners?

these questions and more are thoroughly vetted by rating agencies as well as Solarcity in committing to this segment of the market. Lyndon has already stated he will do nothing to jeopardize his investment grade ratings in entering this market segment.

im thinking they might possibly shorten the lease term(maybe 10-15 years), have smaller systems which create less financial risk exposure. In addition, there are new financial incentives to bring solar to low income communities so I assume these also reduce Solarcity risk exposure if foreclosure/non payment happens and make it attractive to accelerate penetration into this segment.

it supports the logic you can't have 100% rooftop solar penetration if a 20-30% can't have it on their roofs because of low income or lack of low cost credit access.

 

[Foghat]

Right. The economics dictate that utilities will have to adopt DER aggregation. That is how the utilities deliver the benefits of storage at lowest cost. The bulk of batteries are sited at lowest cost and greatest benefit at the point of consumption. Aggregation assures that the benefits of distributed batteries are made available to all ratepayers, not just those who physically have the batteries.

This turns the whole net metering debate on its head. True or not, the utilities have maintained that distributed solar shifts costs to other ratepayers, and they even buttress their contention by arguing that residential solar is more expensive to install than utility solar. But with batteries it is just the opposite. Distributed batteries are cheaper to install and finance than utility batteries, and they reduce total network cost most when they are aggregated well. So the refusal of utilities to aggregate distributed batteries would in fact impose high costs on all ratepayers than would be obtained under aggregation or utility ownership of distributed batteries.

So if batteries flip the issues regarding distributed solar, what should we make of dispatchable distributed solar, i.e., solar plus storage plus aggregation? In this light, NEM is bad policy because it offers no incentive to add batteries or aggregation. If may have made sense prior to the the Gigafactory, but it will make increasingly less sense post-Gigafactory. None of the NEM 2.0 proposals make any provision for dispatchable distributed batteries. So NEM 2.0 will be obsolete by the time it is implemented. It seems that it may be best to force utilities to continue NEM as is, with the provision that they can innovate alternative schemes for compensating batteries that customers can voluntarily opt into. Basically if they want to avoid NEM, they need to reward batteries. The basic argument here is that it costs less to induce solar customers to get batteries and provide grid services than for the utility to operate centralized battery banks to firm up NEM. The value of distributed solar goes way up when it is made dispatchable. So that is the economic way out for the utilities. The answer to NEM is not to make distributed solar more costly to its owners, but to make dispatchable solar more valuable to all ratepayers. It is in the economic interest of all ratepayers to pay to keep dispatchable solar on the grid. The tables are turned.

The real interesting thing here is all Nem solar contracts are grandfathered... But... when the battery added to the solar system, net metering is replaced with aggregation compensation through Solarcity. Thus, every grandfathered system at that point no longer is under nem. Utilities no longer have to pay those retail rates to these 20 year contracts that they are saying is shifting too much cost.

So, net metering naturally goes away as installs solar+storage grow. It's the market system actually working. As a result, the utilities take that long term payment schedule off their books, replace it with demand response which saves money on peaker plant deployment as well as accelerates achievement of epa carbon reduction regulation as well as state renewable goals.

In effect, maintaining net metering at retail actually accelerates the end of net metering and catapults utilities toward grid modernization within the new grid a service model.

 

[jhm]

who pays the operational costs on a foreclosed house?
Does a solar system provide marketability to potential buyer of a foreclosed home?
What is the payment history of energy bill payments for subprime homeowners?

these questions and more are thoroughly vetted by rating agencies as well as Solarcity in committing to this segment of the market. Lyndon has already stated he will do nothing to jeopardize his investment grade ratings in entering this market segment.

In addition, there are new financial incentives to bring solar to low income communities so I assume these reduce Solarcity risk and make it attractive to accelerate penetration into this segment.

I agree. $1000 is a pretty good chunk of equity to offset the credit risks. Government incentive will help, and there may well be a positive role for GSE which guarantee many of these mortgages to play.

Protecting low income families from inflation in their power bills can improve payment of martgages. Financially distressed families tend to stop mortgage payments before stopping utility payments. So there would be motivation for mortgage lenders and GSEs to work with SolarCity on this. One option to consider is offering refinancing of the mortgage to include the solar system. Payments on the new mortgage would be even more secure, and in many cases a homeowner's creditworthiness and home value have increased since the time of origination. In such cases, refinancing could be a very beneficial move for the homeowner. Additionally, this approach circumvents the need for SolarCity to provide solar financing. Still there may be role for tax equity financing, so a clever mortgage lender could offer a hybrid solar mortgage that utilizes tax equity financing in conjunction with a traditional mortgage. There are lots of options here. So I'd love to see SolarCity work closely with mortgage lenders.

Additionally, lowering the FICO score threshold will improve the marketing and sales cost per Watt. Whenever SolarCity has to deny a customer on credit, it leaves marketing and sales as a sunk cost with no benefit. I suspect this may be a primary motivation here. It is costly to turn away business.

 

[electracity]

The prospicience of The Chanos:
Selling a complex financial product to subprime customers.

But the subprime aspect should be fine as long as it is priced into the product. The subprime move and the reduced guidance does suggest they are facing increased customer resistance. Moving to a customer group that is less skillful with their personal finances should be just the ticket.