SolarCity (SCTY)

[Foghat]

Man, it's wild times on this thread lately... nothing like a big drop to bring out the best in all of us... especially those crouching in the lurch waiting for such moments...

The reality is the mysolar loan was attempting to bring a product that everyday people would use. The whole reason for lease/ppa doing well is that there is no upfront capital and people save on their utility bill from day one. Normal loans just aren't able to do that right now. No matter how attractive, they just don't work for the average american appetite for debt right now. Loans are a different animal that require a lot more stake then a lease or ppa. With a lease/ppa, all the risk resides with the lease/ppa provider. They must live up to their end of the agreement for the monthly payment a consumer gives them. That's it. Savings from day one is a powerful selling point and it's showing up in solarcity's numbers. Lyndon Rive said nearly 50% of all solarcity booked lease/ppas are now from middle income families including areas that are considered low income by zip code. That's a far cry from what we're hearing in the media saying solar is a product for the wealthy.

Loans will gain more traction when prices for total package install, monitoring, and upkeep can be packaged in a no upfront and offer savings up front from day one. I feel the my solar loan was an iteration toward creating that type of loan product. In my opinion, I think solarcity it needs to hold off on loans until they can offer a loan that is almost exactly like a lease/ppa in it's simplicity and pricing. No upfront cost, savings from day one. There are so many people that want to own, but when they look at the actual numbers(and lack of use for the ITC), they are turned away from loans and either go with a lease or decide to wait it out. Not many are actually willing or able to fork out the upfront cost or much higher monthly payments from day one.

I see that the solarcity loan product might have to wait until the ITC runs out because I feel not many people can take advantage of it in the middle class of America. I mean, there are even massively expensive ad campaigns on tv right now(H&R Block) that market to the massive tax refunds middle class americans receive. That means not many people are footing $6k tax bills on a yearly basis, nor any tax bill for that matter to make the ITC a benefit. So, ownership(through loans) has to work it's way to being cost competitive on a no upfront cost /save from day one basis. By the time that happens, solarcity will easily be there with a product that does that. Until then, lease/ppa will dominate the broader marketplace. It's just the plain reality. So mysolar will return at a later date in a new form that makes sense with the broader consumer marketplace. That's the lesson here. You can't change consumer desires, consumer desires change you.

Given the NEM 2.0 decision and impending "fill up" of the NEM cap, I feel solarcity lease/ppa bookings will be massive. If the bookings in Nevada before the PUC decision last december are any indication of what will happen, solarcity will have a huge booking period through the end of the year.

Also, for those interested in the TOU breakdown, they california utility commission has not set the rates yet. Someone pointed out that Lyndon Rive made an early comment about concern with the tou rates before the decision last month, but then changed his tune after the decision came down. The reason is they are in discussion with the PUC about what those TOU rates might look like. To bring more color to Lyndon Rive's more assured attitude, Peter Rive stated recently that the TOU rates look to be fair and continue to enable the solar market to grow. As such, whatever the commission decides soon on the rates, solarcity feels comfortable with it. So, we should stay tuned for those numbers when they come out to determine the actual impact of the NEM 2.0 TOU rates implemented after the caps are met(which is estimated to be as early as 4Q this year).

Overall, solarcity will have no problem filling in the 13% the loan product took up in its bookings. Especially with the massive number of bookings to come down the line with California NEM 2.0 taking hold as soon as the cap is met. The fact that people booking solar now will be grandfathered for 20 years with the more favorable rate sells itself. A sales person's dream when that happens. If anyone wants to contest that fact, I'm all ears.

 

[WMTribe90]

Sometimes SCTY seems like Enron minus 30 IQ points.

To be clear, my overall SS experience was positive. I'm a fan of the company and an investor that believes that are positioned as the market leader sitting on a powder keg of potential growth in residential solar.

 

[electracity]

To be clear, my overall SS experience was positive. I'm a fan of the company and an investor that believes that are positioned as the market leader sitting on a powder keg of potential growth in residential solar.

I agree with the powder keg part. I'm also sure many of their people do a good job. But their finances and sales pitch are designed to deceive.

 

[valakos]

utility scale solar

To be clear, my overall SS experience was positive. I'm a fan of the company and an investor that believes that are positioned as the market leader sitting on a powder keg of potential growth in residential solar.

I'm not very knowledgeable, and I do apologise if this post is inaccurate but as far as I can tell they focus on residential solar - I am perplexed as to why they focus on residential solar - why not utility scale solar and solar for governments overseas? Their residential model of selling panels with no upfront payment and charging for usage or annuity style pricing seems highly risky to me - I would have thought the big money is in larger scale solar projects where they can bundle with storage as well.

 

[TheTalkingMule]

Man, it's wild times on this thread lately...

I'm gonna sit out for a bit until the trolling cools down, there's just no room to have a rational conversation.

I've gotten the views of sbenson and jhm on recent doings, no need to deal with nonsense.

 

[WMTribe90]

I'm not very knowledgeable, and I do apologise if this post is inaccurate but as far as I can tell they focus on residential solar - I am perplexed as to why they focus on residential solar - why not utility scale solar and solar for governments overseas? Their residential model of selling panels with no upfront payment and charging for usage or annuity style pricing seems highly risky to me - I would have thought the big money is in larger scale solar projects where they can bundle with storage as well.

I know there are others on this board more qualified than I to answer this question. It's my understanding that SS is branching more into commercial installs. With the exception of the HI project they are not involved in utility solar projects to my knowledge.

I think there is a market for both residential and utility solar, but the two are very different animals. Perhaps SS decided early on they wanted to dominate one sector.

From a personal perspective there is something very empowering about producing your own electricity from your own little solar power plant. My bet on SS in particular and residential solar in general is based on the belief that there are tons of Americans of all persuasions that would enjoy that same satisfaction if provided an understanding of the technology and a clear, logical path to achieving it. I think it really comes down to customer acquisition (read education) costs. Gotta make the leap from the somewhat self-motivated customers to the average Joes.

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I'm gonna sit out for a bit until the trolling cools down, there's just no room to have a rational conversation.

I've gotten the views of sbenson and jhm on recent doings, no need to deal with nonsense.

I hope you and Foghat aren't putting me in the troll camp. Perhaps my first post was mistimed, but I thought it was on balance positive.

I held my long position through the ITC renewal scare and the first ride from $50-somthing down to sub $25 and back again. Obviously, I still believe in the company and the long term vision.

 

[jhm]

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.

Hey WMTribe90, welcome to TMC. Thanks so much for telling your story. It perfectly illustrates why SolarCity needs to offer a simple fixed mortgage. Financial complexity does create uncertainty. So one wonders how many sales SolarCity has lost on that account. Moreover, the time that sales reps must take explaining a complex financial product does add directly to sales cost per Watt. Moreover, processing unneeded loans added to general and administrative expenses. So this is a compelling case for how fixed loans could increase sales and decrease SG&A per watt. So glad you found an alternative loan at an attractive rate.

 

[WMTribe90]

I agree with the powder keg part. I'm also sure many of their people do a good job. But their finances and sales pitch are designed to deceive.

I disagree. I think they attempted to simplify and over-complicated My Power Plan agreement, by marketing the critical elements (see below). I don't believe it was an intentional attempt to deceive. They should have just created a simpler instrument.

Nothing down.
Start saving money from day one.
Save long term over sticking with the utility.

Yes, I will save more or increase my returns having secured my own financing. But I am fortunate to live in a place that values energy efficiency and renewables and was therefore able to secure a favorable loan and have the means to pay it back quickly.

For those that lack means to purchase a system, SS offers a tremendous value by allowing these folks to go solar with nothing down. I've yet to see a truly compelling argument that these folks would be better off not going solar now and instead waiting 10 years until they can afford to buy their system.

 

[Foghat]

I disagree. I think they attempted to simplify and over-complicated My Power Plan agreement, by marketing the critical elements (see below). I don't believe it was an intentional attempt to deceive. They should have just created a simpler instrument.

Nothing down.
Start saving money from day one.
Save long term over sticking with the utility.

Yes, I will save more or increase my returns having secured my own financing. But I am fortunate to live in a place that values energy efficiency and renewables and was therefore able to secure a favorable loan and have the means to pay it back quickly.

For those that lack means to purchase a system, SS offers a tremendous value by allowing these folks to go solar with nothing down. I've yet to see a truly compelling argument that these folks would be better off not going solar now and instead waiting 10 years until they can afford to buy their system.

That arguement makes a lot of sense. I agree.

 

[electracity]

I disagree. I think they attempted to simplify and over-complicated My Power Plan agreement, by marketing the critical elements (see below). I don't believe it was an intentional attempt to deceive. They should have just created a simpler instrument.

Nothing down.
Start saving money from day one.
Save long term over sticking with the utility.

Yes, I will save more or increase my returns having secured my own financing. But I am fortunate to live in a place that values energy efficiency and renewables and was therefore able to secure a favorable loan and have the means to pay it back quickly.

For those that lack means to purchase a system, SS offers a tremendous value by allowing these folks to go solar with nothing down. I've yet to see a truly compelling argument that these folks would be better off not going solar now and instead waiting 10 years until they can afford to buy their system.

In your own words:

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.


Solarcity selling of the 2.9% escalator is a deception.

Most of solarcity's crews are good. But you overpaid about 25%. You just didn't find the less expensive good local installer who is always busy and doesn't need to advertise.

 

[jhm]

Man, it's wild times on this thread lately... nothing like a big drop to bring out the best in all of us... especially those crouching in the lurch waiting for such moments...

The reality is the mysolar loan was attempting to bring a product that everyday people would use. The whole reason for lease/ppa doing well is that there is no upfront capital and people save on their utility bill from day one. Normal loans just aren't able to do that right now. No matter how attractive, they just don't work for the average american appetite for debt right now. Loans are a different animal that require a lot more stake then a lease or ppa. With a lease/ppa, all the risk resides with the lease/ppa provider. They must live up to their end of the agreement for the monthly payment a consumer gives them. That's it. Savings from day one is a powerful selling point and it's showing up in solarcity's numbers. Lyndon Rive said nearly 50% of all solarcity booked lease/ppas are now from middle income families including areas that are considered low income by zip code. That's a far cry from what we're hearing in the media saying solar is a product for the wealthy.

Loans will gain more traction when prices for total package install, monitoring, and upkeep can be packaged in a no upfront and offer savings up front from day one. I feel the my solar loan was an iteration toward creating that type of loan product. In my opinion, I think solarcity it needs to hold off on loans until they can offer a loan that is almost exactly like a lease/ppa in it's simplicity and pricing. No upfront cost, savings from day one. There are so many people that want to own, but when they look at the actual numbers(and lack of use for the ITC), they are turned away from loans and either go with a lease or decide to wait it out. Not many are actually willing or able to fork out the upfront cost or much higher monthly payments from day one.

I see that the solarcity loan product might have to wait until the ITC runs out because I feel not many people can take advantage of it in the middle class of America. I mean, there are even massively expensive ad campaigns on tv right now(H&R Block) that market to the massive tax refunds middle class americans receive. That means not many people are footing $6k tax bills on a yearly basis, nor any tax bill for that matter to make the ITC a benefit. So, ownership(through loans) has to work it's way to being cost competitive on a no upfront cost /save from day one basis. By the time that happens, solarcity will easily be there with a product that does that. Until then, lease/ppa will dominate the broader marketplace. It's just the plain reality. So mysolar will return at a later date in a new form that makes sense with the broader consumer marketplace. That's the lesson here. You can't change consumer desires, consumer desires change you.

Given the NEM 2.0 decision and impending "fill up" of the NEM cap, I feel solarcity lease/ppa bookings will be massive. If the bookings in Nevada before the PUC decision last december are any indication of what will happen, solarcity will have a huge booking period through the end of the year.

Also, for those interested in the TOU breakdown, they california utility commission has not set the rates yet. Someone pointed out that Lyndon Rive made an early comment about concern with the tou rates before the decision last month, but then changed his tune after the decision came down. The reason is they are in discussion with the PUC about what those TOU rates might look like. To bring more color to Lyndon Rive's more assured attitude, Peter Rive stated recently that the TOU rates look to be fair and continue to enable the solar market to grow. As such, whatever the commission decides soon on the rates, solarcity feels comfortable with it. So, we should stay tuned for those numbers when they come out to determine the actual impact of the NEM 2.0 TOU rates implemented after the caps are met(which is estimated to be as early as 4Q this year).

Overall, solarcity will have no problem filling in the 13% the loan product took up in its bookings. Especially with the massive number of bookings to come down the line with California NEM 2.0 taking hold as soon as the cap is met. The fact that people booking solar now will be grandfathered for 20 years with the more favorable rate sells itself. A sales person's dream when that happens. If anyone wants to contest that fact, I'm all ears.

Foghat, I've got to disagree with you on loans. You seem to be stuck in the one size fits all mindset. The reason to offer a simple fixed interest loan is to facilitate sales for consumers who are more comfortable with loans as a standard financial product. A loan does not have to be the best option for all customers. It just need to be the best option for some customers. If someone does not have the tax situation to benefit from ITC, then they need a lease or PPA. There's no problem with offering a simple loan fir other customers. Additionally, zero down payment loans can easily be offered. Sorter term loans like 5 to 10 year build up equity pretty fast, so a down payment is not essential. The MyPower Loan had such a long duration (30 years plus a hefty escalator) that is was important to get the ITC payment early on to secure equity. Many customers opting for a fixed loan will actually want to pay it down quickly. They are not buying into the whole "zero money down, start saving immediately" thing. They understand solar as an investment with really good yield, and want to pay down debt quickly because interest payments cut into their yeild. Someone with that mindset will likely want to use their ITC money to make a big prepayment even if this is not explicitly encouraged by SolarCity.

So SolarCity could roll out fixed loans very quickly, if they wanted to. They could also set up a lending partner very fast. Banks are hungry for such opportunities.

Now if SolarCity really wanted to innovate a loan product that exploited tax equity to secure the ITC for those who cannot use it, here is one proposal. They can create a lease/loan hybrid product. This product begins as a lease for the first 1 to 7 years, then converts into a loan for the remainder of 20 years. During the lease cycle, tax equity partners provide financing and harvest the tax benefits. After the lease cycle the customer pays on a loan for the residual value of the system. The lender can participate from the outset providing funding that the tax equity providers do not cover, and then providing more funding when upgrades of inverters and batteries are needed. So the lender receives payments over the full 20 year term. In the lease cycle, the lender gets paid first, tax equity second and SolarCity last. So the lender has credit protection in the lease cycle while equity is earned, and solid equity once the loan cycle commences. I think this sort of structure could be quite attractive to prospective lending partners. So it would take a little more work to innovate a product like this, but it can be done. Because it is a hybrid lease/loan, it will be more confusing to customers, so many may just prefer a simple loan. But for those who cannot use the ITC, but really do want a loan, this could be worth offering. The customer who needs this will be more willing to take the time to try to understand this.

In sum, SolarCity needs to offer a diversity of financing options to meet very different needs and preferences. They can do this, and they have the scale of operation to make this worthwhile. Smaller installers might not be able to pull this off, but it could prove to be an important point of differentiation. SolarCity should never miss a sale for failing to offer a financing option that a customer may want or need.

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I'm not very knowledgeable, and I do apologise if this post is inaccurate but as far as I can tell they focus on residential solar - I am perplexed as to why they focus on residential solar - why not utility scale solar and solar for governments overseas? Their residential model of selling panels with no upfront payment and charging for usage or annuity style pricing seems highly risky to me - I would have thought the big money is in larger scale solar projects where they can bundle with storage as well.

They do some utility work. Specifically, in Hawaii they are building out a dispatchable solar facility with 13 MW solar and 52 MWh of Powerpacks. This facility will store all power to dispatch after sundown. It is essentially a solar peaking plant. So I am optimistic they will do more of these. Moreover they have wonderful opportunities with commercial installation which approach the cost efficiencies of utility scale. Special racking for flat roofs and carports and Powerpacks give them some special products to bring to this market. I expect them to grow this segment faster than residential.

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I hope you and Foghat aren't putting me in the troll camp. Perhaps my first post was mistimed, but I thought it was on balance positive.

I really don't think Mule was referring to you.

BTW, it's perfectly fine to express negative views on SolarCity here. Trolling is about rude and disruptive behavior. I appreciate vigorous debate with people who are willing to make a real contribution to the discussion.

 

[Ampster]

.....


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?

I am not sure the distinction is important for the general topic of this thread. I am sorry I even mentioned it.There may be no relevance in your state.

 

[WMTribe90]

In your own words:

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.


Solarcity selling of the 2.9% escalator is a deception.

Most of solarcity's crews are good. But you overpaid about 25%. You just didn't find the less expensive good local installer who is always busy and doesn't need to advertise.

Seems that you like being obtuse, so you can ignore nuance, and see what you want to see. As I indicated, my real issue is that SS created a complex product that didn't need to be so complex. I didn't like the escalators because I didn't need 30 years to pay back the loan and it reduced my return. Yes, my trust was a little shaken at the time because hiding fees and like is a tactic of predatory loans. However, in hindsight the escalators were there in black and white and my sales rep answered all my questions forthrightly. There was no attempt at deception. SS still installed my system on schedule for the quoted price knowing full well I intended to pay off the loan in full immediately. They will still service my system if needed, honor warranties, guarantee my production, provide me real time online system monitoring, and will replace my inverter when the time comes. No small local installer offers all those advantages. The local installer I didn't go with installed the system at my first house and does not advertise, so please act like you have some insider knowledge of the local PV installation market where I live. Paying a small premium for a large, financially stable installer, with a proven track record, that works safely, and does quality work is worth the piece of mind. You may find no value in that reasoning, but plenty of people obviously do. Instead of recognizing that reality you choose to believe everyone who chooses SS has somehow been hood-winked.

 

[Jack6591]

I missed the Democratic town hall tonight. Does anyone know if the discussed Nevada "net metering"?

 

[WMTribe90]

In your own words:

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.


Solarcity selling of the 2.9% escalator is a deception.

Most of solarcity's crews are good. But you overpaid about 25%. You just didn't find the less expensive good local installer who is always busy and doesn't need to advertise.

Seems to me that you are being obtuse, so you can ignore nuance and context, and see what you want to see. As I indicated in my original post, in the end, my only real issue is that SS created a complex product that didn't need to be so complex. I didn't like the escalators because I didn't need 30 years to pay back the loan and it reduced my return. Yes, my trust was a little shaken at the time because hiding fees and like is a tactic of predatory loans. However, in hindsight the escalators were there in black and white and my sales rep answered all my questions forthrightly. There was no attempt at deception. SS still installed my system on schedule for the quoted price knowing full well I intended to pay off the loan in full immediately. They will still service my system if needed, honor warranties, guarantee my production, provide me real time online system monitoring, and will replace my inverter when the time comes. No small local installer offers all those advantages. The local installer I didn't go with installed the system at my first house and does not advertise, so please don't pretend that you have some insider knowledge of the local PV installation market where I live. Paying a small premium for a large, financially stable installer, with a proven track record, that works safely, and does quality work is worth the piece of mind. You may find no value in that reasoning, but plenty of people obviously do. Instead of recognizing that reality you choose to believe everyone who chooses SS has somehow been hood-winked.

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[Foghat]

Foghat, I've got to disagree with you on loans. You seem to be stuck in the one size fits all mindset. The reason to offer a simple fixed interest loan is to facilitate sales for consumers who are more comfortable with loans as a standard financial product. A loan does not have to be the best option for all customers. It just need to be the best option for some customers. If someone does not have the tax situation to benefit from ITC, then they need a lease or PPA. There's no problem with offering a simple loan fir other customers. Additionally, zero down payment loans can easily be offered. Sorter term loans like 5 to 10 year build up equity pretty fast, so a down payment is not essential. The MyPower Loan had such a long duration (30 years plus a hefty escalator) that is was important to get the ITC payment early on to secure equity. Many customers opting for a fixed loan will actually want to pay it down quickly. They are not buying into the whole "zero money down, start saving immediately" thing. They understand solar as an investment with really good yield, and want to pay down debt quickly because interest payments cut into their yeild. Someone with that mindset will likely want to use their ITC money to make a big prepayment even if this is not explicitly encouraged by SolarCity.

So SolarCity could roll out fixed loans very quickly, if they wanted to. They could also set up a lending partner very fast. Banks are hungry for such opportunities.

Now if SolarCity really wanted to innovate a loan product that exploited tax equity to secure the ITC for those who cannot use it, here is one proposal. They can create a lease/loan hybrid product. This product begins as a lease for the first 1 to 7 years, then converts into a loan for the remainder of 20 years. During the lease cycle, tax equity partners provide financing and harvest the tax benefits. After the lease cycle the customer pays on a loan for the residual value of the system. The lender can participate from the outset providing funding that the tax equity providers do not cover, and then providing more funding when upgrades of inverters and batteries are needed. So the lender receives payments over the full 20 year term. In the lease cycle, the lender gets paid first, tax equity second and SolarCity last. So the lender has credit protection in the lease cycle while equity is earned, and solid equity once the loan cycle commences. I think this sort of structure could be quite attractive to prospective lending partners. So it would take a little more work to innovate a product like this, but it can be done. Because it is a hybrid lease/loan, it will be more confusing to customers, so many may just prefer a simple loan. But for those who cannot use the ITC, but really do want a loan, this could be worth offering. The customer who needs this will be more willing to take the time to try to understand this.

In sum, SolarCity needs to offer a diversity of financing options to meet very different needs and preferences. They can do this, and they have the scale of operation to make this worthwhile. Smaller installers might not be able to pull this off, but it could prove to be an important point of differentiation. SolarCity should never miss a sale for failing to offer a financing option that a customer may want or need.

- - - Updated - - -



They do some utility work. Specifically, in Hawaii they are building out a dispatchable solar facility with 13 MW solar and 52 MWh of Powerpacks. This facility will store all power to dispatch after sundown. It is essentially a solar peaking plant. So I am optimistic they will do more of these. Moreover they have wonderful opportunities with commercial installation which approach the cost efficiencies of utility scale. Special racking for flat roofs and carports and Powerpacks give them some special products to bring to this market. I expect them to grow this segment faster than residential.

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I really don't think Mule was referring to you.

BTW, it's perfectly fine to express negative views on SolarCity here. Trolling is about rude and disruptive behavior. I appreciate vigorous debate with people who are willing to make a real contribution to the discussion.

its not a one size fits all, it's just what the broader market wants. Loans are a part of the market, but a very limited part of the market as we can see from the numbers. I think Solarcity will eventually scale up enough, reduce costs enough and offer a multitude of energy services, that a loan and ppa/lease would be very close in cost, especially after the ITC goes away(or reduced to near nothing). I think the ITC favors the lease/ppa model a lot, which doesn't make the average person on a middle/low middle income see a sensible investment in a loan product. The big detractor is a high monthly payment for that debt. Most people are focused on reducing monthly costs, since most people look at their own income in monthly chunks. They say how can I squeeze out a few more dollars per month in costs? If they increase monthly costs with a loan that doesn't see a payback nearly immediately, they won't go solar. So, solarcity's primary focus is reaching this broader market, and if that means lease/ppa then they must do it. I think the loan market is good, but not a priority for the company at this point in time, in my opinion. Yes, they ought to have some kind of loan product, but not Put too much investment into it at this time. I don't think fundamental costs, outside someone who can benefit from the ITC, are there yet to make it a compelling mainstream product right now.

Right now, the product that seems to be penetrating the wider market is lease ppa. That wider market is the most important segment to scaling up and reducing the costs. Loans are not there quite yet to change that premise. Again, no problem with loans, just not where the best avenue to penetrating the wider market during he ITC years as I see it.

Being able to apply the ITC is a big deal for loans to work at this point in America. Just not a lot of Americans that can benefit from it.

To add, I do like the hybrid idea, just would have to understand the consequence/ risk of someone moving before loan part takes over or if the next homeowner would take to this type of arrangement upon purchase.

 

[Tedkidd]

Now if SolarCity really wanted to innovate a loan product that exploited tax equity to secure the ITC for those who cannot use it, here is one proposal. They can create a lease/loan hybrid product. This product begins as a lease for the first 1 to 7 years, then converts into a loan for the remainder of 20 years. During the lease cycle, tax equity partners provide financing and harvest the tax benefits. After the lease cycle the customer pays on a loan for the residual value of the system. The lender can participate from the outset providing funding that the tax equity providers do not cover, and then providing more funding when upgrades of inverters and batteries are needed. So the lender receives payments over the full 20 year term. In the lease cycle, the lender gets paid first, tax equity second and SolarCity last. So the lender has credit protection in the lease cycle while equity is earned, and solid equity once the loan cycle commences. I think this sort of structure could be quite attractive to prospective lending partners. So it would take a little more work to innovate a product like this, but it can be done. Because it is a hybrid lease/loan, it will be more confusing to customers, so many may just prefer a simple loan. But for those who cannot use the ITC, but really do want a loan, this could be worth offering. The customer who needs this will be more willing to take the time to try to understand this.

In sum, SolarCity needs to offer a diversity of financing options to meet very different needs and preferences. They can do this, and they have the scale of operation to make this worthwhile. Smaller installers might not be able to pull this off, but it could prove to be an important point of differentiation. SolarCity should never miss a sale for failing to offer a financing option that a customer may want or need.

Yep, sign me up. I don't think this is a complicated product to sell.

People with uncertain tax liability will love this too. Even people with certain tax liability might like the simplicity, certainty, and timing.

Let me lease/buy my model 3 this way too.


BTW, I think any loan with an escalator is consumer abusive. History shows unsophisticated people sign up for "cheap" without understanding the present value of their commitment, and banks use this ignorance to harvest values, often sold by unscrupulous agents. It's unjust, and a strong sign of organizational dishonesty or at least low integrity.

 

[Foghat]

Yep, sign me up. I don't think this is a complicated product to sell.

People with uncertain tax liability will love this too. Even people with certain tax liability might like the simplicity, certainty, and timing.

Let me lease/buy my model 3 this way too.


BTW, I think any loan with an escalator is consumer abusive. History shows unsophisticated people sign up for "cheap" without understanding the present value of their commitment, and banks use this ignorance to harvest values, often sold by unscrupulous agents. It's unjust, and a strong sign of organizational dishonesty or at least low integrity.

the whole point with the my power loan was to offer people immediate savings on monthly bills. Even with the escalator, they would be saving money each month over their utiltiy Bill. But, as Solarcity was discovering, the type of consumers that want a loan are not interested in reducing monthly energy bills immediately, but rather, they sought to achieve a cheaper total cost on investment. These type of people can take advantage of the ITC upfront. They also don't mind paying a little more each month in loan payments to achieve a reasonable payback period from which they then can achieve debt free energy savings every month after.

There was no deception at all in that. Solarcity was trying to create a middle class product, but found it was not a middle class product. It was the wrong product for the wrong type of consumer. That consumer does not hold immediate savings as the most important value. They see the back end savings as more important. As all could see, my power loan was not the product to achieve that specific consumer priority. Just as the cheapest loan is not as long term cost effective compared to do-it-yourself solar project type of consumer.

I think if Solarcity comes out with new loan product it will on par with the best loans out there. Where they will differentiate themselves will be on brand and additional service values. But the fact still remains, the lions share of installs will be lease ppa since thst is the product that best meets the priority value of immediate monthly savings that a considerably large population of amercia desires.

 

[hcsharp]

...So SolarCity could roll out fixed loans very quickly, if they wanted to. They could also set up a lending partner very fast. Banks are hungry for such opportunities.
...

I know many people on this forum feel like they sound like a broken record. At the risk of skipping my needle again, SCTY cannot roll out fixed loans right now because it would result in negative cashflow. What is the effective yield on SCTY bonds being issued right now? I'll give away the answer by asking another. If you have to borrow cash at north of 20% interest, how are you going to be able to afford to loan money to a customer, or finance the installation of their system at anything close to competitive rates?

That leaves the only other option - partner with a lender. If we've learned anything about what has fueled SCTY's success, it's that they can offer a cost-effective solar installation without requiring a penny up front from the customer. SCTY's growth is a result of the fact that very little financing is available to consumers for solar systems. Banks are not hungry for such opportunities. Banks have offered almost nothing that doesn't require the consumer to put up some cash. And even when the customer makes a down payment, banks have been generally unenthusiastic about solar loans. SCTY is not going to find a lending partner.

<hear needle skipping again> SCTY has a cashflow management problem. There's no way they can "roll out fixed loans" when they don't have the cash to do it and it costs them between 5 and 24% to borrow. No "lending partner" will ever finance 100% of the cost of the install or 100% of the remaining unlevered NPV of the contracts. <needle removed from record>

 

[jhm]

its not a one size fits all, it's just what the broader market wants. Loans are a part of the market, but a very limited part of the market as we can see from the numbers. I think Solarcity will eventually scale up enough, reduce costs enough and offer a multitude of energy services, that a loan and ppa/lease would be very close in cost, especially after the ITC goes away(or reduced to near nothing). I think the ITC favors the lease/ppa model a lot, which doesn't make the average person on a middle/low middle income see a sensible investment in a loan product. The big detractor is a high monthly payment for that debt. Most people are focused on reducing monthly costs, since most people look at their own income in monthly chunks. They say how can I squeeze out a few more dollars per month in costs? If they increase monthly costs with a loan that doesn't see a payback nearly immediately, they won't go solar. So, solarcity's primary focus is reaching this broader market, and if that means lease/ppa then they must do it. I think the loan market is good, but not a priority for the company at this point in time, in my opinion. Yes, they ought to have some kind of loan product, but not Put too much investment into it at this time. I don't think fundamental costs, outside someone who can benefit from the ITC, are there yet to make it a compelling mainstream product right now.

Right now, the product that seems to be penetrating the wider market is lease ppa. That wider market is the most important segment to scaling up and reducing the costs. Loans are not there quite yet to change that premise. Again, no problem with loans, just not where the best avenue to penetrating the wider market during he ITC years as I see it.

Being able to apply the ITC is a big deal for loans to work at this point in America. Just not a lot of Americans that can benefit from it.

To add, I do like the hybrid idea, just would have to understand the consequence/ risk of someone moving before loan part takes over or if the next homeowner would take to this type of arrangement upon purchase.

Can we agree that about 20% to 40% of the residential market would prefer a simple loan? If not, tell me what you think the size is. Then we can discuss whether it is best for SolarCity to simply pass on serving that segment.

- - - Updated - - -

I know many people on this forum feel like they sound like a broken record. At the risk of skipping my needle again, SCTY cannot roll out fixed loans right now because it would result in negative cashflow. What is the effective yield on SCTY bonds being issued right now? I'll give away the answer by asking another. If you have to borrow cash at north of 20% interest, how are you going to be able to afford to loan money to a customer, or finance the installation of their system at anything close to competitive rates?

That leaves the only other option - partner with a lender. If we've learned anything about what has fueled SCTY's success, it's that they can offer a cost-effective solar installation without requiring a penny up front from the customer. SCTY's growth is a result of the fact that very little financing is available to consumers for solar systems. Banks are not hungry for such opportunities. Banks have offered almost nothing that doesn't require the consumer to put up some cash. And even when the customer makes a down payment, banks have been generally unenthusiastic about solar loans. SCTY is not going to find a lending partner.

<hear needle skipping again> SCTY has a cashflow management problem. There's no way they can "roll out fixed loans" when they don't have the cash to do it and it costs them between 5 and 24% to borrow. No "lending partner" will ever finance 100% of the cost of the install or 100% of the remaining unlevered NPV of the contracts. <needle removed from record>

I happen t work for a major bank and know what I am talking about. SolarCity already offers a loan. Switching from a complex MyPower Loan to a standard fixed rate loan, especially one with a shorter term would actually be easier for SolarCity to fund. They would get there cash much quick. If you look at lie 10 in the Q4 2015 Review you will see that Levered cash flow is most constrained over the next ten year, then opens up substantially after that. Suppose SolarCity offer a fixed 10 year loan. The full cashflow including profit would be collected within ten year. This would be a huge improvement to cash flow.