TheTalkingMule
Distributed Energy Enthusiast
History and logic state the utilities lose out here. There's simply no way to wiggle out of this decentralized future. Those who adapt to service the new grid will survive, those like NV Energy....
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well, SCTY seems particularly poor at adapting to service the new grid if they over-expend on production at too high a price. It really is not that hard to disconnect from the grid, seriously.
jhm
Well-Known Member
We are talking about California's NEM 2.0, right? I believe you are mistaken the is a NEM transaction so the same rate is used for buying and selling retail power at a a specific time of usage. There a a few unavoidable cost which the seller picks up, but this is very small. Please, prove me wrong with some credible source. Otherwise, I think you are misinformed, which is why you think NEM 2.0 is some serious setback for solar.
Inside the decision: California regulators preserve retail rate net metering until 2019 | Utility Dive
So NEM 2.0 preserves full retail credit.
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Looks like more of that money showed up today.
SolarCity Creates New Fund to Finance $249 Million in Solar Projects -- SAN MATEO, Calif., Feb. 25, 2016 /PRNewswire/ --
SolarCity Creates New Fund to Finance $249 Million in Solar Projects -- SAN MATEO, Calif., Feb. 25, 2016 /PRNewswire/ --
jhm
Well-Known Member
So with tax equity financing at $1.55/W on 1.25 GW for the year, SolarCity will need about $1.94 B in TE funding. So this announcement of $498M covers one quarter.
Do we know how much was lined up previously for Q1 2016. It could be worth tracking these commitments to see how close they are to locking in the full year.
I'd also like it if SolarCity could offer shares of project equity to retail investors. The TE structure may be too complex for retail. But some sort if preferred stock based on the performance of contracted cashflow could be attractive.
As I mentioned before Tax Equity funding has never really appeared to be an issue.
From the 10K - As described below under “—Financing Activities— Debt and Financing Fund Commitments,” as of December 31, 2015, we had $657.7 million of available commitments from our fund investors and $234.2 million of unused borrowing capacity available under our credit facilities.
Another related statement - We have financing fund commitments from several fund investors that we can draw upon in the future upon the achievement of specific funding criteria. As of December 31, 2015, we had entered into 46 financing funds that had a total of $657.7 million of undrawn committed capital.
Not sure why that JP Morgan dude was making a stink over TE. We need to keep a close eye on debt instead. That's where potential problems are.
TheTalkingMule
Distributed Energy Enthusiast
Pretty clear that this 30% cushion can backstop a lot of otherwise difficult borrowing scenarios. I still think when we look back 3 years from now it would have been more advantageous to expire the ITC after 2016 and let the hardcore shakeout occur. Musk could have gotten SCTY through that and the share gains would have ended up better than having this 30% cushion extended so far out. If our main goal is the expansion of solar, I guess it's a good thing.
I mean, would SUNE be alive right now if the ITC were set to expire? Would they be able to drop $1.9B on Vivint? No way in hell.
First and foremost, keep in mind I don't have an accounting background. I am an engineer with analytical skills.
I have been digging into their 10K since a day or two. The most comprehensive information on debt is available in section "11. Indebtedness". If you download the excel, it is sheets named TABLE51 and TABLE52.
I have to say their latest slide deck with debt breakdown/trends does a very poor job of portraying the situation.
What is really important to understand is how much of increase in borrowing is through secured vs unsecured. Because secured borrowing is very reliable (or we hope so). While unsecured borrowing depends on the vagaries of the market. So this type of breakdown and trends should be of key interest to investors.
The slide deck breaks it down by recourse vs non-recourse, which totally portrays a wrong picture. That breakdown is only useful if you are really thinking in terms of liquidation and who gets what. Again trends here show a wrong picture, confusing with the real picture.
Coming to the secured vs unsecured trends, what I see is that the vast majority of increase in debt is all secured. credit facilities, ABS, vehicle loans so forth. This is very good. A big positive.
The goal here is to figure out how much non-asset-financed spending is the company incurring to run the installation business, whether that non-asset-financed portion is coming through increased unsecured borrowing or through decrease in cash.
The only two line items which represent increase in unsecured borrowing are:
Zero-coupon convertible senior notes due in 2020: $113mln
Increase in Solar Bonds borrowing: $210mln
That brings the increase in unsecured borrowing to $323mln
The decrease in cash is $249mln
The net non-asset-financed expense is $572mln
This $572mln is what we should be watching for. Are future trends into this sustainable. We will come back to this again.
But for analytical purposes now lets look at at non-asset related expenses over the year:
R&D Expenses - $65mln
Capital Expenditures - 176mln
Combined - $241mln
So only $331mln was the non-asset-financed capital that was poured into running the business of doing installations. On 870MWs that translates to $0.38/W. This number right here is not scary at all. Now all of a sudden the management talk that the installation business will become self-funding becomes credible. This is a big deal - in a positive way.
Now lets get back to that $572mln to assess sustainability. So what will happen in 2016, is it sustainable. There are couple of key trends here.
- Revenue increase of about $230mln (analyst consensues estimate)
- Lowering of costs of about $0.20/watt (my estimate), which translates to $174mln savings on 870MWs (last year) or $250mln on 1.25GWs (guidance)
- Pushing out some of the capital expenses to 2017 about $70mln
On a net net basis, it appears though they will need less than $100mln additional unsecured funding. This is a very small number that Musk should be able to arrange somehow.
Overall the plan checks out.
The only other remaining critical element is finding money (re-finance) for the expiring unsecured lending:
Solar Bonds SpaceX expiring debt of $165mln
Two term loans thar are expiring in 2016 with cumilative amount of $147mln
Total $312mln
Their cash balance more than compensates for this.
Net-net it appears that barely $100mln to $200mln is all they need to come out with flying colors (assuming the flow of secured financing continues as usual supporting the full 1.25GWs). This is really much smaller than the trends in their slide deck indicate.
The real issue with SolarCity is the struggle to present the financials in a clean way. And more importantly the lost credibility due to over-zealous presentation of certain metrics in the past.
Retained Value of $33/share changed to $17/share with a new name that no one can pronounce "PowerCo portfolio Pre-Tax Unlevered NPV Less Debt".
This is the sort of behavior which creates a serious drop in credibility. Given the complexity of the Business model, most investors just drop the shares and walkaway. For once I agree with Mule. They need a better person than Lyndon Rive to be the public face of the company. He lost wayy too much credibility.
Summary: The business model appears to be very much sustainable. Nevertheless contingent on continued market support in secured borrowing and of course continued success selling PPA/leases on the demand side.
I have been digging into their 10K since a day or two. The most comprehensive information on debt is available in section "11. Indebtedness". If you download the excel, it is sheets named TABLE51 and TABLE52.
I have to say their latest slide deck with debt breakdown/trends does a very poor job of portraying the situation.
What is really important to understand is how much of increase in borrowing is through secured vs unsecured. Because secured borrowing is very reliable (or we hope so). While unsecured borrowing depends on the vagaries of the market. So this type of breakdown and trends should be of key interest to investors.
The slide deck breaks it down by recourse vs non-recourse, which totally portrays a wrong picture. That breakdown is only useful if you are really thinking in terms of liquidation and who gets what. Again trends here show a wrong picture, confusing with the real picture.
Coming to the secured vs unsecured trends, what I see is that the vast majority of increase in debt is all secured. credit facilities, ABS, vehicle loans so forth. This is very good. A big positive.
The goal here is to figure out how much non-asset-financed spending is the company incurring to run the installation business, whether that non-asset-financed portion is coming through increased unsecured borrowing or through decrease in cash.
The only two line items which represent increase in unsecured borrowing are:
Zero-coupon convertible senior notes due in 2020: $113mln
Increase in Solar Bonds borrowing: $210mln
That brings the increase in unsecured borrowing to $323mln
The decrease in cash is $249mln
The net non-asset-financed expense is $572mln
This $572mln is what we should be watching for. Are future trends into this sustainable. We will come back to this again.
But for analytical purposes now lets look at at non-asset related expenses over the year:
R&D Expenses - $65mln
Capital Expenditures - 176mln
Combined - $241mln
So only $331mln was the non-asset-financed capital that was poured into running the business of doing installations. On 870MWs that translates to $0.38/W. This number right here is not scary at all. Now all of a sudden the management talk that the installation business will become self-funding becomes credible. This is a big deal - in a positive way.
Now lets get back to that $572mln to assess sustainability. So what will happen in 2016, is it sustainable. There are couple of key trends here.
- Revenue increase of about $230mln (analyst consensues estimate)
- Lowering of costs of about $0.20/watt (my estimate), which translates to $174mln savings on 870MWs (last year) or $250mln on 1.25GWs (guidance)
- Pushing out some of the capital expenses to 2017 about $70mln
On a net net basis, it appears though they will need less than $100mln additional unsecured funding. This is a very small number that Musk should be able to arrange somehow.
Overall the plan checks out.
The only other remaining critical element is finding money (re-finance) for the expiring unsecured lending:
Solar Bonds SpaceX expiring debt of $165mln
Two term loans thar are expiring in 2016 with cumilative amount of $147mln
Total $312mln
Their cash balance more than compensates for this.
Net-net it appears that barely $100mln to $200mln is all they need to come out with flying colors (assuming the flow of secured financing continues as usual supporting the full 1.25GWs). This is really much smaller than the trends in their slide deck indicate.
The real issue with SolarCity is the struggle to present the financials in a clean way. And more importantly the lost credibility due to over-zealous presentation of certain metrics in the past.
Retained Value of $33/share changed to $17/share with a new name that no one can pronounce "PowerCo portfolio Pre-Tax Unlevered NPV Less Debt".
This is the sort of behavior which creates a serious drop in credibility. Given the complexity of the Business model, most investors just drop the shares and walkaway. For once I agree with Mule. They need a better person than Lyndon Rive to be the public face of the company. He lost wayy too much credibility.
Summary: The business model appears to be very much sustainable. Nevertheless contingent on continued market support in secured borrowing and of course continued success selling PPA/leases on the demand side.
TheTalkingMule
Distributed Energy Enthusiast
Credibility is the wrong word here. The financing of business operations and installations is 70% of their product, so in effect your request for clarity is a request to give away intellectual property. They will disclose precisely what is legally required plus any detail that is more beneficial to the stock price than it is detrimental to their differentiation.
This is obviously a leap of faith since you need to trust the top of this entity to execute properly while acting responsibly. Not a massive leap to get behind Musk IMO, others disagree.
I don't want clarity around the financials, I want the masses to have a clear understanding of the value proposition.
I want you to know that I appreciate your contributions to this thread. Pls don't go away.
I was wondering how you came up with $0.20/W cost savings. Personally I'm worried that any cost savings will be eaten up by a reduction in profit margins. In their efforts to achieve 1.25GW they will have to offer more competitive pricing and it will be hard to reduce things like cost of sales. Their competitor's costs are likely dropping just as much as SCTY's.
He's here because this is a discussion about investing and any good investor wants to hear both the bear and bull arguments. The purpose of this thread is not to be unwavering cheerleaders for SCTY. All opinions are welcome and encouraged on TMC. He's doing you a favor because he's one of the few people who provides badly needed balance.
TheTalkingMule
Distributed Energy Enthusiast
gigglehertz
Member
In the short term TSLA thread I read a lot of bear and bull arguments about how every little state committee vote, court ruling, review by car magazine, financial website article, analyst note, oil trend, macro event, or otherwise news of the day might affect the stock price in the short term. I have enjoyed reading both sides and it is clear both are sometimes right, and each person's opinion is colored by whether they are short or long, or recently made or lost money. My problem with his eternal pessimism is that it seems to be grounded in his opinion that Solarcity's business model is fundamentally flawed and doomed to fail. While I agree Lyndon is not the best spokesperson I get tired of SBenson constantly trying to prove that Solarcity is lying about their financial situation because he can't figure out the numbers. He's used words like charade, doomed, misrepresented, "they're toast", and many more I've forgotten. My point is that being pessimistic or optimistic in the short term is healthy, and discussion of the pros and cons and risks, is good. If you're trying to figure out macro/market mood and time your entry and exit points, long or short, that one thing. But if you think the whole thing is about to collapse any day now with no way to right the ship, then you shouldn't be an investor, and flinging 50 pages of accusations on an investor thread is what exactly? I can't quite bring myself to call him a troll, even though he only seems to care about trashing SCTY all the time. At least he's not trying to drive traffic to a paid per click blog on SA. I've not put him on block unlike that other guy who's just annoying. I appreciate that he's trying to go through the financials, something I don't have the experience or time to do myself. I know a serious professional investor would want to go through it with a fine tooth comb.
I'm not a professional, but I trust that some of the largest financial firms in the world seem perfectly willing to keep lending money to them to finance projects with a VERY long payback time. I have enjoyed reading JHM's rebuttals and have learned a lot. Also like TheTalkingMule said they're not going to show you their books, just the legally required 10K stuff. The only people screaming bankruptcy are shorts like Chanos. Shorting the stock while saying it's going to go down is a self fulfilling prophecy, so it's hard for me to take people like Chanos' opinion as just another valid one. If he was agonizing over what to do with his money that's one thing, but he's sounding more and more like Chanos. Like I said, I can't bring myself to accuse SBenson of anything, I just get tired of hearing how he's the only one who can see through the big conspiracy. Besides, if I want to hear "the other side" I'll just read literally any freaking article on yahoo finance.
Back to lurker mode.
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Krugerrand
Meow
SBenson appreciate your time and skill to dig into the undies pile, thank you! In all this I hope they're spending as much as they need to spend figuring out how to play the new game of TOU+batteries. For me this looks like the biggest unknown at this point -- what kind of money can be made, and is SCTY too focused on cash and could miss some business opportunities because of that? The hope is they already have spent enough to have the basics covered, but we don't really know.
I probably will be kicking myself later but at this point I'm holding off on putting more money into this gig. The best case scenario being TSLA shoots up soon-ish and I can then rebalance some of the gains into SCTY. I see no reason for it not to go back to mid 20's but beyond that I think they'll have to show the money or show the future.
I probably will be kicking myself later but at this point I'm holding off on putting more money into this gig. The best case scenario being TSLA shoots up soon-ish and I can then rebalance some of the gains into SCTY. I see no reason for it not to go back to mid 20's but beyond that I think they'll have to show the money or show the future.
recent Nevada announcements
180-MW Switch Station 1 and Switch Station 2
79-MW Playa Solar 1 plant
50-MW Boulder Solar II park
65-MW Luning Solar Energy Project
reality won't be smooth like the approximation of the model, but it is coming.
TheTalkingMule
Distributed Energy Enthusiast
Radford Small is apparently now in charge of all financial vehicles and certainly his game on point. Even when asked a purely financial question, he still manages to circle back to the value proposition. This is how you position your product in the minds of consumers.
Edit: (and investors)
Edit: (and investors)
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