SolarCity (SCTY)

[electracity]

I know I'm interested in the idea of an integrated solar roof / battery / slightly able to go off-grid during power outages type of product. I don't know if it'll be affordable, but plenty interested enough to make some phone calls and price it out when it's available.

When I priced an automatic backup generator plus ten years of service it came to about $20K. While I'm sure that price can be beat, there is still a substantial long term opportunity for solar plus battery to compete in that market. In areas with expensive houses and basements almost everyone eventually learns that sump pumps need backup power. Many people on the east coast who went through Sandy would consider such a system rather than a generator.

So I think long term Tesla offering solar plus battery system that can make some money back doing rate arbitrage plus provide backup power will probably become common in better housing. Tesla should eventually be well positioned to address this upscale market. Selling environmental benefit + energy security + cool tech stuff should be a good business model if the product is differentiated from lower cost competitors.

Tesla's problem this year is 14,000 new people on the payroll now who are not currently employed in profitable business activity.

 

[MikeC]

There are people in Socal reporting offers for a little over $2/watt.

Link for these reports? I just had a system installed and could not find lower than $3/watt. Are you speaking about pre- or post-incentive price?

 

[electracity]

Link for these reports? I just had a system installed and could not find lower than $3/watt. Are you speaking about pre- or post-incentive price?

The lowest reasonably credible report I saw last week was $1.80/watt for a 20 year lease with the lessor keeping all incentives:

Solar panel lease @ $1.8/W and no monthly payments • /r/solar

 

[MikeC]

The lowest reasonably credible report I saw last week was $1.80/watt for a 20 year lease with the lessor keeping all incentives:

Solar panel lease @ $1.8/W and no monthly payments • /r/solar

Okay, it was a little confusing because you're quoting a deal for a 20-year lease which includes incentives as if it was a straight cash sale price of $2/watt.

 

[TheTalkingMule]

Tesla's problem this year is 14,000 new people on the payroll now who are not currently employed in profitable business activity.

As opposed to the existing employees?

 

[bonaire]

When I priced an automatic backup generator plus ten years of service it came to about $20K. While I'm sure that price can be beat, there is still a substantial long term opportunity for solar plus battery to compete in that market. In areas with expensive houses and basements almost everyone eventually learns that sump pumps need backup power. Many people on the east coast who went through Sandy would consider such a system rather than a generator.

So I think long term Tesla offering solar plus battery system that can make some money back doing rate arbitrage plus provide backup power will probably become common in better housing. Tesla should eventually be well positioned to address this upscale market. Selling environmental benefit + energy security + cool tech stuff should be a good business model if the product is differentiated from lower cost competitors.

Tesla's problem this year is 14,000 new people on the payroll now who are not currently employed in profitable business activity.

When computing arbitrage, do consider annual build-up of internal resistance(IR) of batteries in each year. A 6.4kWh battery SOC may degrade to 5 or less after 8 years (when daily cycled). Warranties don't entirely hold up long term and there will be expense in battery replacement roughly at the same time as string inverters (such as the SolarEdge string inveters) - years 10-14 or so in the life of a system. Maybe $3000 will buy a new battery pack replacement of 10kWh to fit into the same casing. Part of the arbitrage earnings should be banked and invested in order to facilitate system maintenance in the mid-term. Companies like Enphase have offered 25 year warranties - and yet have a lot of infant mortality of micro-inverters. It's hard to tell if Enphase will survive - they are also looking at battery systems too and will be interesting to see what they do with that.

I would have liked to see Tesla offer a battery pack for homes larger than a 6.4 kWh battery. It appears that two can be chained to one SolarEdge inverter - and then you need another inverter to add more. A 15 kWh battery pack would have been more appropriate of a size but would of course come with double the price, if not more. Maybe in the next design, they can offer a larger block.

 

[bonaire]

Correct. Musk's been pretty honest about this; count how many times he said "differentiation" in the recent investor phone calls. If they've (a) got the pricing they originally claimed for the panels for the roofing product, (b) have a roofing solution which is satisfactory to the building trades (I do hope they consulted experienced roofers!), (c) have sufficiently low installation costs, and (d) slash sales costs, I think they'll actually have a decent product at a price where they can sell it. They're aiming hard for the SunPower market and they're going to undercut SunPower substantially on price.

He also said he was expecting to sell bundled batteries with 100% of systems, at least in the longer term. I would not be surprised to see the complete solar roof + battery product released as a single product some time next year.


I'm currently betting on ruthless. It sounded to me like Musk was slavering over the Silevo factory. Which has repeatedly cut its manufacturing employee count, so it's getting more and more automated. It seems absolutely clear that they've written off the PPA and lease business as a bad business. And the repeated statements about "cutting cost of sales" clear mean they're going to fire most of the salespeople.

Which raises an interesting point. They promised New York that they'd employ a certain number of people in upstate NY. With the cut in manufacturing jobs, the replacement plan was sales and installation jobs. But those sales jobs are now going to be cut too. Perhaps after the merger with Tesla they'll open several Tesla service centers in upstate NY and count those as the promised jobs -- I can hope.

There are low-salary jobs that can be run out of Buffalo rather than Silicon Valley or CA at all. The DS jobs for handling deliveries, even IT can be moved to Buffalo. Cost of living there is half or less that of California (even with a similar sales tax). Living in Buffalo isn't for everyone but something has to be done to fill chairs in NY State. Buffalo is known for banking and customer service - also collections. Surely they can staff "customer touch" type jobs as DS, OA and others in a lower-cost region like WNY. But people who want to work at Tesla may want to be in the Bay area. Thing is, to live out there, you basically are mortgaging your own future on living expenses.

 

[electracity]

Okay, it was a little confusing because you're quoting a deal for a 20-year lease which includes incentives as if it was a straight cash sale price of $2/watt.

This lease is potentially more expensive from the installers perspective. I presume it is offered for buyers who can't use the full ITC.

The finance part of this deal is curious. Obviously the installer is willing to take only a very small profit. But the installer is sophisticated enough to bundle financing.

My overall point is that a national company like solarcity cannot begin to be competitive in this space. A little local company can't build EVs to compete with Tesla, or smart phones to compete with Apple. But they can destroy solarcitys business.

 

[PaulRocket]

Do we know how many of SolarCity's 13-14,000 employees are the installation team and how many are sales and marketing?

 

[neroden]

Do we know how many of SolarCity's 13-14,000 employees are the installation team and how many are sales and marketing?

I don't know. Anyone else know? It certainly doesn't pop up on a quick Google search.

 

[doggusfluffy]

Gov. Cuomo Calls for More Private Investments to Help Make Buffalo Great Again

Scheduled to open later this month, RiverBend is expected to hire a minimum of 500 workers in-house and employ 1,000 more people at various Buffalo facilities. But in order to continue this economic progress, Cuomo warns that private investors need to step up.

 

[neroden]

My overall point is that a national company like solarcity cannot begin to be competitive in this space. A little local company can't build EVs to compete with Tesla, or smart phones to compete with Apple. But they can destroy solarcitys business.

The leasing business. The installation business. However, Musk clearly has his eye on the manufacturing business which hasn't even opened yet. A little local company can't compete with that; the question is whether that can compete with cheap Chinese solar panels. Something about which I am not sure.

 

[TheTalkingMule]

Cheap high quality American panels installed by a trustworthy major company will win out over cheap Chinese panels installed by a local company that may disappear in 6 months. Even with the 10-20% premium. To me that's a bargain.

 

[doggusfluffy]

As America’s Top Utility Regulatory Body Overhauls Rate Design, Solar Players Want More Transparency

SolarCity also took issue with the way the draft manual characterizes DERs. “Rather than focusing on the potential benefits these emerging resources could provide…the manual instead presents the emergence of DERs merely as a challenge to be managed or a problem that causes utility revenue erosion and cost-shifting, neither of which are clear and present threats in any jurisdiction,” the comments state.

“We do not think that distributed energy resources and distributed generation are part of the problem; we think they’re part of the solution,” said Wellinghoff. “We think they’re valuable and viable resources and an integral part of entire grid system. […] We want to make sure the manual recognizes that, and provides state regulatory commissions with tools to fairly analyze what those values are.”

 

[Seesaw]

SolarCity Raises $305 Million in Latest Cash Equity Financing

 

[Ulmo]

SolarCity Raises $305 Million in Latest Cash Equity Financing

So, this is money they don't owe? They said it's non-recourse.

Also:

SolarCity held $5.2 billion in solar energy system assets on its balance sheet at the end of its most recently reported quarter on June 30. Those assets are contracted to create $3.1 billion in future payments on a net present value (NPV) basis, with NPV calculation assuming 6% discount rate.

Does that mean $2.1 billion won't have contractual payments? Why not? Where does that expected money come from?

 

[neroden]

This is another case of monetizing the payment stream from the PPAs and leases.

As you know, SolarCity has (in the past) leased a lot of panels and sold a lot of PPAs. The problem with these deals for SolarCity is that SolarCity spends all the money up front, but gets the cash very slowly over the course of years. This is why I described SolarCity as having a large banking operation; they were spending money upfront and getting paid back over 20 years, which required constant refinancing.

This deal is basically SolarCity selling the rights to the future payment stream on a basket of leases and/or PPAs in exchange for cash up front. There was a similar deal earlier this year, but at a worse price. These deals consist of SolarCity getting *out* of the banking business. The institutional investors are now providing the upfront cash, so that SolarCity is getting paid for the costs of panels and installation *now*.

As long as SolarCity can do these deals, they won't run out of cash for quite a while.

For this basket, it looks like they now have (a) an "equity" investor who collects the tax breaks and pays SolarCity upfront for slightly less than the value of the tax breaks, and (b) a "lender" who is paid back by the cashflows from the homeowners over 18 years, roughly the same term over which the homeowner is paying SolarCity. They've matched durations of lending and borrowing so they're no longer facing the sort of financing risks which banks have, at least not on this basket.

Since it's "non-recourse", this means SolarCity doesn't legally retain default risk either. (Though in practice I think they'd end up retaining default risk, because every time a packaged securitization deal fails due to default, the sponsor ends up bailing it out for reputational reasons.)

 

[schonelucht]

This is actually the first good news out of SolarCity since the take-over was announced. Derisking is good when you have huge liabilities, but how much of the future revenue stream this will eat is not clear to me. Anyone can clarify?

 

[neroden]

I can't do the calculations on that. The cost of capital here is 7.4% which is slightly higher (worse) than the discount rate of 6% which SCTY has been using to "value" its future income streams. But I think most investors were not taking the future income streams seriously, and this is cash in pocket, which is better in many ways.

The improving rates on each subsequent deal are a very good sign; they may get it down below 6% with the next deal if they're lucky.

Regardless, for people looking at cash flow rather than long-term earnings, this is going to make Q3 look much better than expected. They basically moved $305 million in cash flow into Q3 from, well, much of it was from 20 years down the road.

 

[SBenson]

This is actually the first good news out of SolarCity since the take-over was announced. Derisking is good when you have huge liabilities, but how much of the future revenue stream this will eat is not clear to me. Anyone can clarify?

I don't trust their 7.4% cost of capital figure. That might have many many many assumptions baked into it.

Here is a better way to look at it. They raised $305mln on 230megawatts. That's $1.33/W.

From the latest investor presentation from Q2 ER, they raise $1.65/W in Tax Equity.

Bringing the total receipts to $2.98/W

While the same investor presentation shows the cost to be $3.05/W.

To make matters worse SCTY is additionally on the hook for O&M, which management estimated at one point to be 2cents/watt/year on average over the life of the install.

Essentially this transaction proves once again that SCTY loses money on every install, this is not even including R&D, CAPEX and any other corporate level expenses.

Market is happy that SCTY still has some avenues of liquidity but truth of the matter is that it is a money loser (different from Tesla, where S and X would be profitable standalone).