SolarCity (SCTY)

[doggusfluffy]

McCarthy, uncensored: Gina McCarthy says her patience has “worn thin” for those who deny climate change: “If they haven’t figured out by now, what in God’s name could anyone say to them?” she asked. “I don’t check out flat Earth society and I’m not talking to climate deniers. That’s it. Sorry, I know I’m supposed to be for everybody, but my patience has worn thin over eight years.” West Virginia and other coal dependent regions are “in trouble,” according to McCarthy, but their struggles have paralleled shifts already occurring in the energy industry. She admitted agency rules might “steepen the curve” away from coal, but said “frankly, the coal industry has been going downhill since the 1980s. This is not something that happened over the past administration.” McCarthy did not explicitly mention Republican presidential candidate Donald Trump, who denies that human activity contributes to climate change and has campaigned in part on vague promises to create more coal mining jobs.

Target ranked No. 1 in corporate solar energy capacity

It’s the first time Minneapolis-based Target has grabbed the number one spot in the six years surveyed by the Solar Energy Industries Association, a trade group.

Target can generate 147 megawatts of solar energy — when the sun’s shining — edging out Walmart with 145 megawatts.

 

[phigment]

Any news on why 176K shares were just traded to drop the price $0.3?

Looks like a similar value amount was trade a couple minutes later at TSLA.. perhaps somebody swapping out?

 

[doggusfluffy]

Solar amendment campaign scrubs its web pages after leaked recording

U.S. Rep. Kathy Castor, a Tampa Democrat and member of the U.S. House Energy and Commerce Committee, said Florida lags behind other states in solar generation and the reports confirmed “what many had suspected. the proposed Amendment 1 on the general election ballot is an anti-consumer sham.”

“This was no mere slip of the tongue,” said Nick Surgey, director of research at the Center for Media and Democracy. “Sal Nuzzo is a senior staff member for JMI, caught boasting to his peers about misleading voters. It could not be more appropriate that it is sunlight pouring in that is revealing this campaign for what it really is, a utility-backed attempt to block the development of solar in the state.”

US energy shakeup continues as solar capacity set to triple

“Coal is now in many markets the marginal player,” said Daniel Cohan, professor of environmental engineering at Rice University. “There’s definitely been switching from coal to gas, and many analysts think that the majority of coal power plants are losing money.”

As more and more companies are required to install expensive scrubbers on their coal-fired power plants to reduce mercury and other air pollution, the future of coal plants in many areas is likely grim, he said.

“If they’re losing money or breaking even, it’s not going to make sense for them to put in scrubbers,” Cohan said. “It’s likely to tip a growing number of coal plants to shut down.”

 

[SBenson]

I think our last favor to ask would be for you opinion of the costs of the most recent monetization round. I'm seeing zero details anywhere and would love some insight into how much of the value they sold and at what cost. I just usually sit here and wait, but how would I go about finding those details?

Are you asking about the second cash-equity transaction? This one?

So the info comes from the press release and 10Q/10K reports. In some cases like ABS, ratings agencies are involved giving out a rating and an associated report. In this case the PR says there is a rating agency but it doesn't say which one. In any case, I don't see a report within my access levels.

However, the valuation is pretty straight forward though (and I might have commented on it already). 305mil on 230 MWs.

$1.326/Watt - pretty terrible don't you think? Doesn't even cover project costs.

 

[Xenius]

I apologize if this has already been covered, but doesn't anyone know when/if there will be solarbonds offered by solarcity again? I had a large part of my cash stuck in them a few months ago and pulled it out when they matured. However there are currently none being offered (likely due to the impending merger). Not sure when the merger goes through Tesla will want to be in the position of offering bonds.

 

[SBenson]

$.40/W of O&M costs? That is a massive over-estimation since these are professionally installed and almost entirely maintenance free.

Look at the analyst day presentation. Slide 18. Line item "O&M Expenses". You will be amazed!!

Hint: The correct answer is $0.64/W.

 

[SBenson]

SolarCity Math - highly simplified

Costs: Project level - excludes R&d, CapEx (and god knows what else)

Directly from their latest quarterly presentation. Slide 6. It is $3.05/W.

O&M Expenses. From analyst day presentation. Slide 18. It is $0.64/W.

Total: $3.69/W.

Monetisation:

Tax Equity from their latest quarterly presentation. Slide 5. It is $1.65/W.

Cash Equity sale of the rest. From latest monetisation PR. $305Mil on 230 megawatts. Thus $1.326/W.

Total: 2.976/W.

Net: -0.714/W

Just for giggles, even if sales costs were ZERO, the project cashflow becomes ZERO. There is nothing left to pay for R&D, Capex or any other corporate level expense (non project expenses).

Edit: Add: this math has no provisions for defaults. The monetisation is done in such a way that SC bears all the cost of defaults. So even at zero sales cost, SC runs a negative cash flow just on the project basis.

 

[TheTalkingMule]

Look at the analyst day presentation. Slide 18. Line item "O&M Expenses". You will be amazed!!

Hint: The correct answer is $0.64/W.

If you're going to take that number then you have to take the renewal positive as well because it looks like they have the big chunk of expense at year 21 of the engagement implying some sort of re-installation expense. Both are silly IMO. There's huge value to the existing customer relationship(more than the renewal estimate), but to put a number on it and call it re-up isn't realistic. We'll be far beyond simple grid-connected solar PPAs by then.

I'm not too interested in O&M projections past maybe 10-15 years as I see few scenarios where customers aren't resigned to something new/expanded prior to the 20 year PPA expiration. We all agree there is nearly no maintenance on modern solar.....until we selectively change our minds. Certainly it's SCTY's fault for letting engineers produce cost/revenue figures, but if we just look at this logically we can see where the real pain points are.

 

[SBenson]

If you're going to take that number then you have to take the renewal positive as well because it looks like they have the big chunk of expense at year 21 of the engagement implying some sort of re-installation expense. Both are silly IMO. There's huge value to the existing customer relationship(more than the renewal estimate), but to put a number on it and call it re-up isn't realistic. We'll be far beyond simple grid-connected solar PPAs by then.

I'm not too interested in O&M projections past maybe 10-15 years as I see few scenarios where customers aren't resigned to something new/expanded prior to the 20 year PPA expiration. We all agree there is nearly no maintenance on modern solar.....until we selectively change our minds. Certainly it's SCTY's fault for letting engineers produce cost/revenue figures, but if we just look at this logically we can see where the real pain points are.

You are mistaken. My $0.64/W is excluding the renewal cycle. It is sum of 20 years only.

 

[TheTalkingMule]

Monetisation:

Tax Equity from their latest quarterly presentation. Slide 5. It is $1.65/W.

Cash Equity sale of the rest. From latest monetisation PR. $305Mil on 230 megawatts. Thus $1.326/W.

Total: 2.976/W.

Net: -0.714/W

Just for shits and giggles, even if sales costs were ZERO, the project cashflow becomes ZERO. There is nothing left to pay for R&D, Capex or any other corporate level expense (non project expenses).

We have no details AFAIK about the last three bank rounds, so how do we know what portion of the PPAs were "sold"? Should an install made in a new market in 2015 be all-in profitable?

If you don't think $2.976/W is a wildly profitable monetization point, then we will just have to agree to disagree at this point. These guys are(were) growing at 80+% annually, can you really say there's a rational case that they should be overall cash-flow positive while attempting to expand that rapidly nationwide?

Will monetization costs not rapidly decrease as solar becomes more mainstream? What are their true installation and maintenance costs in a mature market like California? Maybe $2.50/W at most? Thinking a year or two out, they'll be monetizing far beyond their costs and will have been gaining marketshare all the while. Isn't this precisely what Amazon did?

Musk's plan is to advance the disruptive power of residential solar as quickly as possible, but fortunately for us that looks exactly the same as a wild scramble for marketshare in multi-billion dollar emerging market. Will all these costs not continue to drop as the market matures and SCTY's lead remain untouchable?

Monetization is proceeding smoothly at the single toughest period of the company's existence.
Costs strictly associated to Installs are falling(with everyone else).
They've clearly committed to slashing sales cost and have visible options to get there.

Where's the problem? If they can monetize at this level(or maybe better) right now, then IMO there are no major roadblock anymore.

 

[SBenson]

The bank rounds are not monetisations. They are credit facilities and/or tax equity facilities.

 

[TheTalkingMule]

You are mistaken. My $0.64/W is excluding the renewal cycle. It is sum of 20 years only.

Pardon me, I missed the O&M figure of $.18/W in year 11. Again, is that really going to exist? What is going to be done at year 11 that will require $1,200-2,000 worth of expense?

You're picking out the negatives and leaving the obvious positive. This has served us well up to this point, but sentiment has now shifted. We needed you to tempter the irrational exuberance for the past 12 months, now the short sentiment has taken over and we need you to see through that as well.

$3.25/W(or more) for a product that will cost you maybe $2.5/W to install and maintain in mature markets is a great premium. We should be perfectly happy with SCTY dumping gobs of cash into their expansion efforts so they can build an insurmountable lead by the time the cash faucet gets turned on.

We KNOW that the only money to be made in solar will be in services and we KNOW that solar is going to take over. They've screwed up plenty, but are still growing their lead. What's the problem?

 

[TheTalkingMule]

The bank rounds are not monetisations. They are credit facilities and/or tax equity facilities.

What's the difference? They're selling current or future assets for money.

 

[SBenson]

Pardon me, I missed the O&M figure of $.18/W in year 11. Again, is that really going to exist? What is going to be done at year 11 that will require $1,200-2,000 worth of expense?

Inverter replacement.

Edit: Add: Whatever it is. The numbers are put out by your trusted, beloved management. Not me!

 

[electracity]

I have missed these arguments.

What happened to "cash flow neutral by the end of the year"? Was that just another projection we are expected to forget?

 

[winfield100]

Inverter replacement.

my inverter, (Omnion 2200) installed in 1999, is going fine except 2, $40 diode replacements (retail cost)
to be fair, it's not a smart inverter, not islanding, etc, just MPPT

 

[SBenson]

The bank rounds are not monetisations. They are credit facilities and/or tax equity facilities.

What's the difference? They're selling current or future assets for money.

Monetisations are for past projects. They help with immediate cash flow.

Credit/tax equity facilities are for future projects. SC will have to incur the cost of the installs to be able to put the projects here and then take some cash. These don't help with immediate cash flow.

An another thing, credit/tax equity facilities are for lower durations. Monetisations are for outer years.

Market cares about monetisations (ABS, cash equity sales etc.). Not so much near term credit/tax facilities.

 

[SBenson]

I have missed these arguments.

What happened to "cash flow neutral by the end of the year"? Was that just another projection we are expected to forget?

They might be temporarily cash flow neutral as they monetise the last project left in their books. But this is obviously very temporary.

For them to be cash flow neutral on an ongoing basis, they would have to be profitable (at a minimum at the project level). My ultra simplified math above shows that SC is far from it.

SC will suck the life out of TSLA, or so is the legitimate fear. The way it exists SC will need 100s of millions of dollars every quarter... That's why no matter what TSLA is doing the stock price is not moving.

SC needs fundamental restructuring. Shut down half the operations. Fire Lyndon Rive. Fire most of the top management. Only do business where they can get cash upfront (directly from consumer or through 3rd party loan directly to consumer), maybe 10 to 15% leases/ppas but that's about it.

 

[rallykeeper]

What's the difference? They're selling current or future assets for money.

? The Quantum/Soros transaction announced on September 12 was a monetization. I assume that's what TheTalkingMule was referring to.

Unlike the prior tax equity financing transactions, SolarCity sold the cash equity and obtained termed-out, fully-amortizing, non-recourse debt.

I've made the following point elsewhere, but I'll reiterate. While monetization at this level is bad for SolarCity since it likely results in additional GAAP losses to what it originally recognized, it has a positive cash flow impact and SolarCity's prior or even current losses are water under the bridge for Tesla.

Admittedly, I don't think we really know the extent of SolarCity's O&M obligations on the latest transactions. Again, though, the good news from Tesla's perspective is that its a future liability and doesn't currently impact cashflow.

 

[doggusfluffy]

They might be temporarily cash flow neutral as they monetise the last project left in their books. But this is obviously very temporary.

For them to be cash flow neutral on an ongoing basis, they would have to be profitable (at a minimum at the project level). My ultra simplified math above shows that SC is far from it.

SC will suck the life out of TSLA, or so is the legitimate fear. The way it exists SC will need 100s of millions of dollars every quarter... That's why no matter what TSLA is doing the stock price is not moving.

SC needs fundamental restructuring. Shut down half the operations. Fire Lyndon Rive. Fire most of the top management. Only do business where they can get cash upfront (directly from consumer or through 3rd party loan directly to consumer), maybe 10 to 15% leases/ppas but that's about it.

This seems like such a bleak outlook. You have no faith in any of the possible solutions and restructuring that has already taken place? From my perspective the steps are:
Online ordering/Sales layoffs
Tesla inverter
Powerwall 2.0 (assuming a larger option co-owned and partially utilized by grid utilities NY model)
Solar Roof (GF-NY)
Panasonic/Tesla/SolarCity HE panel (GF-NY)
Installing Tesla Model III robotic home chargers?
Smart home integration/Upgrading old systems?