SolarCity (SCTY)

[jhm]

@JHM a clarification. is virtual net metering the same or similar to Virtual power plants (VPP) where groups of local batteries are aggregatee into small to large power plants, avoiding some of the T&D (transmissions and Distribution) costs and losses

Not the same thing. The difference between net metering and virtual net metering is that in the former surplus solar power is sold to the utility, but in the latter, surplus solar is sold to any other buyer using utility owned power lines. So ordinary net metering forces the utility to be a buyer, but in virtual net metering it is up to the seller to find a willing buyer at whatever price buyer and seller agree to. It may be reasonable for the utility to receive some compensation for use of the distribution network.

Community solar is a form of net metering. Here there are community owned solar resources the send power to subscribers via the grid. The local utility is neither a buy or seller, but merely a grid access provider.

Virtual net metering can go even further. Suppose you have a big southfacing solar installation, I have a westfacing installation, and our neighbor has a Powerpack. In the morning you feed us power to use. Midday our neighbor is charging up the Powerpack. In the late afternoon, my panels feed power to the others, and after sunset we are all drawing power from our neighbor's Powerpack. Between the three systems we can come pretty close to covering our 24 hour power needs. We can share or trade this power as needed, and pay only a small amount to the local utility for use of grid and backup power.

This concept is really a virtual microgrid. A microgrid would generally include its own power lines, but in this virtual form it is merely renting powerlines. So aggregation services aimed at balancing the supply and demand can happen within the virtual microgrid. With enough storage the net flow between the virtual microgrid and the macrogrid can be as smooth and rate sensitive as the utility is willing to pay for. So grid seizes happen within the virtual microgrid and between it and the macrogrid.

So once we obtain virtual net metering, all these other things start to become possible. The exciting thing about SolarCity entering Mexico is that Mexico has a federal virtual net metering law that appears flexible enough to support all this.

 

[Noble Ninja]

Jim Chanos just came onto CNBC and said he is now shorting the stock.

(That caused the drop at 12:25 EST, though it has been recovering nicely from there since...)

I'm some random dude who talks about stocks on a news channel, and I just declared I am long the stock. Shares should rise 5% in the next minute.

 

[Foghat]

Jim Chanos just came onto CNBC and said he is now shorting the stock.


(That caused the drop at 12:25 EST, though it has been recovering nicely from there since...)


It's a bit weird to be shorting it at the $45 level... it would be something else if it was $80 and you said you were shorting it!

Ha ha, that guy is putting up a smokescreen. He says solar leases are a liability and nothing but a second mortgage basically another subprime mortgage bubble. However, Solarcity's average customer credit score is over 720. 99.5% of all payments are paid and collected, not delinquent, and we're talking over 9 years of solar contracting now. They received an A rating on their latest payment backed ABS bonds... You can't really believe he sees subprime loan bubble here. I think he might be seeing an entry point more then anything and using whatever chance he can to suppress it further.
Solarcity booked a record shattering 395MWs in Q2. Judging from the Solarcity now website and comparing the numbers, it appears Solarcity may match that and surpass 395MWs in bookings for Q3. Bottom line, the real world people out there are buying/leasing solar in record numbers.


If anyone thinks otherwise, they are not evaluating the stock potential properly. This isn't about the consumer choosing solar or anything about what that hedge fund guy stated today.


It's all about the net metering rates and or any other fees utilities try to tack on. It's about caps and what happens after, which again, then circles back around net metering and any other fees utitlies tack on. The short term investment potential big swings are substantially a function of any policy changes over time. It is all about the addressable market according to caps and net metering changes and demand charges/fees. Consumers choosing solar is not an issue to the stock. If all caps were lifted and net metering remained the same, solar would go beyond 100% compounded right now. However, that isn't currently the case. As caps and rooftop solar policy challenges get peeled away, the greater the acceleration of growth and thus stock momentum. The ITC is actually a low priority problem compared to the challenges big utilities resistence to rooftop. And that resistence really boils to the wealthiest group of people on the entire planet: Koch bros and warren buffet. Koch bros heavily influenced the Arizona commission election and over all process of regulation of its owned utitlies. They have significant interests in the developing gas/coal fired centralized generation utilities around the country, they have many front groups with extensive media campaigns to disparage solar in all their territories. Koch gave over 100m dollars to MIT and now we're seeing pointedly negative articles about roof top solar coming out of the seemingly distinguished university. Warren buffet owns vastly more coal/gas interests then anything solar. He just bought a gas turbine company for over $20billion. If you don't think he's put most of his chips behind a multi decade future in centralized utility power generation, then you have serious analytical issues. So for me, as I accumulate, I focus on the policy issues (and cap capacity) as entry points to my long time accumulation strategy. For others, this point of view might also be useful for shorting, or short long positions or anything in between. Also help snuff out the noise created by hedge fund people like this guy today.

 

[gene]

Just bought even more at $41.60. It's in my Sep Ira account so I have lots of time on my side.

 

[TheTalkingMule]

I give up with SCTY. Pulled the trigger on some calls in the morning (although if I had been around I would probably have moved my buy limits lower)... Already down 15% on them. sigh. Ok I'm selling all of my holdings on the next bounce back to ~$55 and then saying adios to this stock. It might seem like a no brainer in 2020 or 2025, but I don't have the patience to wait that long. I would rather take that money and throw it in TSLA.

So nice to log in here and see that even Tesla fans are moving away from SCTY and solar in general. Delicious buying opportunity!

How much time does it take for this selloff to affect the price of long term options? I want to load up on aggressive Jan'17 calls, but want to time it right.

 

[hershey101]

So nice to log in here and see that even Tesla fans are moving away from SCTY and solar in general. Delicious buying opportunity!

How much time does it take for this selloff to affect the price of long term options? I want to load up on aggressive Jan'17 calls, but want to time it right.

The bid/ask moves in tandum with the share price... So the question is how much longer do you think the stock will keep going down...

 

[Foghat]

The bid/ask moves in tandum with the share price... So the question is how much longer do you think the stock will keep going down...

NV Energy says cap on net metering reached | Las Vegas Review-Journal

Tough to see scty going up until they make a decision on the interim rate in Nevada. Right now, looks like an interim rate won't be decide today after the workshop, but sometime next week, I've read potentially next Wednesday. That means 6 days of no solar sales whatsoever in Nevada. 6 days of sales employees being paid, but producing no new contracts. I'm not sure how much future revenue that equates to state wide. This is an interesting void time.

 

[jhm]

NV Energy says cap on net metering reached | Las Vegas Review-Journal

Tough to see scty going up until they make a decision on the interim rate in Nevada. Right now, looks like an interim rate won't be decide today after the workshop, but sometime next week, I've read potentially next Wednesday. That means 6 days of no solar sales whatsoever in Nevada. 6 days of sales employees being paid, but producing no new contracts. I'm not sure how much future revenue that equates to state wide. This is an interesting void time.

Wow, did you see the comments. NV Energy is seen as the big bully here. This is very good for raising awareness of solar. The PR value of this kind of thing is huge.

BTW I think your strategy of using policy crises to acquire shares is pretty insightful. If you know the moments that are most opportune for shorts, you also know the smartest time to buy.

So the market cap is now just below $4B while the net retained value is just above $3B. This is a 1.33 ratio. A huge value, even if they never install another system in NV, but of course they will.

 

[willowspuppy]

Is SCTY really so dependent on Nevada politics? Or is this being seen as a test case for how the rest of the US will handle net metering?

 

[TheTalkingMule]

This concept is really a virtual microgrid. A microgrid would generally include its own power lines, but in this virtual form it is merely renting powerlines. So aggregation services aimed at balancing the supply and demand can happen within the virtual microgrid. With enough storage the net flow between the virtual microgrid and the macrogrid can be as smooth and rate sensitive as the utility is willing to pay for. So grid seizes happen within the virtual microgrid and between it and the macrogrid.

So once we obtain virtual net metering, all these other things start to become possible. The exciting thing about SolarCity entering Mexico is that Mexico has a federal virtual net metering law that appears flexible enough to support all this.

This Mexico tidbit is very interesting, I didn't know they had such supportive legislation in place. I spent so many years checking the daily solar updates from Germany to see what the future might hold for the US, now I'll keep an eye on Mexico as well.

Do you think installers like SolarCity will jump into the microgrid install world 5-10 years down the road? It's pretty clear that lucrative(overpriced) lease agreements get tossed out the window once true grid parity is attained and a full residential install becomes reasonably priced. So moving on to microgrid installs is the natural move, right? How cool would it be to call up SolarCity and have them install a 20 home solar/battery microgrid for you entire neighborhood? I live in a rowhouse block in Philly and could easily imagine 80% of my block being up for a tied-in system if the financing were easy.

Thanks for all these write ups, the future of the grid is so far from our current reality that I struggle to picture it. My big concern is how we could possibly "pay only a small amount to the local utility for use of grid and backup power" once we erode their entire profit-base and allow them to fold under their crushing debt load. I guess we can sit back and watch how Germany handles it. Eon simply woke up one day, tried to carve off all production and become solely a grid operator. Would be nice to see in the US, but I'm not holding my breath.

Eon may not even be allowed to exit the production world if the German gov't has it's way. Imagine that, one of the largest utilities in the world is being forced to keep its power plants! That is what the future looks like.

 

[Foghat]

A little reminder,

Solarcity literally employs 113k people right now. 13k employees, 100k solar ambassadors(referral fees; some ambassadors have 100+ referrals pending).

Egyptian Sun God Ra Shines as SolarCity Pitchman in Arnold Campaign | Adweek

They have received over 30mln YouTube hits for their Ra "infinite power of the sun" campaign.

They are extremely popular and wildly growing on a grassroot level through to corporate level. Rated by multiple media as a top place to work and among the top 20 places to work by Glassdoor with the highest better business bureau rating achievable.

Measure like for like comparisons with NV Energy, APS, or any big utitliy and you will see a massive disparity in consumer/employee satisfaction and interests.

This not even considering the innovations and future applications of the Solarcity tech compared to traditional big utitliy such as the Kochs and Buffet support.

there is a significant incongruence here. I think the final step in full on tipping point tsunami is getting over the single greatest weapon monopoly utitlies use to scare/hold us all hostage with: " if you do this, rates will increase for all rate payers." This is the favorite scare tactic every single legal monopoly utitlies pulls out when facing a commission. They always pull out the " rates will go up" line.

When commissions finally don't fall for this, DG solar will punch through without a limit in sight, near infinite market place globally.

 

[SBenson]

So the market cap is now just below $4B while the net retained value is just above $3B. This is a 1.33 ratio. A huge value, even if they never install another system in NV, but of course they will.

To be very honest, if we are directly comparing Market Cap with net-retained-value, we should look at a few more numbers.

I'd subtract the 796Bil convertible debt off of the retained value (or add to the market cap - same thing).

I'd also entirely write-off the Lease Renewal portion - 941mil. That revenue is no guarantee.

Think about it this way. Before SolarCity existed, nobody ever took all the potential future revenues of utilities and said this is the net-retained-value of utilities, even though the future revenues are effectively guaranteed. We are only doing that with SolarCity because the future revenue is "contracted" which the consumer is absolutely on the hook for. It's a legal paper that can be sold/traded/mortgaged like a security. The un-contracted amount is just a hope that consumers will renew. That hope cannot be sold/traded/mortgaged. It's not a security. We really shouldn't look at it for valuation purposes.

Thus we have a net-net-retained-value of $1.32Bil vs a market-cap of about $4Bil.

The stock is still very cheap for the rate-of-growth and the potential (whatever happens in NV,AZ). No doubt about it.

 

[Foghat]

This Mexico tidbit is very interesting, I didn't know they had such supportive legislation in place. I spent so many years checking the daily solar updates from Germany to see what the future might hold for the US, now I'll keep an eye on Mexico as well.

Do you think installers like SolarCity will jump into the microgrid install world 5-10 years down the road? It's pretty clear that lucrative(overpriced) lease agreements get tossed out the window once true grid parity is attained and a full residential install becomes reasonably priced. So moving on to microgrid installs is the natural move, right? How cool would it be to call up SolarCity and have them install a 20 home solar/battery microgrid for you entire neighborhood? I live in a rowhouse block in Philly and could easily imagine 80% of my block being up for a tied-in system if the financing were easy.

Thanks for all these write ups, the future of the grid is so far from our current reality that I struggle to picture it. My big concern is how we could possibly "pay only a small amount to the local utility for use of grid and backup power" once we erode their entire profit-base and allow them to fold under their crushing debt load. I guess we can sit back and watch how Germany handles it. Eon simply woke up one day, tried to carve off all production and become solely a grid operator. Would be nice to see in the US, but I'm not holding my breath.

Eon may not even be allowed to exit the production world if the German gov't has it's way. Imagine that, one of the largest utilities in the world is being forced to keep its power plants! That is what the future looks like.

check out Solarcity's white paper on their "grid engineering" website. It explains how utitlies only need to change how they earn their profit. Instead of just cost plus, they can earn off of buying grid services (DG solar+storage) reducing the need for investing in new plants and unnecessary grid upgrades.

its is litterally possible right now to start this as Solarcity starts expanding solar+storage an an exponential rate over the next 6 months.

 

[jhm]

So Ra is holding reading lamps. Does that mean what I think it means?

 

[Foghat]

To be very honest, if we are directly comparing Market Cap with net-retained-value, we should look at a few more numbers.

I'd subtract the 796Bil convertible debt off of the retained value (or add to the market cap - same thing).

I'd also entirely write-off the Lease Renewal portion - 941mil. That revenue is no guarantee.

Think about it this way. Before SolarCity existed, nobody ever took all the potential future revenues of utilities and said this is the net-retained-value of utilities, even though the future revenues are effectively guaranteed. We are only doing that with SolarCity because the future revenue is "contracted" which the consumer is absolutely on the hook for. It's a legal paper that can be sold/traded/mortgaged like a security. The un-contracted amount is just a hope that consumers will renew. That hope cannot be sold/traded/mortgaged. It's not a security. We really shouldn't look at it for valuation purposes.

Thus we have a net-net-retained-value of $1.32Bil vs a market-cap of about $4Bil.

The stock is still very cheap for the rate-of-growth and the potential (whatever happens in NV,AZ). No doubt about it.

well, the other reality is the discount rate closer to 4% then the assumed 6%. At 4%, I think net retained value(non renewal) is at $3.8bln.

And as Jhm has pointed out, the development company alone is worth significantly more the current market cap.

I I think the real issue is Solarcity is a completely different energy company then many investors have ever seen before. As we see with the hedge fund short seller, they are significant trouble with how to see it or preceive what to compare it to. Initially, this era up a volatile market as those with the old money begin to crack under the new market resist and resist. I feel it's going to be a rough ride as that transfer of establish wealth begins to change hands over the course of time toward this new energy infrastructure. But, as the dust settles, those that invested right will see big returns on their solar bets. We really are in a new era of energy, and I'm not talking about the American natural gas boom either.

update:

i just heard the hedge fund guy's CNBC interview. He says that he's sees leases going underwater because of people will be paying more for that energy then they could if they basically went back to straight utitliy. First off, he made absolutely no sense and I can tell he's been reading the gossip site Blog comments on SeekingAlpha. If he would've done any research whatsoever he would have seen solar prices have dropped massively over the past five years in lock step with Solarcity growth in customers at 98% compounded year over year. Shouldn't be he opposite if lease customers are locked into such high per KWh rates? Here's another little know fact, solar leases are grandfather when new policies begin, specifically in California and Arizona, those leases that were grandfathered before recent fees changes are actually worth more then the latest lease sale agreements with the cheaper solar costs associated with them. How is this possible when mr hedge fund predict the opposite. I could go on forever with this guy. I'm not even going to get in the debt argument...

its also telling how they put the CNBC lacky that's invested in sunpower to further down talk Solarcity... No one questioned this position one bit. That network is a total joke anyway with how they pump and dump where ever the wind blows...

 

[Lump]

update:

i just heard the hedge fund guy's CNBC interview. He says that he's sees leases going underwater because of people will be paying more for that energy then they could if they basically went back to straight utitliy. First off, he made absolutely no sense and I can tell he's been reading the gossip site Blog comments on SeekingAlpha. If he would've done any research whatsoever he would have seen solar prices have dropped massively over the past five years in lock step with Solarcity growth in customers at 98% compounded year over year. Shouldn't be he opposite if lease customers are locked into such high per KWh rates? Here's another little know fact, solar leases are grandfather when new policies begin, specifically in California and Arizona, those leases that were grandfathered before recent fees changes are actually worth more then the latest lease sale agreements with the cheaper solar costs associated with them. How is this possible when mr hedge fund predict the opposite. I could go on forever with this guy. I'm not even going to get in the debt argument...

its also telling how they put the CNBC lacky that's invested in sunpower to further down talk Solarcity... No one questioned this position one bit. That network is a total joke anyway with how they pump and dump where ever the wind blows...

Lyndon Rive is calling into CNBC right now with a rebuttal.

 

[MartinAustin]

Lyndon Rive is calling into CNBC right now with a rebuttal.

Go Lyndon! He straightened things out, as far as a CEO (who obviously has a bias) can. I hope the stock climbs on Monday as a result of this.

 

[jhm]

http://www.cnbc.com/2015/08/21/chanos-is-shorting-elon-musk.html
Here's the CNBC interview.

 

[SBenson]

http://www.cnbc.com/2015/08/21/chanos-is-shorting-elon-musk.html
Here's the CNBC interview.

What he said is complete nonsensical bat ****. He got his entire theory ass backwards.

His thesis is:
- SolarCity leases panels to homeowners (yes, panels)
- Homeowners see lower priced panels after sometime (as panel prices continue to decrease)
- They go return the panels to SolarCity and get new ones for cheaper

Jeez, where do we even begin with this guy.

SolarCity doesn't lease "panels". They sell electricity at a pre-set price, which happens to be lower than utility price.

People can't just somehow return the "panels" and get new ones installed. And somehow installing these "panels" is free of cost in his bizarre world.

And it's a "contract". People don't just walk away from a "contract" when they find something cheaper.
How many people walk away from their rental leases as soon as they find a cheaper option on craigslist??

He got everything wrong, about debt, cashflow, everything. He is a finance guy, not a business-model guy.

In any case, thanks to Chanos. I got some shares on the cheap.
And either him or one of his peeps continue to pay me interest as I loan my shares out to short. Well, thanks for the dividend guys.

 

[jhm]

Yes, it is remarkable how Chanos seems to pick up on the same distortions that Electracity was pushing here (and on SeekingAlpha as Rogier). We hashed that out here, but as FUD goes its pretty good at exploiting easy misconceptions and emotional buttons. Calling SolarCity as "subprime lender" is extremely loaded language calling into question ethics as sound business practices. You will recall that Electracity's campaign here was mostly about impuning the character of SolarCity as some sort of malicious player that was simply entrapping stupid homeowners in schemes designed to extract wealth. This kind of character assassination is for pressing emotional buttons, to make it much harder to do a fair appraisal of the actual business model and practices. That is why we could never get anywher with electracity. He was not interested in a fair minded examination of the business; he simply wanted to press his slander so as to subvert fair analysis. So Chanos is channeling that sort of voice to create irrational disgust and fear in the market.

One thing I find completely problematic about this tact against solar installers is that it completely ignores the fact that utilities operate as local monopolies. Apart from rooftop solar, a utility can get away with forcing captive customers to pay 16 c/kWh plus other monthly fees and raise them 3% every year. There is actually very little any individual "ratepayer" can do about it. You either pay it or go without. This is an extraordinarily coercive and potentially abusive business model that can only exist because the government protects these monoplies from direct competition. So to malign SolarCity for offering families and business to lock in 13c/kWh, no fees, 2% escalator for 30 years is to let the utilities off for forcing much worse terms. Utilities are bullies here.

The question about renewal terms is whether utilities will still be playing thebsame old game 20 years from now or lose their monopolist power. If they lose their monopoly, then SolarCity will have been substantially advantaged in the process. So under this scenario SolarCity is worth much more than current valuations. However, if there is not a restructuring of the utilities in the next 20 years, then customers will be quite happy to renew their leases. So I think the renewal value is essentially a hedge against the status quo.