TheTalkingMule
Distributed Energy Enthusiast
Have you folks really fallen so hard for this guy's shtick that you're debating if global solar panel demand is going to increase? Seriously? Wake up, you're being trolled.
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It seems the market is beginning to realize that SolarCity is very different from VSLR, SPWR, and SUNE. Elon, SilverLake, and Bank of America will guarantee SolarCity has access to as much cash as the company needs to be very successful, even if the broad solar market runs into problems. Also, GM reps sort of just hinted GM is planning to partner with Tesla for future GM vehicles. If this turns out to be true, it is a very big deal for Tesla and SolarCity. It also means the unions are losing their influence.
Elon is worth around $10 billion. In a few years he will easily be worth at least $20-$40 billion, especially once SpaceX launches become more frequent. It's not hard to see how SolarCity will weather almost any storm.
Elon is worth around $10 billion. In a few years he will easily be worth at least $20-$40 billion, especially once SpaceX launches become more frequent. It's not hard to see how SolarCity will weather almost any storm.
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Why don't you add some value to the discussion by showing global demand instead of name calling?
I said - I don't know
I did NOT say - There is no demand
Maybe not everyone is as enlightened as you. Educate us please.
You want a hype bull. No, you *need* a hype bull. It's not my fault you are not getting it. Quit it.
jhm
Well-Known Member
Making sense of leverage in value creation
SolarCity uses two forms of outside financing in value cration: tax equity investments and non-recourse debt.
The gap between gross retained value, $1.78/W, and net retained value (per ECV analysis), $1.21/W is due to non-recourse debt. In the most recent quarter, this provided $251M in capital for ECV, or $1.27/W. The present value of the cost of that leverage is just $0.57/W, the gap between gross and net RV. So in sum, SolarCity gets $1.27/W in project funding at a cost off $0.57/W in retained value. This seems like a fair trade.
How about tax equity financing. This provided $307M in project capital, or $1.55/W. These investors get to reap the 30% ITC tax benefit, about $1.39/W, plus 30% to 40% of lease/PPA revenue in the first 6.7 years and 7% there after. So combining ITC plus distributions from leases is a pretty rich cash stream. How much retained value does it draw? So far my best estimate is to compare the gross retained value of MyPower loans to leases. Essentially the cost to the customer net of ITC and small SREC is the same. But with leases, tax equity partners are providing ITC financing, while MyPower customers are providing this service directly. That is, they make a large payment in the second year when their tax return comes back. So MyPower has $3.66/W in GRV, while residential leases yields $1.89/W. I suspect that most of the $1.77/W is due to tax equity financing. In sum, tax equity financing provides $1.55/W at a cost of up to $1.77/W to retained value.
So it appears that tax equity financing is substantially less efficient than debt financing. SolarCity may do well to minimize tax equity financing. Moreover, ITC could reduce this inefficient financing by two-thirds. While it is not a plus to lose ITC, there are better ways to finance. Giving the customer to opportunity to retain ITC is a more efficient way to harvest the tax credit.
SolarCity uses two forms of outside financing in value cration: tax equity investments and non-recourse debt.
The gap between gross retained value, $1.78/W, and net retained value (per ECV analysis), $1.21/W is due to non-recourse debt. In the most recent quarter, this provided $251M in capital for ECV, or $1.27/W. The present value of the cost of that leverage is just $0.57/W, the gap between gross and net RV. So in sum, SolarCity gets $1.27/W in project funding at a cost off $0.57/W in retained value. This seems like a fair trade.
How about tax equity financing. This provided $307M in project capital, or $1.55/W. These investors get to reap the 30% ITC tax benefit, about $1.39/W, plus 30% to 40% of lease/PPA revenue in the first 6.7 years and 7% there after. So combining ITC plus distributions from leases is a pretty rich cash stream. How much retained value does it draw? So far my best estimate is to compare the gross retained value of MyPower loans to leases. Essentially the cost to the customer net of ITC and small SREC is the same. But with leases, tax equity partners are providing ITC financing, while MyPower customers are providing this service directly. That is, they make a large payment in the second year when their tax return comes back. So MyPower has $3.66/W in GRV, while residential leases yields $1.89/W. I suspect that most of the $1.77/W is due to tax equity financing. In sum, tax equity financing provides $1.55/W at a cost of up to $1.77/W to retained value.
So it appears that tax equity financing is substantially less efficient than debt financing. SolarCity may do well to minimize tax equity financing. Moreover, ITC could reduce this inefficient financing by two-thirds. While it is not a plus to lose ITC, there are better ways to finance. Giving the customer to opportunity to retain ITC is a more efficient way to harvest the tax credit.
I'd be interested to hear your distilled argument concerning global demand if you could kindly reiterate.
I'm guessing that the overall feel is that solar will continue to grow even if ITC should fade away. Also, would think that there will be a battle to ensure that it fades at the right rate so as not to stifle or halt growth. I get that debate is healthy, but it is nice to state your overall distilled argument every once in a while.
TheTalkingMule
Distributed Energy Enthusiast
A 300W solar panel costs $150, it's already game over. You can twist and distort the story any way you choose, that's not gonna change reality. When someone's run out of argument to the point they're trying to convince you global solar demand will pause, it's time to pay them on the head and walk away.
No, I do NOT have an opinion about 'global' solar demand. I was asking jhm (and others) for info/opinion.
I heard from a trusted source that BNEF predicted that in 2017, 'US' solar installs will drop by 70%. From the same source I heard that wind installs fell by 90% when wind production-tax-credit (PTC) expired.
We are discussing what will happen to Buffalo produced panels and the factory in case SolarCity is unable to absorb all it's production for itself. The prevailing view is that they can sell the panels to others. I am NOT contesting it. I am questioning it. As to how people are coming to that conclusion and seeking more info.
I am a once burnt bull in SCTY. I want to be sure of everything before accepting a prevailing view. Hence I ask for info and question the view. Especially the bullish view because the bullish view is what costed me a ton.
Side note: my intention is to get back on to the long side, but only after being satisfactorily being informed of all of the dynamics to the fullest. And when certain conditions are met. Some bulls here seem take my cautious approach, my questioning of the bull view, and my presentation of bad data as an attack. Sorry, too bad. I couldn't care less. The 'add to ignore list' is a great feature. I just now added the first one.
Cool, so I didn't really get that you were being cautious. That helps! But now I'm under the impression from this bolded portion of your quote that you've ignored me?
I'm cautious as well, but feel that SC is doing the right things to get more market share and higher margins; but maybe those don't always seem to add to shareholder value the straightest of lines.
I'm cautious as well, but feel that SC is doing the right things to get more market share and higher margins; but maybe those don't always seem to add to shareholder value the straightest of lines.
jhm
Well-Known Member
What happens at renewal is anybody's guess. No I didn't say that. Lyndon said it himselfIf you think that electricity price is all there is to it, I feel it's a bit of a simplistic view. What if NEM completely goes away and FIT is zero or is given at wholesales rates? Homeowners could say, screw this, SolarCity take your panels. I will get my own brand new panels for dirt cheap, put my own batteries for dirt cheap and may or may not use any grid at all.
Benson, you absolutely missed my point. Look at your last sentence. Whatever price you may be willing to pay for a new system. SolarCity can beat it on a fully depreciated system, plus additional batteries if that is called for. The marginal cost to SolarCity is less than 1c/kWh plus batteries. That absolutely beats the cost of any new system. So SolarCity is in the position to bid down below the price of any new system.
The thing that is uncertain is what the price of grid power will be in 2035 and the price of a new solar+storage system might go for in 2035. What is certain is that a fully paid for system can beat both prices. This is not simplistic this is just basic economic reasoning to construct a bounding argument.
Before we can address your concern about what you call "bankability," I need you to define what you mean and why it matters. Obviously, I have missed your point.
jhm
Well-Known Member
Solar Stocks Continue to Plummet in a | Greentech Media
This is a very good discussion of solar investment issues.
Note here that in the US the installed base of solar is 20GW and it's growing 25% this year. That's 5GW. Elsewhere I have seen that utility solar is declining while residential solar is accelerating. Even so, we need to note the challenge SolarCity faces in trying to sell 900MW in 2015 in a market of 5000MW. That's an 18% marketshare across the whole US solar market. As a market leader, SolarCity will find it increasingly difficult to grow faster than the entire industry. SolarCity is growing faster than the industry, but it becomes increasingly expensive to take market share. This is one reason why it is important for SolarCity to Crack the code on small to medium size commercial. This is an undeserved market to expand into.
Note also that while the US is installing 5GW this year, the rest of the world is adding 50GW. This global market is growing at 30% to 35% per year. Solar component makers are ultimately competing for global demand which is more than 11 times the demand in the US. Even if demand slumps in the US for a couple of years, there is plentry of demand outside the US. So a slump in US installations would hurt US installers, but not solar component makers. Thus, as a vertically integrated installer, SolarCity may experience tightening margins as an installers, but the margins on making panels and brackets should not compress. This gives SolarCity better resiliency than a non-integrated installer.
Let's be clear. Much of the global demand for solar is based on simple unsubsidized economics. It's simply cheaper than oil, coal and natural gas. While government policy impacts energy investments practically everywhere, the basic economics of solar make it compelling even to politicians.
This is the disconnect that worries me so much at this time. Sure we can agonize over the details of SolarCity’s business model, financials, and execution, but we are in a macro market situation a that is very unfavorable for energy producers. All the fossil fuels have lost at least half their value in the last twelve months. This is a disaster for the energy sector. Sadly, too many energy investors lump solar right in with all the other fossil fuels and fail to understand that it is the success of solar and wind that is undermining demand for fossil fuels. This is extremely bad headwind for solar. I wish I knew how long it will take for the market to figure out that solar is simply taking market share from fossil fuels. Once this is recognized, we should see a shift of capital from fossils to renewables. Indeed I think the divestment from fossils will happen even faster than it will right now. Suppose an investor were to recognize that there is no long-term hope for natural gas to remain above $2/MMBTU or oil above $40/bbl? There are lots of investors that still believe oil, gas and coal will recover. But they can't. If they were to do so briefly that would only accelerate that transition to wind, solar, batteries and electric vehicles. There is no hope for long-term fossil fuels. Unfortunately the bearishness that is proper to fossil fuels is spilling over and poisoning the valuations of renewable stocks and bonds. What is needed is longterm investors who see how this transition will play out and are patient to watch it unfold. This is the time to be smart, when others are fearful.
This lends some insight into why NRG spun off their green company. The disconnect for fossil investors was just too great. They could not see burning good cash building up renewable growth assets. It's an amazing thing that such an investor would be thrilled to put cash into building out a gas pipeline to collect stable rent over the next 40 years, but is somehow worried that a solar investment is too risky to play out over 30 years. They simply do not see that demand for gas will just keep declining each year as more solar accumulates to the point that the pipeline will go severely under used. NRG was simply unable to bridge this outlook gap to bring fossil investors into solar investments.
This is a very good discussion of solar investment issues.
Note here that in the US the installed base of solar is 20GW and it's growing 25% this year. That's 5GW. Elsewhere I have seen that utility solar is declining while residential solar is accelerating. Even so, we need to note the challenge SolarCity faces in trying to sell 900MW in 2015 in a market of 5000MW. That's an 18% marketshare across the whole US solar market. As a market leader, SolarCity will find it increasingly difficult to grow faster than the entire industry. SolarCity is growing faster than the industry, but it becomes increasingly expensive to take market share. This is one reason why it is important for SolarCity to Crack the code on small to medium size commercial. This is an undeserved market to expand into.
Note also that while the US is installing 5GW this year, the rest of the world is adding 50GW. This global market is growing at 30% to 35% per year. Solar component makers are ultimately competing for global demand which is more than 11 times the demand in the US. Even if demand slumps in the US for a couple of years, there is plentry of demand outside the US. So a slump in US installations would hurt US installers, but not solar component makers. Thus, as a vertically integrated installer, SolarCity may experience tightening margins as an installers, but the margins on making panels and brackets should not compress. This gives SolarCity better resiliency than a non-integrated installer.
Let's be clear. Much of the global demand for solar is based on simple unsubsidized economics. It's simply cheaper than oil, coal and natural gas. While government policy impacts energy investments practically everywhere, the basic economics of solar make it compelling even to politicians.
This is the disconnect that worries me so much at this time. Sure we can agonize over the details of SolarCity’s business model, financials, and execution, but we are in a macro market situation a that is very unfavorable for energy producers. All the fossil fuels have lost at least half their value in the last twelve months. This is a disaster for the energy sector. Sadly, too many energy investors lump solar right in with all the other fossil fuels and fail to understand that it is the success of solar and wind that is undermining demand for fossil fuels. This is extremely bad headwind for solar. I wish I knew how long it will take for the market to figure out that solar is simply taking market share from fossil fuels. Once this is recognized, we should see a shift of capital from fossils to renewables. Indeed I think the divestment from fossils will happen even faster than it will right now. Suppose an investor were to recognize that there is no long-term hope for natural gas to remain above $2/MMBTU or oil above $40/bbl? There are lots of investors that still believe oil, gas and coal will recover. But they can't. If they were to do so briefly that would only accelerate that transition to wind, solar, batteries and electric vehicles. There is no hope for long-term fossil fuels. Unfortunately the bearishness that is proper to fossil fuels is spilling over and poisoning the valuations of renewable stocks and bonds. What is needed is longterm investors who see how this transition will play out and are patient to watch it unfold. This is the time to be smart, when others are fearful.
This lends some insight into why NRG spun off their green company. The disconnect for fossil investors was just too great. They could not see burning good cash building up renewable growth assets. It's an amazing thing that such an investor would be thrilled to put cash into building out a gas pipeline to collect stable rent over the next 40 years, but is somehow worried that a solar investment is too risky to play out over 30 years. They simply do not see that demand for gas will just keep declining each year as more solar accumulates to the point that the pipeline will go severely under used. NRG was simply unable to bridge this outlook gap to bring fossil investors into solar investments.
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http://mobile.reuters.com/article/idUSKCN0T82ZO20151119
"The idea that I want to reduce the FICO score because I'm desperate for demand is just a bunch of ********," Lyndon Rive said.
Add:
Again, I've said this earlier in the thread, Solarcity is also working on things that go far beyond limited frequencies on the electromagnet spectrum with their panel development...(here is a related example) might really need to think about renewal/upgrade from this perspective.
Scientists developing solar panel that doubles as a Li-Fi receiver | Network World
ASU's white laser technology one of year's top breakthroughs | ASU Now: Access, Excellence, Impact
"The idea that I want to reduce the FICO score because I'm desperate for demand is just a bunch of ********," Lyndon Rive said.
Add:
Again, I've said this earlier in the thread, Solarcity is also working on things that go far beyond limited frequencies on the electromagnet spectrum with their panel development...(here is a related example) might really need to think about renewal/upgrade from this perspective.
Scientists developing solar panel that doubles as a Li-Fi receiver | Network World
ASU's white laser technology one of year's top breakthroughs | ASU Now: Access, Excellence, Impact
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Interesting and in my view, very accurate article. I suspect the conference in Paris will probably determine what direction any stock tied to clean energy goes over the next few months/years. There was a lot of talk about banks freeing up billions of dollars to invest in companies that will positively impact the world and address climate change. I wonder if banks/ impact investment funds, are waiting until its confirmed what the rules of the game will be going forward, and where countries stand in terms of support.
its clear why these investors go the fossil fuel route: subsidies to hilt that are in perpetuity pretty much globally. Tax payers are required to pay for oil and gas through tax code permanence. In such a fixed game that will take decades to breakdown, the safe bet is on a fixed game.
the problem is the paste is already out of the tube with advanced renewable technology. You can't just keep doing the same old oil and gas thing anymore. It will fail. They will try to go out with a bang, but the dust settles and we are a new energy economy. We are currently starting this downward spiral. Uncertainty is rising as money is thrown at the implosion. But again, we can't go backward now that we have this tech in the marketplace improving the energy infrastructure.
As such and tying it back to this thread, solarcity is uniquely positioned to take advantage of this situation.
jhm
Well-Known Member
I hope so, but regardless the banks really need to get there s*** together regarding stranded assets. Fossil power plants being built today will be stranded. Oil and gas infrastructure being built today will be stranded. These will be stranded not because of global warming, but because of technological and economic obsolescence. Around 2030 the fleet of gas vehicles will start to decline. By 2035, the fall off in demand for oil will be about 5% per year. Peak global demand for coal is happening right now. The only reason demand for natural gas is rising is because a portion of decline in coal demand is shifting to natural gas. But wind and solar are taking share from gas and coal combined. So once coal has fallen far enough, gas will fall too. So coal peaks this decade, gas peaks next decade, and oil peaks in the following decade. But from here on out there is price pressure all the way. Prices collapse before quantities collapse. So if bankers don't see this, they will make a lot of bad loans.
Exactly right. The tech is just at the beginning of its innovation curve. You can't say the same about oil and gas efficiency. This is cold hard reality of things will evolve, especially over the break even period of a nat gas peaker. Literally any peaker built today and in the future will become a stranded asset over the next 10-15 years along with all the others.
Current solar is just energy panel 1.0
Think about this, there has been 100 years of financial infrastructure developed around oil and gas. An entire Wall Street, an entire education system... An entire culture... Codified around it.
It's hard to break such a hardening. But, it will happen whether some like or not. And most likely they will go down with a spectacular implosion when it does. Such times are also massive opportunity for those that understand the reality. And that's the true market.
jhm
Well-Known Member
Once you get a sense of where this energy transition is headed, the next question is which companies are best positioned to lean into that transition. For my money, Tesla and SolarCity really stand out both for how they are currently positioned and for how nimble they are. Batteries and peak shaving will be the next big thing. Demand charges are common in commercial and industrial rate plans, and in places they are huge, $20/kW/month. This becomes easy picking for batteries and other demand charge defeating technologies. Utilities are pushing this out to residential ratepayers as well, but what they don't seem to get is the demand defeat technology will eat up arbitrage opportunities these plans create. That's just one example of how incumbent energy companies are miscalibrating, while Tesla and SolarCity launch into these opportunities. Can you make a permanent business model out of demand defeat technplogy? No, eventually utilities will lose too much money on demand charges and pull back on them. That is, if everyone did peak shaving, it would undermine the profitability of the utilities. They would be forced into generating too much power when it is expensive and too little power when it is cheap. So this is not the end of the energy transition. It's just a lucrative byway for Tesla and SolarCity to exploit, just like NEM was lucrative for SolarCity to exploit. By no means is NEM the end of the energy transition. So you don't make a permanent business model around it. You just exploit it while it is available. Suppose utilities where allowed to set whatever FiT they want, which has happened in Australia already. At first, the utilities will be tempted to set really low FiTs. The consequence of that is that solar owners find it economical just to add more batteries. In the process the utility loses value even fast. It misses the opportunity to buy low, minimize transmission costs and sell high. In the process, they lose market share at a faster clip while loading up their cost structure. So while the utilities miscalibrate FiTs, SolarCity will steal profitable market share. We will see that soon in Hawaii. How long will that miscalibration last? I don't know, but the longer it takes, the more share SolarCity will take. The end game is that utilities will learn to optimize the value of DERs through real time trading or something quite close to that. As long as utilities resist trading with solar and battery owners, we know that SolarCity and Tesla will have an edge. They will be exploiting each miscalibration. This is why we should not get upset when utilities or other incumbents do stupid stuff to try to fight SolarCity. It's the miscalibrations that deliver more market share to disrupters over the long run. So get a view of where this energy transition is headed. The ones pushing to get there first will win.
jhm
Well-Known Member
It's worse than that. They know how to impair assets, write them down and divest them. Remember what happened in bank during the mortgage crisis. Banks sat on alot of dubious assets, but the last thing they wanted to do was write them down and let investors and regulators know that their books were over valued. Early on they had opportunities to divest questionable assets, but BAU dictated holding them until it was too late. Then later it was a public mess cleaning up these "toxic" assets. In my view, utilities are sitting on twice as much generation capacify as they need. They like to tell investors that this gives them the flixibiluty to switch between coal and natural gas to whatever is cheaper. But this is missing the point that they just as well divest these assets and buy whatever is cheaper on the wholesale market. They've got double the exposure to potentially stranded assets, but they want to play switching fuel when both fuels are plummeting in price. All this is just a side show to get a couple more years of BAU. I do believe this will end badly and will likely result in a taxpayer bail out.
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