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TheTalkingMule
Distributed Energy Enthusiast
Costs for NV Energy are levelized when rooftop solar is at wholesale. If Nevadans choose to supply their own power at peak they are under no obligation to replace that lost profit to NV Energy, it is the regulated utility's responsibility to work around them in a way that is fair for all ratepayers.
Amazing that we've somehow ingrained a slave mentality in this country. Since when do we care more about the profits of a corporate entity over self-reliance, grid efficiency and resiliency? When Germany got to 30% solar at peak they didn't protect utility profits at all costs, they simply let them lose the vast majority of their profits. Now they're slowly coming around to reality and focusing on grid services and renewables.
after being interested in renewables for the last 50+ years, finally "money was invested in renewables ($367 billion US) than in fossil fuels ($253 billion US) in 2015." (on the planet.)Renewable Energy Investments Soared in 2015
My informal market research of friends, relatives and such, reveals a growing interest, so i point out Solar City has a solution of battery and PV
My informal market research of friends, relatives and such, reveals a growing interest, so i point out Solar City has a solution of battery and PV
jhm
Well-Known Member
Wow, it's nice to see that. Understandably, the oil and gas gluts are holding back investments. I expect that will continue through this year and maybe the next. Longer term renewables are cutting into growth opportunities for fossil fuels. So there is the chance that annual fossil investments may never catch back up to renewables. Worse, if this were not the case, a couple of years with a return to high investment rates could precipitate another glut and just intensify the problem of stranded assets. Across the globe fossil assets are going on the auction block as their original investors try to avoid bankruptcy.
I do expect that Powerwalls will stimulate consumer interest in SolarCity systems.
TheTalkingMule
Distributed Energy Enthusiast
I don't see a way that demand can catch back up to production without a major cut. We're over-producing for the next 18 months, EVs and efficiency are taking over the US/EUR/China autos, anyone remotely equatorial will switch off diesel electricity to 50% solar.
Maybe India ramps up their building of a middle class and things get nuts, but I can't imagine they or China will screw up by investing in gas infrastructure rather than electric. If oil does go back to $80+ it'll be on the back of huge global growth which isn't the worst thing.
Maybe India ramps up their building of a middle class and things get nuts, but I can't imagine they or China will screw up by investing in gas infrastructure rather than electric. If oil does go back to $80+ it'll be on the back of huge global growth which isn't the worst thing.
jhm
Well-Known Member
That sounds about right. Watching fossil fuels is like watching Thelma and Louise in really slow motion. The first axle is over the cliff and we're waiting for the second axle to clear.
jhm
Well-Known Member
http://www.streetinsider.com/dr/news.php?id=11375682
So the sixth securitization is in. Nearly $50M, this one is a little different. They are getting $3.13/W, which more than covers the $2.70/W or so of total cost. So they are getting profit upfront, which could help with the cash and recourse debt situation. This deal is inclusive of tax equity and privately placed. So it could imply a very different cash flow profile than what we've seen. The deal is small, but that may be a function of trying to match particular investor requiremts. It sounds like a TE investor who was interested in a larger share of the payment stream. Yeild is 6.25%. This may seem a little high, but it does involve tax equity.
So the sixth securitization is in. Nearly $50M, this one is a little different. They are getting $3.13/W, which more than covers the $2.70/W or so of total cost. So they are getting profit upfront, which could help with the cash and recourse debt situation. This deal is inclusive of tax equity and privately placed. So it could imply a very different cash flow profile than what we've seen. The deal is small, but that may be a function of trying to match particular investor requiremts. It sounds like a TE investor who was interested in a larger share of the payment stream. Yeild is 6.25%. This may seem a little high, but it does involve tax equity.
SolarCity's numbers and statements are always as mystical as ever.
"$3.13 per watt of generation capacity in the portfolio inclusive of previous tax equity financing"
I don't think this is some sort of combo-deal with Tax Equity and ABS lumped together.
So if we take that misleading snippet out, the actual sentence in the press release is: "SolarCity completed a private placement that resulted in proceeds of $49.6 million with a yield rate of 6.25%"
That is quite a big negative headline. In the first place the deal is quite small (why?), second place the yield is quite high.
From the ratings doc that I read from Kroll a few weeks ago, the deal was overcapitalized and such. So the comparison of $/W in terms of financing vs cost may not be apples to apples. I will double check that one tomorrow.
Looks like this is what caused the mini-slide this morning.
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jhm
Well-Known Member
From the press release:
This language seems fairly clear that there is just one transaction that is covering $3.13/W. IIRC, SolarCity was exploring the possibility of deals that would sell the entire cash flow. This deal would be quite close to that. The remaining $0.50/W would be retained by SolarCity to cover maintenance, inverter replacement, and insurance.
I do think that 6.25% financing for such comprehensive coverage is a good deal for SolarCity. Consider that when a solar system is sold outright for cash, the customer is effectively offering 6.00% financing to SolarCity. So SolarCity is getting third party financing for just 25 basis point concession, or about $0.0856/W. One can see this as a modest transaction cost.
I think what makes this yeild look questionable is that we have become accustomed to the 6% discount used in book value metrics, and lots of patchwork financing that leaves SolarCity with much more equity risk in the underlying systems. An ABS that only covers $0.95/W is a pretty choice cut for 4.5% that leaves SolarCity to have to find additional financing that puts shareholders at higher risk. So it is not apple to apple to compare 4.5% on $0.95/W to $6.25% on $3.13/W. There are many other issues that can make the latter a much more favorable deal than the former. Let's suppose that SolarCity wants to get to DevCo Cash Flow positive with a growth rate in excess of 20%. Under this sort of internal rate of return target, cash flows to SolarCity should be discounted by at least 20%, not 6%. Under a 20%, this deal for $3.13/W upfront is much better than holding a PPA with only TE and ABS financing. This is exactly the kind of deal SolarCity needs to make in order to avoid using recourse debt for project financing.
Of course, the stock reacted negatively to this yesterday because investors do not yet understand this deal. It is different, but it is hard to know for sure if it is different in a good way or not. The market naturally takes this a uncertainty and moves the price down on uncertainty. By the Q1 ER, investors should get more insight into how SolarCity is evolving it's financing strategy, and so uncertainties will be removed. Most of us here belive that SolarCity needs to move to a DevCo Cash Positive basis. This requires changing the way they do project financing. So we should expect to see change. Change must happen, and change is good. In the short run, however, the market takes the view that change is uncertainty and uncertainty is bad. But if this is management righting the ship, then change is very healthy and ultimately good.
This language seems fairly clear that there is just one transaction that is covering $3.13/W. IIRC, SolarCity was exploring the possibility of deals that would sell the entire cash flow. This deal would be quite close to that. The remaining $0.50/W would be retained by SolarCity to cover maintenance, inverter replacement, and insurance.
I do think that 6.25% financing for such comprehensive coverage is a good deal for SolarCity. Consider that when a solar system is sold outright for cash, the customer is effectively offering 6.00% financing to SolarCity. So SolarCity is getting third party financing for just 25 basis point concession, or about $0.0856/W. One can see this as a modest transaction cost.
I think what makes this yeild look questionable is that we have become accustomed to the 6% discount used in book value metrics, and lots of patchwork financing that leaves SolarCity with much more equity risk in the underlying systems. An ABS that only covers $0.95/W is a pretty choice cut for 4.5% that leaves SolarCity to have to find additional financing that puts shareholders at higher risk. So it is not apple to apple to compare 4.5% on $0.95/W to $6.25% on $3.13/W. There are many other issues that can make the latter a much more favorable deal than the former. Let's suppose that SolarCity wants to get to DevCo Cash Flow positive with a growth rate in excess of 20%. Under this sort of internal rate of return target, cash flows to SolarCity should be discounted by at least 20%, not 6%. Under a 20%, this deal for $3.13/W upfront is much better than holding a PPA with only TE and ABS financing. This is exactly the kind of deal SolarCity needs to make in order to avoid using recourse debt for project financing.
Of course, the stock reacted negatively to this yesterday because investors do not yet understand this deal. It is different, but it is hard to know for sure if it is different in a good way or not. The market naturally takes this a uncertainty and moves the price down on uncertainty. By the Q1 ER, investors should get more insight into how SolarCity is evolving it's financing strategy, and so uncertainties will be removed. Most of us here belive that SolarCity needs to move to a DevCo Cash Positive basis. This requires changing the way they do project financing. So we should expect to see change. Change must happen, and change is good. In the short run, however, the market takes the view that change is uncertainty and uncertainty is bad. But if this is management righting the ship, then change is very healthy and ultimately good.
TheTalkingMule
Distributed Energy Enthusiast
jhm
Well-Known Member
Yeah, consider where this is going. Suppose they get to the $2.50/W total cost level and can finance $3.13/W @ 6.25%. This increases working capital by $0.63/W, or 25% above cost. This extra $0.63/W can pay down DevCo debt, fund R&D and new investments, and increase the cash position. This is what we've been looking for.
The question remains what are the limiting factors and other downsides to this. The first limitation may be that this sort of financing requires TE investors who are also interested in the non-TE ABS cashflow as well. Not all TE investors will have this appetite so it could take a while to attract an adequate base of investors who are. A 6.25% yeild is certainly attractive. In the short run, the among of capital raised this way may be limited, hence on $50M in the first run, but if investors like this, they will attract more. The other limitation this sort of financing imposes is cutting into the idea of retained value sitting in the PowerCo. Essentially, this allows the DevCo to capture more value upfront handing over less value to PowerCo. Of course, this whole distinction is a sort of fiction, perhaps a usual fiction, but in reality SolarCity is just one whole company. If monetizing some installations at 125% of cost led to a surplus of cash (over time, we're not there yet), then the level of overmonetization could be reduced allowing more retained value to flow into the PowerCo. But before that happens it makes sense to pay down some of the more expensive DevCo debt. Benson and others have pointed to convertible debt with yeild around 20%. If SolarCity had surplus working capital, it would do quite well to buy back some of this debt. That would be capital much better spent than retained value with a nominal 6% yeild. In general principle as long as SolarCity has debt with yeild in excess of 6%, it is beneficial to overmonetize new projects.
The question remains what are the limiting factors and other downsides to this. The first limitation may be that this sort of financing requires TE investors who are also interested in the non-TE ABS cashflow as well. Not all TE investors will have this appetite so it could take a while to attract an adequate base of investors who are. A 6.25% yeild is certainly attractive. In the short run, the among of capital raised this way may be limited, hence on $50M in the first run, but if investors like this, they will attract more. The other limitation this sort of financing imposes is cutting into the idea of retained value sitting in the PowerCo. Essentially, this allows the DevCo to capture more value upfront handing over less value to PowerCo. Of course, this whole distinction is a sort of fiction, perhaps a usual fiction, but in reality SolarCity is just one whole company. If monetizing some installations at 125% of cost led to a surplus of cash (over time, we're not there yet), then the level of overmonetization could be reduced allowing more retained value to flow into the PowerCo. But before that happens it makes sense to pay down some of the more expensive DevCo debt. Benson and others have pointed to convertible debt with yeild around 20%. If SolarCity had surplus working capital, it would do quite well to buy back some of this debt. That would be capital much better spent than retained value with a nominal 6% yeild. In general principle as long as SolarCity has debt with yeild in excess of 6%, it is beneficial to overmonetize new projects.
TheTalkingMule
Distributed Energy Enthusiast
All the lines in the lines in the chart are moving in the right direction. So long as execution is handled reasonably well, all these hesitance on the financing(and investor) side will melt away as solar becomes more mainstream nationwide. I'm expecting a robust nationwide conversation this spring/summer. Hopefully it sinks in and costs drift down before my 2017 LEAPs expire. [fingers crossed]
phigment
Member
jhm
Well-Known Member
From the last CC transcript:
So SC was contemplating selling operational asset upto 7.5% yeild and upto a $0.50 to $0.60 spread over cost, thus $3.20 on a cost of $2.70/W. In this light, the latest securitization looks like very good price discovery, 6.25 yeild instead of 7.50%.
It is also tempting to consider the spread on $3.13. Could this mean that the cost is now in rage of $2.53 to $2.63 per watt? Given the favorable yeild and sitting on an opportunity to repurchase convertible bonds at 20% yeild, they would have plenty of motivation to maximize the spread. So $0.60/W would be super. Why didn't they finance at $3.20/W? It could be that marinal yeild for the last $0.07 was over the cost of their highest yeild bonds.
For example, if the yeild was 6.55% for $3.20/W, the yeild on the extra $0.07 would be 20% which would make little sense to incur. However, if 6% can be obtained on $2.53 and 6.25% on $3.13, the $0.60 spread has a marginal yeild of 7.30%. This is a very good deal. If management had better use for the cash than to repurchase convertible bonds, that would surely create shareholder value.
I think we need to keep our eye on the financing spread. It seems pretty key to improving the capital structure.
So SC was contemplating selling operational asset upto 7.5% yeild and upto a $0.50 to $0.60 spread over cost, thus $3.20 on a cost of $2.70/W. In this light, the latest securitization looks like very good price discovery, 6.25 yeild instead of 7.50%.
It is also tempting to consider the spread on $3.13. Could this mean that the cost is now in rage of $2.53 to $2.63 per watt? Given the favorable yeild and sitting on an opportunity to repurchase convertible bonds at 20% yeild, they would have plenty of motivation to maximize the spread. So $0.60/W would be super. Why didn't they finance at $3.20/W? It could be that marinal yeild for the last $0.07 was over the cost of their highest yeild bonds.
For example, if the yeild was 6.55% for $3.20/W, the yeild on the extra $0.07 would be 20% which would make little sense to incur. However, if 6% can be obtained on $2.53 and 6.25% on $3.13, the $0.60 spread has a marginal yeild of 7.30%. This is a very good deal. If management had better use for the cash than to repurchase convertible bonds, that would surely create shareholder value.
I think we need to keep our eye on the financing spread. It seems pretty key to improving the capital structure.
What does $2.25/W look like given the current pricing? How will this affect the yeild?
Solarcity guides for $2.25/W by 2017, so we're looking at some significant reductions over the course of 9 months, by which time pricing only becomes much more favorable to them.
Special note: Arizona is going through the UNS rate case right now. It is significantly important to net metering and other charges applied to distributed solar. I watched yesterday's hearing online and the solar groups made very compelling opening statements. The hearings will continue through the end of the week and into next. Go to the Arizona coporate commission site to watch tomorrow and Friday: Arizona Corporation Commission
add: UNS has already stated within their opening statement that they support full grandfathering for those customers the made investments under previous net metering arrangements... So already, no repeat of Nevada in the utility's plea before the commission. Even went so much as to say no significant cost at all to do so. This is going to be clear ammunition in the case against Nevada since that thomsen lead commission said the "cost shift" on non solar customers from grandfathered customers was significant and unfair. Good luck proving that in court as more and more evidence mounts to the contrary...
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Everything SolarCity says is full of deception. Always be very careful in reading/listening to their stuff.
Here are the specifics: Kroll Bond Rating Agency Assigns Preliminary Ratings to SolarCity LMC Series V, LLC, Series 2016-1 | Business Wire
In the news wire they give a link to the "Pre-Sale Report". I have access to that report. I also have access to the "New Issue Report" that they published yesterday. In both reports they state that the "Aggregate PV System Size (MW DC)" is 35.6. If I get a chance I will post a screenshot from home. Or just try to get access to that report through that link.
So in this specific transaction SC got $49.6Mil over 35.6MWs. That translates to $1.39/W that is raised in this specific transaction.
You can prove that out even just through the Kroll press release link above. It states that the ABS is for "5,645 photovoltaic residential solar installations". That translates to raising $8,787 per home. If it really represented $3.13/W then the average system size would be 2.8KW! That is clearly much lower than what we all know the average system to be to be 6KWs to 7KWs.
Having said that, whether it's two transactions or one, being able to raise $3.13/W is a positive thing against a lower cost figure.
I don't know of any other news for the price action today. Maybe the market took a day to realise that, even though the higher yield puts a dent in the valuation, it does represent a big positive in terms of cash-flow management.
jhm
Well-Known Member
As SolarCity pushes its costs down to $2.25/W and below this can only increase the spread. So this year the spread may be $0.50 to $0.60, but next year it could be $0.65 to $0.85, so long as utilities keep raising rates. So this Day One spread puts the right sort of focus on cutting cost and cranking up volume. Then, the stock will be more accurately valued as a DevCo than poorly valued as a PowerCo (yieldco).
Note also that guidance puts cash flow positive off to Q4. Why? With increasing monetization they can easily increase cash sitting in the bank. That's not the issue. The issue is that they have much higher uses for cash than parking it in the bank. As long as they've got convertible debt trading at a yield above 8%, it makes more sense to put extra cash to buying back that debt than saving it in the bank. I think this was a point we all missed about the significance of becoming cash positive. Underpriced debt needs to be snapped up first, especially convertible debt as this poses a dilution risk to shareholders. So the first three quarters this year, we should see the bond yields improve, which will claw back the bear case. We should see the stick price improve.
Note also that guidance puts cash flow positive off to Q4. Why? With increasing monetization they can easily increase cash sitting in the bank. That's not the issue. The issue is that they have much higher uses for cash than parking it in the bank. As long as they've got convertible debt trading at a yield above 8%, it makes more sense to put extra cash to buying back that debt than saving it in the bank. I think this was a point we all missed about the significance of becoming cash positive. Underpriced debt needs to be snapped up first, especially convertible debt as this poses a dilution risk to shareholders. So the first three quarters this year, we should see the bond yields improve, which will claw back the bear case. We should see the stick price improve.
jhm
Well-Known Member
I reject your premise that everything SolarCity says is full of deception. Why is it your intent to attribute malice to everything SolarCity says? It's quite tiresome, and I wish you would stop. It's enough to sort out the facts and try to make coherent sense of statements. It's quite another thing to presume bad intent.
That said, there are ambiguities in the press release. Just how TE and the ABS are related is not clear. And there are legal distinctions to be made in owning equity in the solar system or not. So Kroll is simply evaluating the ABS piece which does not involve an equity stake. Both pieces TE and ABS could easily be part of one transaction as that simply means they are sold together.
But as you point out whether this is one transaction or multiple, the benefit of improved cash flow remains the same. So we certainly agree on that point.
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