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With recent news from Volvo (all cars to be electrified by 2019) & Tesla (Model 3 delivery) combined with govts of France, UK, & India all declaring no sales of combustion engine vehicles by 2030-2040, the horse appears to be out of the barn for electric cars.

 

If so, how will the current worldwide electrical grid supply the energy for these cars. Given a new supply source of energy is needed, and that solar is "clean" and the cost of solar has decreased tremendously, is now the time to invest in Solar?? Realize this is a top down macro bet that would generally be frowned upon by bottom up deep value investors.

 

TAN and KWT seem to be 2 major solar ETFs - both down some 90% since their highs in 2008. Both paying a dividend of approx 3.5%. TAN has 10x of assets under management vs. KWT. Both have a high MER for an ETF (0.71% vs. 0.65%).

 

Am keen to hear thoughts from the Board. Is this the time to dip into solar?

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I think the real winners will be the utility companies that can build economically-feasible solar plants. I don't think any of the hardware sellers will do particularly well. The other parties I think may do well are the contractors building/servicing these sites, and perhaps residential solar financing groups (I don't think residential solar is all that smart, but people still do it and usually get financing).

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The question is, what are solar ETF's investing in?

Companies that will use solar cells or those that make them?

 

Currently solar is dirt cheap because of the Chinese that have a huge stock of PV's they are dumping well below cost price.

I believe the current production cost is 0.40-0.45$/W while the Chinese are dumping at 0.20-0.22$/W.

This is already putting some competitors out of business (like SolarWorks).

 

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The question is, what are solar ETF's investing in?

Companies that will use solar cells or those that make them?

 

Currently solar is dirt cheap because of the Chinese that have a huge stock of PV's they are dumping well below cost price.

I believe the current production cost is 0.40-0.45$/W while the Chinese are dumping at 0.20-0.22$/W.

This is already putting some competitors out of business (like SolarWorks).

 

Chinese company's are already producing panels at close to $.30/W (including D&A). Take a look at Jinko Solar's Q1 2017 slides:

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjczMTQ1fENoaWxkSUQ9MzgxNzQyfFR5cGU9MQ==&t=1

 

Note that even with the significant oversupply during the winter, they were able to eek out a small profit in Q1.

 

Chinese companies are driving the cost of production down tremendously, and putting US companies like Solarworld out of business. If we were smart, we would remove the current tariffs on solar and buy as many of these panels as possible.

 

Three months ago many parts of the solar complex were very cheap. RUN and particularly VSLR were trading under book, with no value given to future growth, FSLR was trading at half of book. I was smart enough to buy some VSLR (only small position), but didn't pull the trigger on FSLR.

 

 

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I think the real winners will be the utility companies that can build economically-feasible solar plants. I don't think any of the hardware sellers will do particularly well. The other parties I think may do well are the contractors building/servicing these sites, and perhaps residential solar financing groups (I don't think residential solar is all that smart, but people still do it and usually get financing).

 

why don't you think that residential solar is all that smart? is it a price point thing or a economies of scale thing or something else?

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I had someone come and pitch me on residential solar.  It's a really tough sell.

 

You buy this expensive system upfront with a loan.  You pay down the loan for 10 years.  In year 10 you finally reap the benefit of your system as it makes your electric bill 'free'.  You have 20 years of free electric with the system.

 

The problem for me was that I am investing in an asset with a terminal value of zero.  Given the prices they quoted if I put the exact same amount of money into a corporate bond fund the yield would pay my electric bill today, and I'd have my original principle back in 30 years.

 

The other problem is I have to commit to a costly purchase with no benefit for a decade.  How do I know I'll be here then?  I hope I am, but who knows.  How do I know rates, or what the future will hold?  You pay a lot upfront for something that you don't get to use in 10 years.

 

There was also some gotcha they tried to explain with selling power back.  I would be selling it back, but the power company only credits on a per year basis.  So I'd have to have the system running for 1-2 years before they'd credit the electric I'd send.  So that first year or two I'd have power bills that were double the usual amount.

 

And lastly one thing I thought would be cool is to have backup if power went off.  He said the only way to get that is to buy a separate $7k battery pack.  His recommendation was to not waste my time and buy a generator instead.

 

I agree with LC, the ultimate beneficiary of this arrangement is the utility.  They are getting customers to finance power generation infrastructure needs.  The utility gets the power and pays a wholesale rate for something they didn't have to build.

 

I've looked at this on and off over the last 15 years.  The good news is things are going in the right direction.  Fifteen years ago it was going to take me 30+ years before I had a payoff.  Now it's down to 10 years.  In another five years or so the panel cost might finally be low enough where I can get a return in 2-3 years.  For me that's the tipping point, I'd jump then.

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I think the real winners will be the utility companies that can build economically-feasible solar plants. I don't think any of the hardware sellers will do particularly well. The other parties I think may do well are the contractors building/servicing these sites, and perhaps residential solar financing groups (I don't think residential solar is all that smart, but people still do it and usually get financing).

 

why don't you think that residential solar is all that smart? is it a price point thing or a economies of scale thing or something else?

 

I had a discussion with another user about it over on this thread:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/america-1st/msg302262/#msg302262

 

Essentially it comes down to this:

 

The large gap in per-MWh costs between utility- and residential-scale systems results principally

from: (a) lower total plant costs per installed kilowatt for larger facilities; and (b) greater solar

electric output from the same PV capacity (300 MW-DC) due to optimized panel placement,

tracking and other economies of scale and efficiencies associated with utility-scale installations.

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I had someone come and pitch me on residential solar.  It's a really tough sell.

 

Oddball, do you guys have SolarCity or some other "install their panels for cheaper electricity but don't pay upfront" option in your area? Would that work for you?

 

I haven't looked at residential solar much, since I don't like panels on the roof. I think Tesla tiles on the roof are gonna be gamechanger if/when I get to roof replacement. Unfortunately, I changed the roof about 9 years ago, so it's gonna be long time.

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I had someone come and pitch me on residential solar.  It's a really tough sell.

 

Oddball, do you guys have SolarCity or some other "install their panels for cheaper electricity but don't pay upfront" option in your area? Would that work for you?

 

I haven't looked at residential solar much, since I don't like panels on the roof. I think Tesla tiles on the roof are gonna be gamechanger if/when I get to roof replacement. Unfortunately, I changed the roof about 9 years ago, so it's gonna be long time.

 

I've had both SolarCity and Vivint Solar pitch me.  Both have the $0 upfront, but it's really a loan.

 

SolarCity you never own anything, you just pay a little bit less.  The value for SolarCity isn't there.  You have panels placed on your roof and they say you'll pay a few cents less per kwH forever.  The problem is you still pay distribution and other electric charges, so you save a little, not much. 

 

The Vivint Solar guys are selling the system, it's a no upfront payment thing.  You just get a loan for the amount and the loan payment is roughly your electric bill payment for ~10 years.

 

I'm all about solar.  I love the idea of it.  The cost just needs to drop.

 

Where it's getting cost effective is for a small space.  I've looked at solar for our RV in the past.  That's a interesting idea.  There are less demands on the system and the batteries needed aren't terrible.  You can be 100% self sufficient with solar on an RV.  Plus you can move the trailer to where the sun is best to get the highest efficiency.

 

I think within 5-10 years we're going to hit the tipping point on solar where the ROI finally makes sense.

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SolarCity you never own anything, you just pay a little bit less.  The value for SolarCity isn't there.  You have panels placed on your roof and they say you'll pay a few cents less per kwH forever.  The problem is you still pay distribution and other electric charges, so you save a little, not much.

 

Yeah, that's the picture I got too.

 

The Vivint Solar guys are selling the system, it's a no upfront payment thing.  You just get a loan for the amount and the loan payment is roughly your electric bill payment for ~10 years.

 

Understood.

I think these make most sense if you can sell back to grid at markup, which is only available in some states (and probably not for long).

 

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Peter Thiel's book has a good discussion on this if you haven't read it: https://smile.amazon.com/gp/product/B00J6YBOFQ/

 

He's really skeptical of "the market is huge/growing and we just need to be a part of it" theses. Typically these result in crowded markets and many losers. This same statement re solar was made in the mid 2000s with a lot of venture capital money raised around it (remember Al Gore at Kleiner Perkins) with mediocre (negative?) results.

 

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I had someone come and pitch me on residential solar.  It's a really tough sell.

 

You buy this expensive system upfront with a loan.  You pay down the loan for 10 years.  In year 10 you finally reap the benefit of your system as it makes your electric bill 'free'.  You have 20 years of free electric with the system.

 

The problem for me was that I am investing in an asset with a terminal value of zero.  Given the prices they quoted if I put the exact same amount of money into a corporate bond fund the yield would pay my electric bill today, and I'd have my original principle back in 30 years.

 

The other problem is I have to commit to a costly purchase with no benefit for a decade.  How do I know I'll be here then?  I hope I am, but who knows.  How do I know rates, or what the future will hold?  You pay a lot upfront for something that you don't get to use in 10 years.

 

There was also some gotcha they tried to explain with selling power back.  I would be selling it back, but the power company only credits on a per year basis.  So I'd have to have the system running for 1-2 years before they'd credit the electric I'd send.  So that first year or two I'd have power bills that were double the usual amount.

 

And lastly one thing I thought would be cool is to have backup if power went off.  He said the only way to get that is to buy a separate $7k battery pack.  His recommendation was to not waste my time and buy a generator instead.

 

I agree with LC, the ultimate beneficiary of this arrangement is the utility.  They are getting customers to finance power generation infrastructure needs.  The utility gets the power and pays a wholesale rate for something they didn't have to build.

 

I've looked at this on and off over the last 15 years.  The good news is things are going in the right direction.  Fifteen years ago it was going to take me 30+ years before I had a payoff.  Now it's down to 10 years.  In another five years or so the panel cost might finally be low enough where I can get a return in 2-3 years.  For me that's the tipping point, I'd jump then.

 

I agree with LC.  Utlities, and /or large established energy companies with deep pockets are the way to go with this. 

 

My analagy for what might happen:  In the early to mid nineties there were thousands, if not hundreds of thousands of internet providers.  I used a local one and had to painfully dial up from my computers modem to get my online porno (ok that was gratuitous :-) ).  Within a few short years the incumbent "pipe" providers had completely wiped 99% of them out.  Bell Canada is the largest internet provider, followed by Rogers, and a few other local monopolies. 

 

I see existing utility companies such as the BAM group, Enbridge, Algonquin Energy, Mid-American, and so forth coming out the winners.  They already own the expertise, have the connections, and cash availability to completey control solar and wind.  BEP (BAM sub) already owns and developes alt. energy facilities, as does Enbridge, Emera, BH Energy, and Algonquin.  My list is biased to Cdn. companies but they all have lots of international assets and expertise.  There are likely many other international players in this space as well. 

 

The second group I see taking a piece of the pie are the oil majors.  Exxon, Shell, Chevron for example.  They can buy the facilities and expertise. 

 

FWIW I think Tesla and its ilk probably participate in parts of the equation, perhaps storage (which seems to be a big focus of Musks), and industrial scale rooftop.  With the weather we have had in the East this year solar, no utility access seems a bit of a reach for me.  We would be using a whole lot of diesel in our backups. 

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I think within 5-10 years we're going to hit the tipping point on solar where the ROI finally makes sense.

 

If 5-10 years to tipping point, from an investment point of view, is now the time to get in? Take a broad perspective (i.e. ETF) whilst still on the ground floor? In 5-10 years, the industry will be much more mature. There will be good companies in the space - i.e.: the Apples of today - but valuations much steeper.

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I think within 5-10 years we're going to hit the tipping point on solar where the ROI finally makes sense.

 

If 5-10 years to tipping point, from an investment point of view, is now the time to get in? Take a broad perspective (i.e. ETF) whilst still on the ground floor? In 5-10 years, the industry will be much more mature. There will be good companies in the space - i.e.: the Apples of today - but valuations much steeper.

 

I was looking at putting it on my house, not investing in it in the market.

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One thing I always try to remember when I get excited about a new market / product etc. is what Warren Buffett said about airlines and auto companies in the beginning...

 

In the early days of automobiles and airlines, this was new technology which was obviously going to change the developed world and the lives of almost everybody in it. It would make some people very rich. The problem is, out of the hundreds or thousands of companies at the beginning, how do you know which ones are going to survive, and which ones are going to be profitable?

 

If you'd invested in every commercial airline at the beginning of aviation, you'd have lost almost all your money. If you'd picked a number of auto companies from the hundreds of American auto companies, you'd have lost money if you didn't pick one of the 'Big 3' that survived.

 

This instilled the importance of Value Investing to me, and the fact that the only way to make money consistently over time (unless you can predict the future) is value investing. Unfortunately value investing doesn't work with speculative growth investments, no matter how well we would like them to turn out...

 

With all that said, I have a 5% position in Tesla, and I personally believe they have the potential to be at least a 10x and maybe even bigger than Apple. I think Elon Musk is one of the incredible individuals of our generation, similar to Steve Jobs, Bill Gates, Warren Buffett, Jeff Bezos etc. and I think his products and business plan (INCLUDING SOLAR ROOFS AND STORAGE) are incredibly good. I may be wrong about this, but I don't want to not invest and miss out.

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  • 2 months later...

 

This chart along with "tipping point" suggests to me that it is a decent time to place a v. small %  of portfolio on solar ETF.

I agree with Voodooking that betting on an industry is NOT "value investing". However, putting a very small % into a growth strategy seems reasonable.

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https://electrek.co/2017/10/19/china-breaking-all-solar-power-records-aiming-for-50gw-in-2017/

 

China is leading the world in solar power installations by a long run. ASECEA is predicting that 50GW of solar power is well within reach of being installed this year. In June and July of 2017, China installed 25GW of solar power – and they’ll push the globe past 100GW total for the year.
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Why this post?

-working on a thesis and eventual contribution to an active thread about a stock discussed on this Board where what happens in China matters.

-I want to learn.

 

It is expected that China will be the workhorse here in renewable energy.

https://www.theclimategroup.org/sites/default/files/archive/files/RE100-China-analysis.pdf

Many now assume that coal demand in China will plateau for the next 20 years.

Isn't that an unusually large assumption?

Even looking back only 3 to 5 years ago, it was felt that coal demand would continue to increase in China?

We are talking about extremely large numbers. A small difference can make a large difference.

Aren't we not calling the paradigm shift a bit early especially if we base our projections on the institutional framework in China?

 

 

And if the assumptions hold, isn't this a massively bullish signal for commodities in general?

 

If energy demand and electricity consumption in China follow the proposed graphs going forward, isn't it reasonable that they will also require "dirty" iron ore also?

 

Change is inevitable but difficult to predict. No?

I always say to myself  (+/- from Yogi Berra) that I've got to be very careful if I don’t know where I am going, because I might not get there.

 

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Instead of investing in solar I would instead start looking at suppliers who will make pulsed DC practical for homeowners. My expectation is that power will be rationed to homeowners so they will have to learn how to use their limited power very efficiently.

 

It makes little sense to generate DC then convert it to AC then convert it back to DC in the appliances. Houses with solar should be wired so there is an independent DC system and batteries. The AC should be used to charge the batteries. The solar should run the DC systems with the surplus into batteries.

 

Appliances running directly from DC last much longer.

 

In particular one company I am watching for is someone to come up with an automatic circuit breaker to disconnect from the grid in the event of any unusual power surge.

 

 

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  • 6 months later...

I read comments earlier in the thread about residential solar, so thought I would share out some relevant data if anyone is considering investing in the space. I run a small side business that publishes/sells residential solar data and we just published our Q1-18 report https://www.ohmhomenow.com/residential-solar-market-grows-11-q1-18-marking-first-growth-quarter-since-2016/.

 

The market fell off in 2017 after the SolarCity acquisition by Tesla, but is starting to grow again. I am not invested in the sector, but Sunrun stands as out as well managed. They have a been using a hybrid model in which they have their own installation crews in some areas but also have a "platform" model that provides sales tools and financing for local installers. Local/regional installers have started to take more share (similar to other contracting sectors - roofing, hvac, remodel, etc.), so Sunrun's platform model has done well and I believe Vivint is now trying to copy that model.

 

Their CEO is pretty smart - I interviewed there and someone told me that one of her favorite books is Cable Cowboy....

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  • 2 weeks later...

Instead of investing in solar I would instead start looking at suppliers who will make pulsed DC practical for homeowners. My expectation is that power will be rationed to homeowners so they will have to learn how to use their limited power very efficiently.

 

It makes little sense to generate DC then convert it to AC then convert it back to DC in the appliances. Houses with solar should be wired so there is an independent DC system and batteries. The AC should be used to charge the batteries. The solar should run the DC systems with the surplus into batteries.

 

Appliances running directly from DC last much longer.

 

In particular one company I am watching for is someone to come up with an automatic circuit breaker to disconnect from the grid in the event of any unusual power surge.

 

Are DC appliances commercially available at reasonable quality/price?

 

I think it is relatively obvious that DC would be better than AC at this point, but the switching costs would be huge.

 

I've often thought that a DC solar-battery-electric car system would make sense for my house, and if I could get a few DC appliances (especially dryer/fridge) that would swing me even more.

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