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SolarCity (SCTY)

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Thanks Gene, best of luck for you too. I have been doing the opposite of every wise investor, selling low and buying high. In any case, I don't regret my decisions. In my view, I did the right thing at each of the circumstances. I still believe barring an ITC SolarCity's future is very clouded. Fingers crossed, hope this ITC extension comes through. The discussion will change from survivability to 100% growth rates, 1million targets, 'reckless growth', gigafactories, to blind-faith-price-targets (when will we hit $400 again?). Exciting times.

The $400/share price target is out to 2025 and based on incentive compensation plans for the Rive brothers. Growing from $43 to $400 in 10 years is just a 25% annualized growth rate. The industry should continue to grow at 30% or more over this period. So I see little reason to dismiss the $400 long-term price target. The point of such a target is to keep the longterm opportunity in view and not lose patience or perspective with every short term cycle of market sentiment. The market has proven that sometimes it can't see even one quarter ahead. It's up to investors to keep the long view in sight.

All the best buying into this dip.

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This is a really interesting article. There is a fundamental misattribution in the market of the price of oil to the value of solar producers. Oil will continue to lose value as solar supplants it. Oil still trades at a ridiculously high premium to other fuels. Even today oil is 3.5 times the price of natural gas on a per BTU basis.

But solar investors should not lose heart. In time the market will recognize that the oil and gas producers are unprofitable at these prices, while the solar industry is profitable. When that realization sinks in, solar and oil will decouple. In the meantime, it is good to acquire solar at depressed prices.
 
The $400/share price target is out to 2025 and based on incentive compensation plans for the Rive brothers. Growing from $43 to $400 in 10 years is just a 25% annualized growth rate. The industry should continue to grow at 30% or more over this period. So I see little reason to dismiss the $400 long-term price target. The point of such a target is to keep the longterm opportunity in view and not lose patience or perspective with every short term cycle of market sentiment. The market has proven that sometimes it can't see even one quarter ahead. It's up to investors to keep the long view in sight.

All the best buying into this dip.

jhm, Appreciate your view as always.

The big fundamental difference between me and rest of the bulls here is that I see ITC as very material. Having it vs not having it is a day and night difference to me. For other bulls, I believe the view is that SolarCity will thrive anyway. I don't subscribe to that view. For me, the ITC is needed at least for another 5 years or so. Then maybe it doesn't matter. I don't think the PPA industry is ready for a non-ITC world in 2016/17 time frame. This downturn and the subsequent upturn was not merely sentiment driven in my view. It is very much a function of losing ITC and lack of preparedness for it, vs having it again. Market has been lot more rational than we generally give credit to. At least that's my take on it.
 
To me much of that appears to be outdated. Looks like Politico has connections only at the fringes. The discussions are moving very rapidly. House Democrats and subsequently Republicans already gave in. The Senators are crafting the deal and it's been pretty bi-partisan. Pretty sure White House is positive as well. We are well beyond the 50% probability of a pass now. At least that's my understanding of the situation.



update, and reason why the stock fell about 10% from today's highs.

15-Dec-2015 10:37 - US CONGRESS NEGOTIATORS HAVE NOT YET RESOLVED DEMOCRATS’ DEMAND FOR 5-YEAR TAX CREDIT FOR SOLAR AND WIND POWER-SENIOR SENATE DEMOCRATIC AIDE
15-Dec-2015 10:38 - DEMOCRATS WANT TAX CREDIT TO TAKE EFFECT WITH START OF SOLAR AND WIND CONSTRUCTION PROJECTIONS INSTEAD OF COMPLETION -AIDE
15-Dec-2015 10:38 - SOLAR, WIND TAX CREDIT DEMANDS LINKED TO REPUBLICANS’ DEMAND TO END U.S. OIL EXPORT BAN
 
update, and reason why the stock fell about 10% from today's highs.

15-Dec-2015 10:37 - US CONGRESS NEGOTIATORS HAVE NOT YET RESOLVED DEMOCRATS’ DEMAND FOR 5-YEAR TAX CREDIT FOR SOLAR AND WIND POWER-SENIOR SENATE DEMOCRATIC AIDE
15-Dec-2015 10:38 - DEMOCRATS WANT TAX CREDIT TO TAKE EFFECT WITH START OF SOLAR AND WIND CONSTRUCTION PROJECTIONS INSTEAD OF COMPLETION -AIDE
15-Dec-2015 10:38 - SOLAR, WIND TAX CREDIT DEMANDS LINKED TO REPUBLICANS’ DEMAND TO END U.S. OIL EXPORT BAN
OK, but that means both sides agree to a five-year extension but Democrats want it to take effect with start of construction? So if the Democrats cave we still get a five-year extension? In any event where do you get this ticker?

EDIT: TAN and SEDG are both up still, however, so I'm not sure it explains the SCTY drop.
 
update, and reason why the stock fell about 10% from today's highs.

15-Dec-2015 10:37 - US CONGRESS NEGOTIATORS HAVE NOT YET RESOLVED DEMOCRATS’ DEMAND FOR 5-YEAR TAX CREDIT FOR SOLAR AND WIND POWER-SENIOR SENATE DEMOCRATIC AIDE
15-Dec-2015 10:38 - DEMOCRATS WANT TAX CREDIT TO TAKE EFFECT WITH START OF SOLAR AND WIND CONSTRUCTION PROJECTIONS INSTEAD OF COMPLETION -AIDE
15-Dec-2015 10:38 - SOLAR, WIND TAX CREDIT DEMANDS LINKED TO REPUBLICANS’ DEMAND TO END U.S. OIL EXPORT BAN

Interesting. Came to know that House will release the final proposed text late in the evening. Apparently it becomes public info immediately and is posted to docs.house.gov

House vote is set for Thursday. Senate vote date not yet set, hopefully this week, if not, over the weekend.

I see lower risk from Senate than House. I think we will have pretty good clarity by tomorrow.
 
It's interesting that the panel manufacturers I follow - CSIQ, FSLR, SPWR, HQCL, JKS and JASO - all are maintaining their gains today that they've enjoyed since COP21, whereas SCTY, as you all know, has stumbled. I'm thinking that market players are hoping the worldwide situation to remain positive, regardless of what occurs in the US. That FSLR, which I believe has the greatest relative US exposure, is the weakest of that bunch lends some credence to the thought.
 
Harry Reid putting pressure on Republicans with his negotiating stance.

Oil Export Plan Last Obstacle to U.S. Spending Bill, Reid Says - Bloomberg Politics

Separately, the deal apparently is to include:
5-year extension of solar ITC
5-year extension of the wind PTC
2-year extension of Land and Water Conservation Fund
Allows Obama administration to repurpose $3b in already appropriated funds to global climate fund

This looks like a sane list to me. Not sure what else Democrats are asking that is putting off the Republicans.

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Anyone know of companies positively exposed to Wind PTC?
 
Paul Ryan tells GOP: Budget deal a partial victory - POLITICO

Ryan declined to get into specifics about the bill on the call, but promised he would go through the details of the legislation in a closed party meeting Tuesday, and would talk to the press about what he considers "wins" in the legislation. For example, Republicans have secured the lifting of a decades-old ban on exporting U.S. oil. But, GOP attempts to insert language into the bill to impose tougher controls on Syrian and Iraqi refugees were unsuccessful.
 
jhm, Appreciate your view as always.

The big fundamental difference between me and rest of the bulls here is that I see ITC as very material. Having it vs not having it is a day and night difference to me. For other bulls, I believe the view is that SolarCity will thrive anyway. I don't subscribe to that view. For me, the ITC is needed at least for another 5 years or so. Then maybe it doesn't matter. I don't think the PPA industry is ready for a non-ITC world in 2016/17 time frame. This downturn and the subsequent upturn was not merely sentiment driven in my view. It is very much a function of losing ITC and lack of preparedness for it, vs having it again. Market has been lot more rational than we generally give credit to. At least that's my take on it.

Benson, I appreciate your views as well. I totally get that your current investment is based on ITC. I also get that the market can take a very short term view for rational reasons. Time horizon is one of the key things that differentiate investors, and it is not inherently better to have a short term view or long term view. The market actually needs both. My bias of course is long-term, and I am 15 to 20 years from retirement. I do think that ITC washes out over a 10 to 15 year time horizon. Basically, with ITC SolarCity grows very fast for 5 years, but market saturation kicks in and growth past 2020 slows down. Conversely, with ITC stepdown, SolarCity grows more slowly for 3 to 5 years until it becomes solidly price competitive with utility power. That is, it needs to be priced about 20% below utility power to grow at a strong clip. Once this happen growth picks up and is strong for another 5 years or so. Either path, I think SolarCity gets to the same place by 2030 or sooner. Of course, the specific price path for the stock does depend substantially on ITC and myriad other issues.

Fingers crossed, ITC gets a solid extention, and we both see accelerated gains in the next few years.
 
I heard this rumor about this company that was going to sell stationary storage on massive scale...haven't heard much from them since. What was their name anyway...something Energy.
:wink:

Yes, I also wonder if there is much potential for SolarCity to get in on firming up wind farms with batteries. It is also possible to intercrop wind and solar. I'd love to see wind and solar farms all firm up a little. Just adding an hour of storage allows those facilities to compete head to head with gas peakers and avoid need for curtailment. It would change the whole perception of wind and solar as unreliable, intermittent and in need of fossil backup. Firming up utility solar and wind, then, resolves many technical challenges to distributed solar. So if SolarCity pushes in this direction, it can mitigate some degree of policy risk to the residential business.

For an example, think about SolarCity operating a network of Powerpacks collocated with utility solar and wind farms. Within the same utility service area it also has alot of distributed solar systems at homes and businesses. In real time, it can monitor the net export of distributed systems and compensate for that by charging the Powerpack fleet. That is the net shocks for distributes assets can be precisely cancelled out by storage in wind and solar farms. The question then is what this grid smoothing service would be worth to the utility. Compensation from utility to SolarCity need not be strictly monetary; it could be leveraged for policy accommodation. For example, a utility trying to impose a special fee on ratepayers with solar could be persuaded to waive that fee for customers that participate in such a program. This would exploit SolarCity's scale to a nice advantage. SolarCity would have the scale to negotiate such concessions.
 
Reading rumours on StockTwits of govt PPAs from CA and NV.

That is small, just 5MW.

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CPUC ISSUES PROPOSED NET ENERGY METERING DECISION TO ENSURE CUSTOMERS CONTINUE TO BENEFIT FROM GOING SOLAR

SAN FRANCISCO, December 15, 2015 - The California Public Utilities Commission (CPUC) today helped ensure that Californians will continue to receive the benefits of using clean energy by proposing a successor program to the current Net Energy Metering (NEM) program. NEM allows a customer-generator, such as those who have installed solar photovoltaics (PV), to receive a financial credit for power generated by their on-site system and fed back to the utility.

The Proposed Decision issued today by CPUC Administrative Law Judge Anne E. Simon establishes a NEM successor program that would continue the existing NEM structure while making some adjustments to align the costs of NEM successor customers more closely with those of non-NEM customers.

In creating a successor program to the existing NEM program, the CPUC was directed by Assembly Bill 327 (Perea, 2013) to ensure that customers pay their appropriate share of costs while encouraging a sustainable customer-sited renewable distributed generation program. The Proposed Decision attempts to strike a balance between these requirements. These new costs for NEM successor customers include:

● One-time interconnection fee (likely to be approximately $75-$150). This fee, which represents the costs for a utility to review and ensure that a NEM system interconnects safely to the grid, has historically been borne by all utility customers, including non-NEM customers. The Proposed Decision finds that these interconnection costs can be paid by NEM successor customers themselves without jeopardizing the economics of the NEM installation.

● Non-bypassable charges that all utility customers pay. Non-bypassable
charges are used to fund low income and efficiency programs. They are the equivalent of approximately 2-3 cents per kilowatt-hour of energy consumed. Historically, NEM customers have only paid for non-bypassable charges if over the course of a year they consumed more electricity from the grid than their installation produced. The Proposed Decision finds that NEM successor customers should pay for non-bypassable charges on all energy they consume from the grid, regardless of the amount of energy they have exported to the grid.

In order to maximize the value of time-of-use rates in improving customer responsiveness to grid impacts, the Proposed Decision requires NEM successor customers to utilize time-of-use rates. Customers who sign up in 2018 or later must utilize time-of-use rates as soon as they sign up, while customers who sign up before 2018 must utilize time-of-use rates beginning when all residential customers go on default time-of-use rates in 2019.

The Proposed Decision establishes a framework to develop two new programs to drive adoption of renewable distributed generation among residential customers in disadvantaged communities. One program would provide financial incentives for multi-family buildings to install solar PV, and the second would allow residential customers in disadvantaged communities, regardless of whether they own or rent, to participate in NEM even if they aren’t able to install a renewable energy system on their premises.

The successor NEM program would take effect for new NEM customers after the utilities’ existing NEM program participation caps are met, or July 1, 2017, whichever occurs first.

The Proposed Decision is scheduled for the CPUC’s January 28, 2016, Voting Meeting.

The Proposed Decision is available at: California Public Utilities Commission.

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I consider this to be very positive news. That's not much penalty at all.
 
Wow. New 2017 cost target of 2.25/watt all in cost. (Old target was 2.50/watt)

2.00/watt by 2019.

aggressive expansion on utiltiy solar + storage
aggressive expansion of aggregation of distributed solar+storage

add:
They are going to show the analysts the factory as well as a model home with aggregation capabilities.

We might see some positive reviews come out today and tomorrow after all is said and done today. A few minds will be blown by all the potential value-add coming out of Solarcity in the future.
 
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