Alternative Energy Investor Discussions

[sleepyhead]

You also have to price in the fact that solar is not dispatchable, and needs fossil fuel backup.

I am not sure I am following? I just gave you the cost to run a solar power plant at about a very rough $75/MWh and even though it isn't dispatchable neither is wind and I know companies that pay $65/MWh to buy wind. So you will find people to pay $75 minus tax credits to get solar.

The only way solar is way more expensive in Massachusetts is if land is way more expensive (then you can install a Sunpower C7 tracker that uses several times less land) or bureaucracy is too expensive. It's possible it could cost $5/W to build there but that is still only $125 per MWh or $0.12/KWh.

I actually do financial analysis for an electric utility so I know a little bit about wholesale electric rates and power plants; if you guys are ever interested about that topic.

On the flip side you can produce electricity with a combined cycle natural gas power plant at roughly $30 - $40/MWh but this fluctuates with natural gas prices and can be as low as $20 when gas was super cheap 2 years ago or can go above $100 when gas goes to $10 (and it will eventually). Solar does not fluctuate and is way better for that reason, and when it does work it works at peak hours; if it is cloudy then a lot less AC's are running and a lot less electricity is needed so prices are naturally lower. It is the sunny hot days that get the real-time electric rates high (I worked as a real-time energy trader as well). Also when you amortize the cost of that combined cycle power plant at about $1 - $2m per MW of capacity built over 30 years you are actually paying a lot more than you think and solar is a lot more competitive.

Solar is not competitive everywhere today, but it is in some places such as Hawaii, India, and many others. Once nat gas goes to $6, everybody will be wishing they had built solar plants when they were still cheap. This is going to change a lot sooner than you think. Solar is getting a lot cheaper while other forms of fossil fuel energy are getting more expensive.

Solar is the future and you just have to see it. The only thing that will hold it back is a recession, but that will only delay the inevitable.

 

[ongba]

There is a story in Barron's this weekend entitled "Dark clouds over solar city". I don't subscribe to Barron's, so don't have access to the article, but this could lead to additional downward pressure on the stock next week.

 

[Norse]

There is a story in Barron's this weekend entitled "Dark clouds over solar city". I don't subscribe to Barron's, so don't have access to the article, but this could lead to additional downward pressure on the stock next week.

http://seekingalpha.com/currents/post/1255322?source=feed_f

 

[JRP3]

I am not sure I am following?

I'm suggesting that since solar cannot yet stand on its own you need to factor in the cost of having backup capacity, either in the form of other generating sources or backup storage, to get the true cost. A hot, humid rainy day can still have significant electricity demands, as can a freezing day in a snowstorm, or even weeks of such weather. Additionally when we get to widespread EV use, millions of EV's charging at night will not benefit from solar without massive storage. Affordable storage seems to be key for widespread solar power.

 

[sleepyhead]

I'm suggesting that since solar cannot yet stand on its own you need to factor in the cost of having backup capacity, either in the form of other generating sources or backup storage, to get the true cost. A hot, humid rainy day can still have significant electricity demands, as can a freezing day in a snowstorm, or even weeks of such weather. Additionally when we get to widespread EV use, millions of EV's charging at night will not benefit from solar without massive storage. Affordable storage seems to be key for widespread solar power.

I agree with what you are saying, but you don't have to add any of those costs into my calculation. I was calculating the cost to produce electricity at a very rough $75/MWh and that is the final cost. There is no other cost that you have to add to this, if you can sell this electricity at $75 then the solar company is making their profit. Actually you would have to subtract government subsidies, so the true cost to the producer is even less.

I agree that if the world were to go to an almost exclusively solar economy then you would have to factor in the cost of storage too. But as it lies when you build a power plant there is no storage necessary; it will feed electrons into the grid whenever it is ready to do so. I understand what you are saying but it doesn't apply to my calculation, since I was just trying to figure out where Robert.Boston got the "hundreds of dollars of subsidies per MWh needed for solar" from.

My comment about peak energy had more to do with the fact that in Texas, we have a lot of wind capacity installed (Texas would be the 6 largest country in the world by installed wind capacity). 80% of it is installed in West Texas and it blows only at night over there. So we are getting this useless wind energy at night, when what we really need is solar to deliver during the day (the coastal wind farms accomplish this as well).

Another note about solar installation costs: Right now in the US the balance of systems costs are very high compared to Germany or other countries. So in the US you pay 20% - 30% for panels and 70% - 80% for installation that includes permitting, etc. In Europe those BOS costs are cheap so they pay about 50/50.

That is why EU is trying to get panels as cheap as possible, because they make up a big piece of the total cost. In the US panels only make up a small portion of the cost and that is why it makes a lot more sense to buy the best panels out there, i.e. Sunpower. And that is why SPWR is a lot more competitive in the US than it is in Europe.

These BOS costs can come down very quickly as long as the US bureaucracy allows these costs to go down, and that will make solar even cheaper than today and competitive without any subsidies.

Final note is that battery storage is cheap as evidenced by Tesla. It is only a few decades away, but I envision a lot of people living off the grid:

Install a 10KW solar system for $40,000 and then install a 200 KWh battery system, which should cost about $20,000 sometime in the next decade or so; I used Tesla's price of $10k for the 60 KWh battery as a proxy. Note: these are not today's costs but reasonable costs for the next decade.

So for $60,000 you have a house that is completely off the grid for 20 - 30 years until panels go bad (which they won't) or batteries lose charge (which they will). That is roughly $2,000 - $3,000 per year or $160 - $250 per month on electricity. And remember that this is enough to power your electric vehicles too so it is a very good deal.

Even if my numbers are conservative and you would have to pay $80k for such a system, it is still a very attractive option to live completely off the grid. Only a couple of years/decades away.

 

[electrictorque]

A good friend of mine just had a solar system installed by SolarCity. He is very impressed with all the work they did. they even re-enforced all the rafters on the roof, basically added 2 extra 2x6's on each rafter with out charging him anything extra. the best part is that his neighbors also want Solarcity to install solar on their houses. I think this will go viral. most people don't know that you can get a solar system without the huge initial expense. And when they hear about it from adds they don't believe it, they think there is a catch or it is some kind of scam. but when they see real people getting it done, then this is when they believe it. so I think as more people get it, more people want it. going viral I tell you.

 

[JRP3]

I certainly see the future potential for millions of EV's plugged into the grid to provide a certain amount of frequency regulation and storage for demand response, as well as used battery packs for the same. I just think we will need a lot more inexpensive storage than they can provide, or some sort of inexpensive dispatchable power source, possibly LFTR's, though I'm not sure how quickly their output can be regulated.

 

[blakegallagher]

Once they release a next gen battery for the model S there will be a huge supply of batteries as people upgrade to the newest tech. I think they will still be expensive because there will be many people/industries interested with batteries that big for sale.

 

[electrictorque]

A story in today’s issue of Barron’s newspaper predicting the end of times for SolarCity is the literary equivalent of a donkey trying to do calculus.

http://www.forbes.com/sites/william...s-potshot-at-solarcity-misses-by-wide-margin/

 

[JRP3]

Once they release a next gen battery for the model S there will be a huge supply of batteries as people upgrade to the newest tech.

Even if that's true, which is questionable since many are quite happy with the existing pack, it's a drop in the bucket compared to the actual storage needs of grid wide solar power.

 

[AudubonB]

Perhaps I can provide a Real-Life datum regarding battery storage:

As I have written before, we live off - way, way off grid. 80 miles to the nearest utility lines. I run a medium-sized hospitality business through a combination of PV electricity (4,660 nameplate watts) and a 30kW generator.

The electricity from both those sources is fed into a bank of batteries: nine tons of 1100Ah cells; mine is arrayed in a fairly efficient (as efficient as today's technology permits) 48VDC configuration. It gets inverted into 240VAC for use.

Now, that bank - the nine tons is a mass approximately seven feet tall by 30" deep by six feet wide - can run our operation, if we very meagerly consume, for three days with no further input.

The lesson to take from this is that battery storage has a very long way to go before even individual needs are conveniently satisfied. Grid-wide? Some other medium (flywheels, gravity-assist, hydrogen) may be more appropriate at THIS stage of development.

 

[JRP3]

I'm hoping something like Jay Whiticare's Aquion Energy or zinc bromide
might become practical.

 

[InTheShadows]

Perhaps I can provide a Real-Life datum regarding battery storage:

As I have written before, we live off - way, way off grid. 80 miles to the nearest utility lines. I run a medium-sized hospitality business through a combination of PV electricity (4,660 nameplate watts) and a 30kW generator.

The electricity from both those sources is fed into a bank of batteries: nine tons of 1100Ah cells; mine is arrayed in a fairly efficient (as efficient as today's technology permits) 48VDC configuration. It gets inverted into 240VAC for use.

Now, that bank - the nine tons is a mass approximately seven feet tall by 30" deep by six feet wide - can run our operation, if we very meagerly consume, for three days with no further input.

The lesson to take from this is that battery storage has a very long way to go before even individual needs are conveniently satisfied. Grid-wide? Some other medium (flywheels, gravity-assist, hydrogen) may be more appropriate at THIS stage of development.

With my calculations you have about 300kw of battery storage (using ~940 standard solar batteries) or 5 model S batteries that have been depleted to 60kw. I'm not sure what the model s battery packs weighs though. What I am sure of though is that 5 used model S batteries would be way more cost effective and weigh a lot less that your current battery bank. I believe really using this though is still 15-20 years out though. But having our cars sitting around could help buffer the demand on the grid. Distributed generation is way more efficient than centralized. Most line losses are 10-17% by time the power gets to your building.

This leads to another revenue opportunity for Tesla. Create inverter/charge controllers than would manage the banks.

One of the biggest hopes in the industry (2years ago) has been compressed air. Using old mines and caves that are air tight and have massive storage capacity. I haven't followed the lates grid storage technologies though in two years so there may be something else that is on the horizon that I do not know about.

 

[JRP3]

Compressed air has poor efficiency as far as I know.

 

[Robert.Boston]

@sleepyhead: My comments about solar requiring hundreds of dollars subsidies for megawatt hour is not based on some bottoms up calculation, but rather on the market price for solar renewable energy credits. If Solar were in fact at grid parity, then that market price would be zero. Conversely, if someone has a way of making power really cheaply using solar technology in New England, this is an enormous arbitrage opportunity for them.

 

[DaveT]

SCTY is getting awfully close to the $30 barrier and breaking into the 20s. Currently at $30.25.

 

[Bardlebee]

SCTY is getting awfully close to the $30 barrier and breaking into the 20s. Currently at $30.25.

Yeah. I bought in at about 11 dollars so I am still sitting well, but this makes me nervous. I wonder if I should give it a few more months so its a long term stock or get out now?

Wonder what is pushing SCTY down so hard the past week or so. I think 40+ was too high, but below 30 is making me scared.

 

[sleepyhead]

I was finally able to read through and study the CSIQ and SOL conference calls and earnings releases and here are my thoughts:

CSIQ - Earnings were good and guidance was really good. They basically said that they are going to be close to break-even in Q3 and that they have 3 power plant sales that could potentially close this quarter that are not accounted for in Q3 guidance. Note: CSIQ uses full acrual accounting (or completed contracted method) on a good chunk of its power plants, which means that they recognize 100% of revenue after the sale process is complete. In this case the 3 power plants are all running and are in the testing phase by the customer who will buy them for sure. It is only a matter of Q3 or Q4. Each plant is worth an additional $60m of revenue and about 20% gross margin. So if they sell all 3 in Q3 then they will have some ridiculously high EPS number above $0.50 for the quarter.

In any case CSIQ is looking to be profitable for FY 2013 and both Q3 and Q4 should both be profitable. They also have a couple of other plants to sell this year, and 18 in 2014. This means that 2014 will be very profitable for them and the analyst consensus is like $2.79 for EPS. With the stock trading at $13, you are getting a fire sale discount on this stock even after the recent runup. They only have 2 power plants to sell in 2015, but they are working on increasing pipeline and I am sure that new deals will be announced.

CSIQ is one of the better plays because it has a total solutions business and not just a module manufacturer, so they get higher margins, revenues, profits, etc. Kind of like SPWR, FSLR vs. the typical module manufacturer of STP, LDK, YGE, SOL, and almost every other Chinese player.


SOL - Great results, with really good guidance. They are all sold out for the rest of the year and are now taking orders for 2014. ASP went up to $0.63 from $0.61 in Q2 vs. Q1 respectively; wafers are sold for $0.23. Gross margin improved from -2% to 7.3%. They gave out guidance for Q3 ASP of $0.66 (which is 5% improvement going straight to gross margin) and Q4 of $0.68 (another 3% of gross margin improvement). They also said on the call that they will definitely see $0.70 ASP in 2014. $0.70 ASP in 2014 means an additional 11% of gross margin vs. Q2 or 18% gross margins (calculation is not that simple since SOL sells wafers as well as other products, but I am not even factoring potential cost savings).

They also said that they expect their microinverters Replus to add to profits starting next year and have high hopes for this high margin (20%) product. It is a future product. I feel like nobody is really listening to management as evidenced by the short length of the conference call as well as the number of analysts following these stocks.

Bottom line is that these companies are really cheap right now (rightfully so, because there is a lot of risk) and if the economy continues to expand these are going to be multi-baggers. CSIQ is more underpriced than SOL, but SOL has the short-term momentum in its favor.

These stocks are highly leveraged plays on the global economy. If you believe that the economy will improve then buy some shares and be prepared to hold for a few years to reap great benefits. Since LEAPS are not offered, you can easily get burned on options even if these companies do succeed. If you think that the economy will collapse then so will their stock prices.

There is also the risk of fraud, etc. since these are US listed Chinese companies and there have been cases of accounting scandals and fraud in the past.

My theory though is that the market has gotten badly burned by solar companies in the past and that is why these stocks are so cheap. These stocks feel a lot like SPWR 6 months ago, when it was in the single digits. SPWR was just turning profitable (non-GAAP) and they signalled that they would be profitable but the price was still really cheap (see it to believe it). Only after two straight quarters of profitability did the stock start going up.

I remember reading articles how SPWR is overpriced at market value above 0.5x Sales, and thinking that was a ridiculous thing to say since most "peer" mature companies would trade at 2x sales and growth companies at even 5x or 10x sales (see TSLA). Now SPWR is trading at slightly above 1x sales and I still think it is cheap. But the market will decide if it is cheap or not, because people got burned before I fear that they are not giving these solar stocks enough respect.

If CSIQ starts trading at 1x sales then we have a 4-5 bagger by next year, and if SOL starts trading at 1x sales we will have a 3-4 bagger by next year. Not saying that this will happen, but I feel like solar is the only industry in the world that gives you the opportunity to buy growth stocks at "priced-to-fail" valuations.

This might be the beginning of an energy revolution, yet nobody is buying into it. I am hoping that one day these stock start trading at 2x sales when these companies start showing consistent profits.

Let me know what you guys think about these companies. Am I missing something here? It looks to me that the only risk in investing in these companies is a global recession. The risk is real, but I would only give recession a 30% chance (and the stocks lose 50%), and a 70% chance that these stocks at least double by next year. I like those odds, but definitely not for the risk averse investor.

 

[Gtoffo]

Yeah. I bought in at about 11 dollars so I am still sitting well, but this makes me nervous. I wonder if I should give it a few more months so its a long term stock or get out now?

Wonder what is pushing SCTY down so hard the past week or so. I think 40+ was too high, but below 30 is making me scared.

Count me in among the scared...I really have no clue of what's going on. I just don't see any support at all....

 

[Gtoffo]

There goes 30$ on Scty.....