SolarCity (SCTY)

[TheTalkingMule]

I have not heard anything official about dropping the 10 kWh PW, but it would not surprise me. Tesla will unveil Powerwall 2.0 in the summer. So apparently they are still figuring out how to make a better Powerwall. Also around that time they should have a battery upgrade for autos. So if they forsee cell advances along critical performance dimension that could prompt 2.0.

General question about the future of mid-sized home batteries to work with solar.

We always talk about powerwalls and the next amazing Tesla product, but why are we talking strictly lithium batteries? Will there not be options far cheaper in the next 5 years? It's my understanding that lithium is simply the best option for uses where size and weight are of massive importance. Laptops, EVs, etc. Well I'm perfectly happy to have two extra refrigerators in my basement if they can give me the same function as two powerwalls in the garage at a lower price or with better properties. Doesn't that open up the possibility to much cheaper types of batteries? I'm currently a bit obsessed with these aqueous hybrid batteries(factory video). There's got to be ways to make those insanely cheap in relatively short order.

To me, this has no +/- implication to SCTY as I envision them as the grand designer and manager of these systems in customer's homes. Just wondering where you think home batteries are going price-wise since they don't have nearly the limitations of car batteries.

 

[SBenson]

Has this already been posted? /SolarCity-Kills-Its-MyPower-Loan-Product

SolarCity Kills Its MyPower Loan Product | Greentech Media

This adds to proof that switching revenue/cash-flow models is not easy. Good to keep this in mind, when enthusiastic folks here throw in all sorts of revenue models and say SC would do this and SCTY will take off like a jet plane.

PPAs/Leases are working for them in terms of making the sales. But these things are also severely working against them in terms of Business model, which is ever inching into a death trap. I will post some more to back this claim in response to one of jhm's post (as if I didn't post enough data to back it up already )

 

[TheTalkingMule]

This is also an example of the kind od self-referential bias that can undermine marketing efforts. The mistake here was that MyPower loans were structured too much like a PPA (but without the tax treatment). So why did SolarCity make that mistake? I suspect that they identify too much with consumers who are inclined to prefer PPAs. They assumed all the same assumptions about who might be interest in a loan, and so the designed a loan that looked like a PPA. This is a serious mistake. There really are consumers out there who would prefer a fixed loan for 7 to 20 years. They are okay with making a down payment and want to pay off the loan as quickly as possible. So SolarCity has been under serving this sort of consumer.

If they come back with a simple fixed loan at a good rate, they can tap this segment. Moreover the can get a 10% to 20% down payments, after all the customer is in line for a 30% ITC in a year. So MyPower uptake was about 13%. Who knows, with a simple fixed loan the uptake could be twice as much, which would probably reduce their sales $/W.

Another option is to partner with third party lenders. Lots of banks would be delighted to do this. This way they can offer truly competitive interest rates to customers, and SolarCity would get all cash upfront. So from a cash flow perspective, this would be enormously helpful.

So the marketing lesson here is offer truly distinctive product options to appeal to different kinds of consumers. Marketing 101.

Exactly. MyPower just reeks of over-confidence and single-mindedness, hopefully they are learning from these errors. No big deal.

IMO they should definitely have a straight install option sitting there for anyone who wants it, but it needs to be toward the top end on quality and price. They can(will be able to) command a much higher profit margin than local installers if they are rightfully seen as the premium option and just let the sales come to them since thy're the reliable big dog. Again this single-minded need to [expensively] drill the sale into customer's minds rather than let them draw their own conclusions cheaply is a bit annoying. They will naturally transition away from this, but it's going to become a drag on growth eventually for a lot of the reasons SBenson has pointed out over the last 30 pages.

3rd party lending is such an obviously better choice for SCTY straight installs, but lets not forget they weren't nearly as plentiful just a couple years ago. And certainly not plentiful outside of CA.

 

[SBenson]

Jhm, Mule,

You both have expressed interest in SolarCity offering a straight up install with a "normal" loan. That sounds so simple and straightforward that it begs the question, why didn't they do it for so long?

My working assumption is that SolarCity is severely more expensive than others. They sell it through PPAs by pitching themselves against utilities. That obfuscates the competitive landscape. If they sell straight-up on a $/W level, they will lose market share to local installers very quickly. To address this you are saying that they would pitch themselves as a "premium" product/service. Have you really evaluated this though? Back when sleepyhead was around he showed many details proving out that SolarCity uses much lower quality products that what he could get for much cheaper-price. His claim was that SC was willing to take the risk because ultimately they own the system and can quickly replace if/when something fails. So the risk/reward for going with low quality components was more effective. If this is indeed the case, how and why would they be a "premium" product?

 

[jhm]

Thinking more about partnering with a third party lender...

In actually there are two products being bundled: the original solar system and a service plan. It may or may not be beneficial to unbundled this for the customer, though part of the sticker shock for upfront buyers is the imbedded service plan. For customers that want to pay cash upfront, it may be beneficial to give the option to pay the service plan month to month.

But in relation to a lending partner, it makes very good sense to unbundle this. The lender can fund the initial system upfront and the scheduled inverter upgrades as they occur. This is transparent to the customer. The customer pays a monthly payment. The lender gets the first portion of the payment and SolarCity gets what's left to fund the service plan. This has benefit to the lender. First, it gives the lender a little more protection from credit risk, since SolarCity absorbs a little more of that risk. Second, it provides a degree of protection from prepayment risk as SolarCity absorbs overpayments first. Also it is more capital efficient only needing funding for hardware as it is needed. For example suppose the initial system is $14k, second inverter $2k present value, and service plan $4k present value. If that is all funded upfront, you've got a $20k loan. Say you lender can offer 4.5% financing or $900 in first year interest. What I am proposing only needs $14k funding upfront. That is just $630 in first year interest. So this works out to about 3.15% financing from the customer's perspective. That's is, the customer sees that they are getting a $20k fixed loan at 3.15%, while in the background the lender and SolarCity are swapping cashflows to optimize capital.

This sort of thing could be done as an ABS, but I think a per loan lending partner relationship could make this work too. The advantage to the latter is that it avoids all the overheard of issue an ABS periodically. On a daily basis, the lending partners can be called upon to fund new loans as systems are installed.

 

[blakegallagher]

I like the line in the article linked from Jonathan bass saying that even with only a 13 percent take it is by far the most popular solar loan on the market.

 

[TheTalkingMule]

Jhm, Mule,

You both have expressed interest in SolarCity offering a straight up install with a "normal" loan. That sounds so simple and straightforward that it begs the question, why didn't they do it for so long?

My working assumption is that SolarCity is severely more expensive than others. They sell it through PPAs by pitching themselves against utilities. That obfuscates the competitive landscape. If they sell straight-up on a $/W level, they will lose market share to local installers very quickly. To address this you are saying that they would pitch themselves as a "premium" product/service. Have you really evaluated this though? Back when sleepyhead was around he showed many details proving out that SolarCity uses much lower quality products that what he could get for much cheaper-price. His claim was that SC was willing to take the risk because ultimately they own the system and can quickly replace if/when something fails. So the risk/reward for going with low quality components was more effective. If this is indeed the case, how and why would they be a "premium" product?

My philosophy on solar is very simple. Hardware is getting so cheap and the quality curve is flattening so fast that manufacturing is going to rapidly end up just like HDTVs. Installations as a standalone product/service are done on an amateur basis by posters on this very forum in their spare time and at higher quality than a lot of local installers. The best area to differentiate yourself is in total energy management which should be an absolutely HUGE market when things get rolling. SCTY has attempted to start at the end of all this progress and work backwards.

Marketshare at the lowest cost possible is all that matters to the model, and that level of cost is of no concern. The amount of money to be made installing "renewable energy as a service" is so astronomical that nearly any cost can be justified in the early stages in order to be the last player standing after the early shakeouts. SCTY had absolutely insane cost years ago out of necessity, but they're now ahead of schedule to bring them to 2.25/W which is low enough. As evidenced by the yieldcos collapse, their #1 installer ranking and pretty much all other nationwide PPA offerings disappearing, they're doing something right. Or at least right enough to eat up the entire nationwide PPA market. The back end of this from 2017 on as costs become universally low is pure gravy. SCTY will have an untouchable lead and no one will gain traction for years. Installers will do their thing and SCTY will do it's thing with half the market.

The only reason I want them to do straight installs is to take advantage of that premium brand positioning that will allow for best in class margins. If people want a premium product, identify SCTY as that prduct, and for some reason want to own the panels, nothing wrong with doing it for the right price. Especially once Gigafactory II gets rolling(or factory I is expanded to 5 GW).

 

[electracity]

The market for third party owned solar is not projected to get huge any time soon:

 

[Johan]

The market for third party owned solar is not projected to get huge any time soon:

View attachment 111772

Solar still has its main penetration in the upper middle class and in those with high income. These are the people who buy cars, consumer electronics, college education for their kids etc. cash or with financing from their bank (with excellent terms).

When the general middle class and those with lower incomes see the value in going solar they're going to have to finance and/or lease/PPA/go with 3rd party owned model. What matter for this huge chunk of consumers is lowering their monthly cost. They have mortgages on their homes, cars, even flat screen TVs and phones. If they can go solar with no money down, no mortgage but still lower $/kWh than with their current utility it will be a no-brainer.

Saying these people would be better of buying their system outright is like saying they would be better off avoiding paying interest on their home mortgage by buying their house cash. I bet they would if they could.

 

[dakh]

Continuing net metering as the price of solar falls shifts more and more costs to the 80% of the electricity buyers that can not add solar to residential. The solar supports may be loud, but solar pricing is a tug of war between the solar minority and the large majority. Plain net metering will likely not continue anywhere past low % solar installs. It hasn't continued anywhere once solar becomes a significant source of generation.

We the public want the system to be set up to incentivise participants to optimize both production and consumption of energy for efficiency and environment impact. If utilities are allowed to push what we now can safely describe as frivolous spending onto ratepayers that's not a good outcome either.

- - - Updated - - -

Just a point of clarification for at least the California regulatory market. I do not believe it is a choice between net metering and time of use. Those are two different concepts but overlapping. Net Metering is a connection philosophy which allows a solar producer to be paid for generation. It does dictate things like the process of accounting, the length of time for the relevant period and the reimbursement rate (defined as some wholesale rate) used to calculate any cash credit at the end of the relevant period. TOU rates are independent of Net Metering. I had a TOU rate by choice before I solar. TOU rates only apply to the power consumed and generated during the relevant period (defined as one year). Even if TOU rates are dictated by NEM policies, the solar producer will have a choice of which TOU rate. Right now, as I know it I have at least three TOU rate choices with SCE.

Thanks for the note. Yes I just used the terms that I thought everyone else uses. AFAIR CA TOU plans are not net metering but close, there are some charges included. So when we talk about CA it's flat rate plus net metering or variable rate and some charges, is that about right?

 

[electracity]

This is how GTM has quantifies SCTY's market segment in the U.S. I'm not sure what point you are making. PPA is a loan: Payments on a schedule.

Solar still has its main penetration in the upper middle class and in those with high income. These are the people who buy cars, consumer electronics, college education for their kids etc. cash or with financing from their bank (with excellent terms).

When the general middle class and those with lower incomes see the value in going solar they're going to have to finance and/or lease/PPA/go with 3rd party owned model. What matter for this huge chunk of consumers is lowering their monthly cost. They have mortgages on their homes, cars, even flat screen TVs and phones. If they can go solar with no money down, no mortgage but still lower $/kWh than with their current utility it will be a no-brainer.

Saying these people would be better of buying their system outright is like saying they would be better off avoiding paying interest on their home mortgage by buying their house cash. I bet they would if they could.

 

[Johan]

This is how GTM has quantifies SCTY's market segment in the U.S. I'm not sure what point you are making. PPA is a loan: Payments on a schedule.

My point is that the target audience will soon widen to a group of consumers who are much less able to buy their systems cash or through advantageous external financing.

To then SCTY's offerings may seem a lot more attractive than they do to you or me.

 

[jhm]

Telstra takes on energy utilities with home solar and storage plan : Renew Economy

Here's an interesting development for Australia. Telstra, a major telecommunications company in Australia, wants to enter the home energy market. They want connected homes with solar, batteries, and demand management devices. They will bundle this with other telecommunications services. They believe they know how to work directly with customers better than the utilities do. Part of their marketing appeal is to tap into consumer hatred of the utilities.

This should be interesting to watch. If Telstra can pull this off, I think bodes well for SolarCity to move in similar directions in the US. This also poses a very different future than the Solar Mad Max world where roving Ganges of electricians vy to throw up the cheapest panels. Rather energy becomes part of the connected world, where the value of energy devices in the home are enhanced by information based connections. Try to remember the PC revolution before the internet, before even bulletin boards. You could get a lot of value having an unconnected PC in your home, but that value went way up as the Internet emerged and connected millions of PCs. The state rooftop solar is presently not connected. Sure, many have a utility connection, but that carries practically zero information. It's like a modem, but with nothing to dial into, pretty dumb. So we presently have difficulty even imagining what a truly connected energy world would look like. Most of us will have to see it before we believe it.

 

[WMTribe90]

Exactly. MyPower just reeks of over-confidence and single-mindedness, hopefully they are learning from these errors. No big deal.

IMO they should definitely have a straight install option sitting there for anyone who wants it, but it needs to be toward the top end on quality and price. They can(will be able to) command a much higher profit margin than local installers if they are rightfully seen as the premium option and just let the sales come to them since thy're the reliable big dog. Again this single-minded need to [expensively] drill the sale into customer's minds rather than let them draw their own conclusions cheaply is a bit annoying. They will naturally transition away from this, but it's going to become a drag on growth eventually for a lot of the reasons SBenson has pointed out over the last 30 pages.

3rd party lending is such an obviously better choice for SCTY straight installs, but lets not forget they weren't nearly as plentiful just a couple years ago. And certainly not plentiful outside of CA.

I had a PV system installed on my first house here in Colorado back in 2007 using a local installer (Namaste). When I moved, I had SS install a new PV system on my next house last March. Since that time I've also invested in the company (multiple entry points, all currently underwater). I've also been lurking on these boards for the past six months following along.

The above posts applied so aptly to my situation and experience that I finally created a log-in to join the conversation.

When I was shopping for an installer I was surprised that SS was slightly cheaper than the local installer. On top of price, SS had a better design IMO, better customer service (my sales rep was awesome and we have kept in touch), and offered the added benefits of guaranteed production, extended warranties, and the inverter replacement when the time comes (icing on the cake).

I had no interest in the PPA/lease, so I opted for the MyPower loan. This is where the whole thing almost fell apart. My sense is SS was just banking on customers being told that their total energy bill would be less from day one with nothing down and would be satisfied knowing the amount of total savings over the lifetime of the system. This is not how I operate. Once I started diving into the financing agreement I was turned off by the seemingly unnecessary complexity. While not hidden, the fixed production escalators really added up over time. It became obvious pretty quickly that the MyPower loan would really diminish my return on investment over a conventional loan. This shook my trust that I was dealing with an honest broker. I almost decided to delay the installation a year or two until I could afford to buy it outright. Fortunately, the county where I live created an "Energy Smart" program. Part of the program includes rebates and low interest loans for home energy efficiency improvements completed by pre-approved contractors. It turned out solar PV and SS were both included in this program. I was therefore able to get a 5-year loan at 2.75% through my credit union. So, I had SS do the install, got all the benefits mentioned above, and then paid off the entire MyPower loan the first week. According to my SS sales rep, I was the first customer of his to go this route. I believe it as it took multiple calls to the NV office to set it up.

So, I agree whole-heartedly that SS should offer financing for customers that wish to purchase their system, but the financing needs to be simple and straightforward and offered at a competitive rate. Attempting to tie the payback to production did seem like an unnecessary vestige of the PPA program that overly complicated matters and confuses potential customers that want a full understanding of what they're signing. The deal would have fallen through if not for the dedication and persistence of the sales rep.

I was a solar veteran motivated my environmental benefits of solar. The amount of time my SS rep would have needed to close the deal with me, if not for the convoluted MyPower financing, would have been a couple hours. He ended up spending much more time and effort going back and forth trying to explain the intricacies of the financing (not to mention using up my time). Hopefully they have learned their lesson.

Does anyone know if they plan to bring back a loan product? I really think they need to offer one, just a straight forward one.

 

[electracity]

My point is that the target audience will soon widen to a group of consumers who are much less able to buy their systems cash or through advantageous external financing.

To then SCTY's offerings may seem a lot more attractive than they do to you or me.

Why does the group widen? Doesn't SCTY sell to anyone with a home and good credit?

- - - Updated - - -

Telstra takes on energy utilities with home solar and storage plan : Renew Economy

Here's an interesting development for Australia. Telstra, a major telecommunications company in Australia, wants to enter the home energy market. They want connected homes with solar, batteries, and demand management devices. They will bundle this with other telecommunications services. They believe they know how to work directly with customers better than the utilities do. Part of their marketing appeal is to tap into consumer hatred of the utilities.

This should be interesting to watch. If Telstra can pull this off, I think bodes well for SolarCity to move in similar directions in the US. This also poses a very different future than the Solar Mad Max world where roving Ganges of electricians vy to throw up the cheapest panels. Rather energy becomes part of the connected world, where the value of energy devices in the home are enhanced by information based connections. Try to remember the PC revolution before the internet, before even bulletin boards. You could get a lot of value having an unconnected PC in your home, but that value went way up as the Internet emerged and connected millions of PCs. The state rooftop solar is presently not connected. Sure, many have a utility connection, but that carries practically zero information. It's like a modem, but with nothing to dial into, pretty dumb. So we presently have difficulty even imagining what a truly connected energy world would look like. Most of us will have to see it before we believe it.

Everyone I know avoids bundling. Comcast in particular.

 

[Johan]

Why does the group widen? Doesn't SCTY sell to anyone with a home and good credit?

Now you're playing dumb again.

Of course a wide range of people are already in the target audience for SCTY. The problem is they haven't figured it out just yet. I don't want to waste time typing it out but some keywords should sum it up: it's all about public perception, taking the leap, seeing your neighbors going solar, public policies pushing in the right direction.

 

[TheTalkingMule]

Now you're playing dumb again.

This is called trolling, he's using you to derail the thread conversation.

 

[electracity]

I had a PV system installed on my first house here in Colorado back in 2007 using a local installer (Namaste). When I moved, I had SS install a new PV system on my next house last March. Since that time I've also invested in the company (multiple entry points, all currently underwater). I've also been lurking on these boards for the past six months following along.

The above posts applied so aptly to my situation and experience that I finally created a log-in to join the conversation.

When I was shopping for an installer I was surprised that SS was slightly cheaper than the local installer. On top of price, SS had a better design IMO, better customer service (my sales rep was awesome and we have kept in touch), and offered the added benefits of guaranteed production, extended warranties, and the inverter replacement when the time comes (icing on the cake).

I had no interest in the PPA/lease, so I opted for the MyPower loan. This is where the whole thing almost fell apart. My sense is SS was just banking on customers being told that their total energy bill would be less from day one with nothing down and would be satisfied knowing the amount of total savings over the lifetime of the system. This is not how I operate. Once I started diving into the financing agreement I was turned off by the seemingly unnecessary complexity. While not hidden, the fixed production escalators really added up over time. It became obvious pretty quickly that the MyPower loan would really diminish my return on investment over a conventional loan. This shook my trust that I was dealing with an honest broker. I almost decided to delay the installation a year or two until I could afford to buy it outright. Fortunately, the county where I live created an "Energy Smart" program. Part of the program includes rebates and low interest loans for home energy efficiency improvements completed by pre-approved contractors. It turned out solar PV and SS were both included in this program. I was therefore able to get a 5-year loan at 2.75% through my credit union. So, I had SS do the install, got all the benefits mentioned above, and then paid off the entire MyPower loan the first week. According to my SS sales rep, I was the first customer of his to go this route. I believe it as it took multiple calls to the NV office to set it up.

So, I agree whole-heartedly that SS should offer financing for customers that wish to purchase their system, but the financing needs to be simple and straightforward and offered at a competitive rate. Attempting to tie the payback to production did seem like an unnecessary vestige of the PPA program that overly complicated matters and confuses potential customers that want a full understanding of what they're signing. The deal would have fallen through if not for the dedication and persistence of the sales rep.

I was a solar veteran motivated my environmental benefits of solar. The amount of time my SS rep would have needed to close the deal with me, if not for the convoluted MyPower financing, would have been a couple hours. He ended up spending much more time and effort going back and forth trying to explain the intricacies of the financing (not to mention using up my time). Hopefully they have learned their lesson.

Does anyone know if they plan to bring back a loan product? I really think they need to offer one, just a straight forward one.

Sometimes SCTY seems like Enron minus 30 IQ points.

 

[Krugerrand]

Everyone I know avoids bundling. Comcast in particular.

Everyone I know bundles. The problem is not bundling in and of itself, it's when there isn't enough variety within the bundles available for a customer (forcing them to take something they don't/won't use) and there's only one company offering bundles. Competition makes for a larger variety within bundling = happy, happy customers who get one stop shopping.

 

[electracity]

Now you're playing dumb again.

Of course a wide range of people are already in the target audience for SCTY. The problem is they haven't figured it out just yet. I don't want to waste time typing it out but some keywords should sum it up: it's all about public perception, taking the leap, seeing your neighbors going solar, public policies pushing in the right direction.

You are implying something changes for the positive with SCTY. I have no idea what that would be. Why is a carpenter more likely to sign a PPA in the future compared to today? How do solarcity do relatively better in a future market that will likely contain more knowledgeable customers? "Free solar" and comparisons to utility bills is an early game selling strategy. That sales pitch likely becomes less effective as the market matures.