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Foghat - Forgive my lack of knowledge on this, as I have been following this thread for some time, but not posting, and some of the statements on hear seem to rely on some "institutional knowledge" that I don't have.
First, you refer to all the net metering contracts being "grandfathered". I understand the concept, but in practical use to the consumer, what does that really mean? Once the utility installs a net metering device, is that meter now stuck forever? Can they never remove it? With permitting regulations, grandfathering prevents owners of existing facilities having to upgrade every time the standards change. However, when a utility permits someone to utilize a particular service, are they required to continue providing that service forever? It seems that it would vary by jurisdiction, but I don't know.
Second, if SCTY expands solar+battery installs, then how does that catapult utilities to grid modernization? Aren't they getting less income from their grid, so therefore less incentive to put more capital into an asset that is returning less all the time? Again, I assume I am missing something that will make it obvious.
jhm
Well-Known Member
That's right. Imagine SolarCity approaching a utility saying, "Hey, we've got 50,000 NEM customers in common with 250MW of solar. We'd like to install 100MW of Powerwalls for 400MW of storage all aggregated for grid dispatch. How can we make this happen?"
Such a deal would be worth several new peak power plants plus off load the obligation of NEM.
The cool thing for SolarCity investors is that such a deal would leverage the existing customer base to add business and long term cashflow. This is incremental to NRV and would have minimal sales cost. Most customers would likely be delighted to participate because it gives them backup power at little to no cost.
This is one way that SolarCity can create incremental value without installing more panels. We simply do not know the details of the new strategy. It is possible that SolarCity could pull this sort of thing off in 2016 and it would be worth installing fewer MW solar to do it. From an ITC perspective, it would be very good to do this in 2016 before the stepdown. I think the main consideration here is how much Gigafactory output they can get their hands on.
Edit...
Taking the deal above a few steps further. It seems it could be worth around $2/W for the utility. At least, $1/W is in line with capex for a new peaker, but this deal offers more flexibility and offset NEM obligation wich I figure is is around $150 million for 250MW solar. So in the ball park of $2/W, $200M total, is $500/kWh of storage. A mix of 7kWh and 10kWh Powerpacks can keep the average battery cost under $400/kWh. So the total installed cost can be likely remain under $500/kWh. Maybe customers kick in a little extra for there choice of system. At a minimum revenue equals cost, and SolarCity pockets the ITC value, netting about $60M.
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Oh yeah, one more thing, going along with the whole "grandpappy" thing and people paying their utility bills. With a SCTY PPA contract, can a consumer no longer bypass their solar system and connect to the grid? Admittedly unlikely hypothetical, but what if grid rates drop below the PPA rate? Could someone default with SCTY and just go back to paying their utility bill?
Also, is SCTY bound by the regulations in many states that prevent utilities from being shut off during cold weather etc? I have heard that some individuals will abuse those rules and quite paying their electricity/gas bills once the weather turns cold, because they can't be turned off. Just a question?
Also, is SCTY bound by the regulations in many states that prevent utilities from being shut off during cold weather etc? I have heard that some individuals will abuse those rules and quite paying their electricity/gas bills once the weather turns cold, because they can't be turned off. Just a question?
This is *precisely* the point. Very well said!
You have to look at the operating level and include all-in costs, no ifs, no buts, everything needs to be included. Every penny that is going out whether accounted or not.
You don't get that from GAAP statements, nor from their gimmicky slide decks.
Interestingly there is a good metric to track this - Incremental NNRV/Watt.
Incremental means quarter-over-quarter
NRV already factors out all costs, now matter how they happen
NNRV takes out the renewal
Divide by bookings (because that's what RV is based on)
Gives you a precise operating level profitability as it stands today.
This is a very useful metric to understand the survivability of the Business model.
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And more importantly we need to model or figure out what happens to this "true profitability of the average sale each quarter" (which I compute as Inc NNRV/Watt) when
- Published cost savings happen
- Some of the unaccounted leaks are tamed
- ITC steps down
- NEM goes down
- Batteries come up
My personal view is it's impossibly hard to model this. And hence I should just watch it.
I need to figure out what level 'Inc NNRV/Watt' should be at a minimum pre-ITC-step-down for a healthy post-ITC-step-down level.
If SolarCity is not able to converge to the needed number as quarters go by, it is game over!
I hate to say this but you are one of the few people here who doesn't have wool all over the eyes. You really get it. I should have listened to you more patiently early on.
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Again all, forgive my lack of knowledge, as I'm just a small time investor who loves alternative energy in general, but still trying to figure this company out.
So what exactly is SCTY's "secret sauce?" I understand they are way out front in terms of size, but in the grand scheme of things, they are still the big player in what has so far been a very small pond (compared the BIG pond of all US electrical utility customers). What do they bring to the table that is unique? I understand they are doing a new type of financing, but is there anything that prevents anyone else from doing the same model? For long term value, it seems to me to matter more what keeps them on top in five years more than how cash flow positive they might be next year. Is there something they do that can't be replicated by someone else? In particular, if it really makes that much sense, why wouldn't utilities just adapt the same model?
So what exactly is SCTY's "secret sauce?" I understand they are way out front in terms of size, but in the grand scheme of things, they are still the big player in what has so far been a very small pond (compared the BIG pond of all US electrical utility customers). What do they bring to the table that is unique? I understand they are doing a new type of financing, but is there anything that prevents anyone else from doing the same model? For long term value, it seems to me to matter more what keeps them on top in five years more than how cash flow positive they might be next year. Is there something they do that can't be replicated by someone else? In particular, if it really makes that much sense, why wouldn't utilities just adapt the same model?
grandfathering the net metering rates that applied at time of contract. So, if net metering changes from retail rate to less then retail rate, grandfathered systems still get retail rate. And this applies if the net metering rate goes down again. For the life of the contract they get that retail rate.
the incentive for a Solarcity customer to add storage has many benefits for them as consumer:back up, communication with thermostats, dishwashers, air conditioners, connected home efficiencies, etc... As well as a 50/50 aggregation share which all translates into a lower cost per kWh then they are paying right now. The value proposition is competing for a consumer. The demand will be robust given basically no saturation of the market, a very big trillion dollar market. Now, the utilities have incentives to use aggregated storage for demand response. The more solar+storage homes, the greater demand response capability. In addition, eps and state goals will be met with actual retail rates going down. Win win all around. Now the rub is exactly as you say, the vast majority of utility model does not incentivize reducing capital costs because they get a cost plus compensation. However the purpose of oversight by commissions and other governing bodies is to protect consumers from the natural tendencies of monopolies as well as oversee there cost structure to provide reliable electricity to the consumer. The numbers start to become to obvious to support regulatory capture and the system is forced to change. This is the reality of solar+storage on the current system. It just makes sense on so many levels it's hard to spin and cover up to protect entrenched interests. As we are seeing now, maximum effort is being leveraged to spin it and delay, but he numbers don't behave as they want and everyone can see it.
Again, nem promotes the installation of solar. More solar, means greater scale, greater scale leads to cheaper solar and batteries, cheaper solar and batteries lead to cheaper retail electricity and accelerated transition to a renewable low carbon emitting grid system which meets state and federal emission goals sooner.
The irony is that actually maintaining net metering at retail prices, accelerates the elimination of nem completely. No 20 year grandfathered credits to have to pay. Gone forever as batteries are coupled with the solar systems old and new. As some utilities are trying to add fees and reduce net metering credit, they are only preventing the market from taking hold and eliminating net metering off their books in addition, decelerating distributed demand response increasing massive long term capital investments which will only continue retail price inflation on consumers and missing carbon emission mandates.
as the benefits mount, light is shined on the solution and utilities will be obligated to comply which is the catapult point since the market will respond swiftly and efficiently to produce the solar+storage solution at the cost per kWh consumers desire.
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thats right Lyndon said once they have the customer base, acquisition costs slim down to utility levels... Like less then $100/per customer... Imagine that, from 2000-3000 today to 100. That cost structure is wildly complelling and hard to deny given current centralized monoplistic system that has only increased retail prices since its inception.
So by "grandfather", you are referring to the rates upon which the PPA is made won't change, not that the utility is required to honor net metering commitments forever?
The reason I ask is that while much of your overall thesis regarding solar power makes some sense, I'm not seeing SCTY really being in that great of a position to make money off of it?
If the utilities are "catapulted" into solar, where is solar city, since the distributed power you are talking about still relies on much of the grid infrastructure that is owned and maintained by the utilities.
The reason I ask is that while much of your overall thesis regarding solar power makes some sense, I'm not seeing SCTY really being in that great of a position to make money off of it?
If the utilities are "catapulted" into solar, where is solar city, since the distributed power you are talking about still relies on much of the grid infrastructure that is owned and maintained by the utilities.
jhm
Well-Known Member
The only sales cost I envision with this deal is contacting existing customers to see if they would like to participate in the program getting a battery for very low cost.
Did you see the calculation I added on the value of such a program to the utility? See above post.
i did. I also think you have to add in fuel costs,maintenance, retirement costs for the life of the peaker plant. In addition, they only run it a handful of time, but that resource needs to always be at the ready, so what is the actual cost per unit of energy used on the grid.
also, storage has its own pot of incentives. They do not disappear with the ITC step down. If I recall correctly, Elon stated next year we will see around $1billion in tesla energ sales. Solarcity has already announced a solar+storage product for Hawaii, also they have been taking order for only new customers wanting to do solar+storage solution. Given solarcity saying they have received record interest in solar+storage more then at any time for solar only, In addition to proving out the aggregation capabilities/business model in California for grid connected systems, we could see a significant ramp in solar+storage deployment. If anyone is looking for a significant catalyst, this would be it.
What are the maintenance costs of the distributed array of solar panels and batteries spread across millions of homes? I'm sure it would be very low, as solar systems are pretty "hands-off," but there have to be some costs to trees falling on roofs, windstorms, leaking roofs requiring solar panel removal, batteries reaching the end of their lives, Lucy runs into the powerwall in the garage, etc. Is there any data out there to quantify any of that?
Great questions. I'd be interested in the answers too. First, the utility does not have to worry about these issues, it's on Solarcity. However, Solarcity is insured for issues like natural disasters and catastrophic system failures.
the question on shelf life of the batteries is key. Currently, they are leases for 9 years and tesla warranty is for 10 years. So, maybe they are seeing it like their standard inverter policy where they model for 2 inverters per every 20 year contract.
overall, the cost per unit of energy has to be compelling enough to work in aggregation situations that utilities will see a cost advantage. Solarcity could negotiate with utilities like they do with individual customers: they could offer a 15-20% cost savings over peaker plant costs and develop margin off that. The competition. Would have to match that so, could actually for a major shift in the whole sale market itself compelling others to develop DER capabilities. This also frees many energy companies to enter traditionally locked out regions that they could never access before. Even traditional utiltiies could form independent companies around the DER model and go global where it was never possible under the centralized system.
Currently incentives accelerate that case today and with continued scale and demand, will be compelling without incentives in the not too distant future. Gigafactory is a significant piece here. Elon has stated that he sees significant cost savings at full production levels and those are expected in late 2017 through 2020 time frame.
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Thanks for the insight. Like everyone, I have heard a ton about the gigafactory, but that opens some more questions for me. Based on the research I have done, it seems that Tesla is using existing Panasonic technology for their batteries. Although I understand their batteries are somewhat "special", it doesn't seem there are any step function type improvements in Tesla batteries. Given that Panasonic (and others) already produce large volumes of batteries using the most modern production techniques, what is Tesla planning to do to make such drastic reductions in battery cost? If you have the same raw material inputs using the same manufacturing technology to make what seems to be only a slightly "premium" product, how do you save so much money just by putting up a spectacularly huge building to hold your whole project in? I just haven't been able to find anything that differentiates them as far as being able to change how batteries are produced. Obviously there are a lot of big investors who have been sold on it, and I know they do their due diligence, but for a publicly traded company, where's the magic that explains how Tesla and SCTY are going to have these drastically reduced battery costs?
Have you seen this recent interview? Elon explains how the gigafactory will change the way the batteries are made along with technology improvements. Can't remember where in the interview he talks about it though.......
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This is really off topic, so just a quick reply [to Ichabod]here:
* Tesla has been sourcing raw materials with an eye to low transporation cost. That's one big deal when it comes to volume, I guess.
* Tesla has simplified the cell design with an eye to automated assembly. Helps, probably a lot.
* Tesla may have (at least in short series) gone over to Si instead of C electrode. This might mean more to efficiency than unit price.
* Tesla is moving a large part of manufacture in-house; gains specificity, control and some immunity to externalities.
* The Gigafactory will be self sufficient on energy and have as small an environmental footprint as they can make - e.g. processing water.
* Finally, the very scale is a huge factor for economy over all.
Elon has consistently said the GF should yield at least 30% better cost of batteries. I trust him to have thought this over!
* Tesla has been sourcing raw materials with an eye to low transporation cost. That's one big deal when it comes to volume, I guess.
* Tesla has simplified the cell design with an eye to automated assembly. Helps, probably a lot.
* Tesla may have (at least in short series) gone over to Si instead of C electrode. This might mean more to efficiency than unit price.
* Tesla is moving a large part of manufacture in-house; gains specificity, control and some immunity to externalities.
* The Gigafactory will be self sufficient on energy and have as small an environmental footprint as they can make - e.g. processing water.
* Finally, the very scale is a huge factor for economy over all.
Elon has consistently said the GF should yield at least 30% better cost of batteries. I trust him to have thought this over!
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tesla is the single largest consumer for lithium ion batteries in the world. They are intending to produce the same amount of li batteries that were made worldwide in 2013. This is just a massive massive scale. That scaled production enables significant cost savings. Elon noted that they are literally taking the raw materials directly from the mine in one end and coming out with compete packs on the other end. He's noted the multiple inefficiencies of out sourcing this scaled production and how the Gigafactory streams line much of it. He said if you followed the raw materials from mine to production in non Gigafactory production, it would've travels three times around the world. Not the case with the Gigafactory. So, big savings with scale. In addition, chemistries are constantly improved creating a pack that is higher energy density per kilogram of battery. So lighter weight and more energy per pack. This is also significant for powerwall since they still have to be transported to home(Solarcity designed the two man lift handles) as well as fit effectively on a load bearing wall. The smaller, lighter, the better. Also, tesla energy can optimize chemistries for storage application as opposed to automotive applications. With the additional data coming from Solarcity from the field they can further refine the product to further reduce costs and optimize performance.
Verticle integration extends across company lines between tesla and Solarcity, Gigafactory is no exception.
everything taken in consideration, Solarcity will have a low cost battery to integrate into their solar+storage package that is well ahead of the competition. And that because of the scaled production. Competitors will essentially have to do the same to compete.
Thanks Foghat and Lessmog -
I know this discussion belongs more on the gigafactory thread, so I won't belabor the point too much. It does have some relevance, since the long term value of SCTY seems to be somewhat reliant on their ability to source reduced cost batteries from cousin E.
I watched the video through all the discussion on the batteries. FYI, the good discussion starts around 29:50. Honestly, it didn't give me anything that would approach a "warm and fuzzy." Paraphrasing, Baron asks Elon how battery costs go from $250/kwh to $100/kwh. There is a whole lot of yammering about transportation, and such a huge building, and chemistry, and more "stuff." Finally, Elon gets very specific that he can't talk about numbers, but that $100 is in the general range of where they are aiming for for cost, and that they expect all the things he has talked about to reduce battery costs by 30%. Everyone seems really excited about that, but $250 - 30% is nowhere near $100. That, and as someone who has worked in a commodity business in the past, I know that transportation of bulk products like ores is actually quite cheap. We're talking like $10-$50/ton to cross the Pacific ocean, depending on where you are going and when. There is actually a lot of efficiency in non-vertically integrated industry, where ores can be stored at other people's ports while your plant is down, where ships or trains can backhaul other commodities because they are using multi-product transportation nodes, and where companies can specialize and get really good at their niche, rather than trying to do the whole thing themselves.
Good insights from both of you, but they still seem to rest very much on some version of, "Elon says so." I understand the guy gets a lot of respect around here, but I've learned to be skeptical. I'm not saying he's wrong, just that I wish there was more specificity. Show me your patent you just bought from that battery lab that reduces costs by 15%. Show me how buying processed ore from China is 10% more expensive than buying it from Mexico and paying Nevadans to process it. Maybe that information is out there, but I'm not finding it, and watching Elon explain it himself didn't make me feel any better about putting my money into SCTY based on their inside track on cheaper batteries.
I know this discussion belongs more on the gigafactory thread, so I won't belabor the point too much. It does have some relevance, since the long term value of SCTY seems to be somewhat reliant on their ability to source reduced cost batteries from cousin E.
I watched the video through all the discussion on the batteries. FYI, the good discussion starts around 29:50. Honestly, it didn't give me anything that would approach a "warm and fuzzy." Paraphrasing, Baron asks Elon how battery costs go from $250/kwh to $100/kwh. There is a whole lot of yammering about transportation, and such a huge building, and chemistry, and more "stuff." Finally, Elon gets very specific that he can't talk about numbers, but that $100 is in the general range of where they are aiming for for cost, and that they expect all the things he has talked about to reduce battery costs by 30%. Everyone seems really excited about that, but $250 - 30% is nowhere near $100. That, and as someone who has worked in a commodity business in the past, I know that transportation of bulk products like ores is actually quite cheap. We're talking like $10-$50/ton to cross the Pacific ocean, depending on where you are going and when. There is actually a lot of efficiency in non-vertically integrated industry, where ores can be stored at other people's ports while your plant is down, where ships or trains can backhaul other commodities because they are using multi-product transportation nodes, and where companies can specialize and get really good at their niche, rather than trying to do the whole thing themselves.
Good insights from both of you, but they still seem to rest very much on some version of, "Elon says so." I understand the guy gets a lot of respect around here, but I've learned to be skeptical. I'm not saying he's wrong, just that I wish there was more specificity. Show me your patent you just bought from that battery lab that reduces costs by 15%. Show me how buying processed ore from China is 10% more expensive than buying it from Mexico and paying Nevadans to process it. Maybe that information is out there, but I'm not finding it, and watching Elon explain it himself didn't make me feel any better about putting my money into SCTY based on their inside track on cheaper batteries.
- SCTY has no exclusive deal on the Powerwall. Musk has said this explicitly.
- Gigafactory production goes to the model 3.
- Panasonic and other partners need to profit from the Gigafactory. ROI needs to be considered when considering Tesla's true cost per cell. There probably won't really be low cost sell coming out of the gigafactory until after full production (after 2020). The "cheap" cells for the model 3 will really be recapturing Tesla's capex in the gigafactory, regardless of what the cost accounting says.
It's all good, but there is no windfall here for SCTY.
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hopefully yesterday
- Gigafactory production goes to the model 3.
- Panasonic and other partners need to profit from the Gigafactory. ROI needs to be considered when considering Tesla's true cost per cell. There probably won't really be low cost sell coming out of the gigafactory until after full production (after 2020). The "cheap" cells for the model 3 will really be recapturing Tesla's capex in the gigafactory, regardless of what the cost accounting says.
It's all good, but there is no windfall here for SCTY.
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hopefully yesterday
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