SolarCity

[thepupil]

anyone looked into SCTY the stock?

 

Can someone explain to me why this trades for 32X EV / Sales and 10X P/B when it is in a seemingly low return competitive business (and just announced it is getting into another)....

 

I mean I can understand the cult of TSLA (it's a cool car! disruption!) and why that stock trades where it does, but I really can't understand this one. Is SolarCity's offering that much different than its competitors?

 

Haven't read the VIC short pitch in depth, but at first glance this stock appears to be absolutely insane. I mean I understand how Elon is long on vision and short on profits, but 32X revenues for an installer of solar panels? Whaaaa?

 

I've got to be missing something here. Although I do give Mr. Musk credit because he does issue the shit out of his stocks, which is exactly what he should be doing with a currency like that.

 

SCTY has gone from 8.6MM to over 91MM shares according to Gurufocus and this acquisition will add more. Strong!

 

 

http://www.gurufocus.com/financials/SCTY

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/116494?ideaMessageId=84812&page=0#84812

[PatientCheetah]

anyone looked into SCTY the stock?

 

Can someone explain to me why this trades for 32X EV / Sales and 10X P/B when it is in a seemingly low return competitive business (and just announced it is getting into another)....

 

I mean I can understand the cult of TSLA (it's a cool car! disruption!) and why that stock trades where it does, but I really can't understand this one. Is SolarCity's offering that much different than its competitors?

 

Haven't read the VIC short pitch in depth, but at first glance this stock appears to be absolutely insane. I mean I understand how Elon is long on vision and short on profits, but 32X revenues for an installer of solar panels? Whaaaa?

 

I've got to be missing something here. Although I do give Mr. Musk credit because he does issue the shit out of his stocks, which is exactly what he should be doing with a currency like that.

 

SCTY has gone from 8.6MM to over 91MM shares according to Gurufocus and this acquisition will add more. Strong!

 

 

http://www.gurufocus.com/financials/SCTY

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/116494?ideaMessageId=84812&page=0#84812

 

its exciting and has a good story. investing in it is really no different from investing in gold. its all about sentiment and understanding mass psychology. maybe it can do a steve madden, but what do I know.

[rkbabang]

SCTY, like TSLA, trades with an extremely large Musk-premium.  This is why I think he is crazy not to take SpaceX public.  It wouldn't need to earn a penny to trade at a ridiculous valuation.  He could issue tons of shares and dump a ton of money into R&D.   

[yadayada]

If we do some math, it looks like they will be basicly a utility like company right? Except now the source is not some central place with a grid to homes, but will be on the homes it self.

 

The US consumes about 3.8 trillion kwh in electricity. this costs about 37 cents per kwh on average.

 

So that is 1.4 trillion usd.

source for this is here:

http://www.indexmundi.com/g/g.aspx?c=us&v=81

 

So if Solarcity captures 10% of that, that would be 140 billion$ in annual revenue.

 

Apparantly Musk bets that more energy will come from solar then from anything else within 20 years. Wouldn't that be a bet that Solar city would basicly be a company with at least 10's of billions in revenue then?

 

With only a 3% profit margin, that will be 4.2 billion in income. Kind of very rough, but I guess if you think long term and believe the whole solar thing then a 6 billion valuation is not so crazy.

 

Did I make a big mistake anywhere here?  If we assume that solar will be the future and solar city can take nice market share here.

[yadayada]

to further add, in order to generate that in a year, you need about 430 million KW in solar panels. If you assume 10% that is 43 million KW.

 

They are now building a factory with 200,000 kw capacity and expect that to scale to one million within 2 years. And then even more after that.

 

So that will provide 8.76 billion KWH a year. So in year 4 they could have well over 2 gigawatt of solarpanels generating electricity. 1 or more gigawatt added every year. If they sell that for 35 cents per kwh, that is 6.3 billion $ in revenue.

 

BUT they probably only generate power half the time. And are only a few hours a day on full capacity? So probably safe to cut that in 4. that is 1.5 billion$ in revenue and growing rapidly since they are basicly the only company doing this by then.

 

Im curious what kind of margins they get on that?

 

And as solar tech advances their costs will go down.

 

So in a pretty optimistc scenario they probably generate a couple 100 million a year within 4-5 years. So I guess it looks pretty overvalued.

 

it does look interesting if price would come down to 30-40 $ range in the next few years. Then you could potentially buy a very rapidly growing company with a huge runway, and a strong value proposition for 15-25x earnings.

[topofeaturellc]

If we do some math, it looks like they will be basicly a utility like company right? Except now the source is not some central place with a grid to homes, but will be on the homes it self.

 

The US consumes about 3.8 trillion kwh in electricity. this costs about 37 cents per kwh on average.

 

So that is 1.4 trillion usd.

source for this is here:

http://www.indexmundi.com/g/g.aspx?c=us&v=81

 

So if Solarcity captures 10% of that, that would be 140 billion$ in annual revenue.

 

Apparantly Musk bets that more energy will come from solar then from anything else within 20 years. Wouldn't that be a bet that Solar city would basicly be a company with at least 10's of billions in revenue then?

 

With only a 3% profit margin, that will be 4.2 billion in income. Kind of very rough, but I guess if you think long term and believe the whole solar thing then a 6 billion valuation is not so crazy.

 

Did I make a big mistake anywhere here?  If we assume that solar will be the future and solar city can take nice market share here.

 

you need to figure out how much capital he needs to invest to supply that much energy.  Also you need to figure out what the marginal supplier of electricity will be under your preferred solar scenario, and then what that implies for his return on capital. If Solar is marginal when its producing (and I'm guessing it will be) its over the long-term a cost of capital on marginal capital business - except that the capital cost/MW will probably be declining the way semi costs have declined, so return on the back book will suck. So in reality it'lll be worth less than book. 

 

None of this will matter though as its an awesome story that they'll pitch as an EBITDA ramp story, the stock will absolute smoke, and schmucks like me will short it until we're out of business.

[yadayada]

yeah my guess is they will be very competitive in the solar panel industry with scale and R&D. And securitization will ramp up growth really quickly.

 

Then costs come down in the future and return on capital will go up.

[topofeaturellc]

yeah my guess is they will be very competitive in the solar panel industry with scale and R&D. And securitization will ramp up growth really quickly.

 

Then costs come down in the future and return on capital will go up.

no it won't - because its a commodity and everyones costs will come down the same.

[barminov]

If we do some math, it looks like they will be basicly a utility like company right? Except now the source is not some central place with a grid to homes, but will be on the homes it self.

 

The US consumes about 3.8 trillion kwh in electricity. this costs about 37 cents per kwh on average.

 

So that is 1.4 trillion usd.

source for this is here:

http://www.indexmundi.com/g/g.aspx?c=us&v=81

 

So if Solarcity captures 10% of that, that would be 140 billion$ in annual revenue.

 

Apparantly Musk bets that more energy will come from solar then from anything else within 20 years. Wouldn't that be a bet that Solar city would basicly be a company with at least 10's of billions in revenue then?

 

With only a 3% profit margin, that will be 4.2 billion in income. Kind of very rough, but I guess if you think long term and believe the whole solar thing then a 6 billion valuation is not so crazy.

 

Did I make a big mistake anywhere here?  If we assume that solar will be the future and solar city can take nice market share here.

 

37 cents/kWh? The national average is closer to 12 cents/kwh. I think only Hawaii and Alaska are anywhere near 37.

 

Edit: Alaska is around 20 cents/kwh .

[ERICOPOLY]

Southern California Edison rates:

 

31c per kWh for Tier 4

 

https://www.sce.com/wps/portal/home/customer-service/billing-payment/understanding-your-bill/!ut/p/b0/04_Sj9CPykssy0xPLMnMz0vMAfGjzOINLdwdPTyDDTwtfMLMDTyd3IMDwwLCDCxDjfQLsh0VAVoaPaU!/

 

On a tiered plan, you typically will wind up offsetting the 31 cents first.  Once the Solar Panels generate enough electricity to knock you down to the next Tier of usage, you are paying 27c.

 

So basically, Solar City can easily beat those rates and still earn a good rate.

[barminov]

Southern California Edison rates:

 

31c per kWh for Tier 4

 

https://www.sce.com/wps/portal/home/customer-service/billing-payment/understanding-your-bill/!ut/p/b0/04_Sj9CPykssy0xPLMnMz0vMAfGjzOINLdwdPTyDDTwtfMLMDTyd3IMDwwLCDCxDjfQLsh0VAVoaPaU!/

 

On a tiered plan, you typically will wind up offsetting the 31 cents first.  Once the Solar Panels generate enough electricity to knock you down to the next Tier of usage, you are paying 27c.

 

So basically, Solar City can easily beat those rates and still earn a good rate.

 

Oh yeah, there's no doubt it makes sense in some scenarios. Keep in mind though you're talking about the highest tier in the state which has the 6th highest average rate of electricity in the country (Source: http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_6_a ). The average rate for CA is around 17 cents. I'm in Los Angeles and our highest tier during the most expensive season is 21.5 cents. Even so, I was doing some back of the envelope calculations for a household in my area and installing solar would yield mid-teen returns (after federal and state incentives). I was just pointing out to yadayada that in his back of the envelope calculation for the power consumption of the entire United States, using 37 cents per kWh isn't appropriate.

 

I'm wondering if one were to sign a Power Purchase Agreement with Solar City, what kind of rates they would charge. Hypothetically, if someone was with Southern California Edison (Tier 1 - 13 cents, Tier 2 - 16 cents, Tier 3 - 27 cents, Tier 4 - 31 cents), and Solar City quoted a PPA for 20 cents a kWh, you would only get a system big enough to get you down to Tier 2 and no more. Has anyone received a quote?

 

From their annual report I see that cost of installation is about $3/Watt so a 1KW system would cost them roughly $3000. This should generate between 1400-2000 kWh  in California (more in SoCal, less in NorCal). Say 1700 kWh on average. If they sell this to the customer at 17 cents a kWh (average for CA), they get revenue of about $290/year. Federal and State incentives would bring the cost down (I have no idea what kind of incentives they receive) and maintenance would eat into some of that. Anyway, the stock looks absurdly overpriced but I'm off to do more reading since the industry is interesting and I'm realizing I don't know enough to even ballpark what they/any other company in the industry could potentially make.

[ERICOPOLY]

Southern California Edison rates:

 

31c per kWh for Tier 4

 

https://www.sce.com/wps/portal/home/customer-service/billing-payment/understanding-your-bill/!ut/p/b0/04_Sj9CPykssy0xPLMnMz0vMAfGjzOINLdwdPTyDDTwtfMLMDTyd3IMDwwLCDCxDjfQLsh0VAVoaPaU!/

 

On a tiered plan, you typically will wind up offsetting the 31 cents first.  Once the Solar Panels generate enough electricity to knock you down to the next Tier of usage, you are paying 27c.

 

So basically, Solar City can easily beat those rates and still earn a good rate.

 

Oh yeah, there's no doubt it makes sense in some scenarios. Keep in mind though you're talking about the highest tier in the state which has the 6th highest average rate of electricity in the country (Source: http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_6_a ). The average rate for CA is around 17 cents. I'm in Los Angeles and our highest tier during the most expensive season is 21.5 cents. Even so, I was doing some back of the envelope calculations for a household in my area and installing solar would yield mid-teen returns (after federal and state incentives). I was just pointing out to yadayada that in his back of the envelope calculation for the power consumption of the entire United States, using 37 cents per kWh isn't appropriate.

 

I'm wondering if one were to sign a Power Purchase Agreement with Solar City, what kind of rates they would charge. Hypothetically, if someone was with Southern California Edison (Tier 1 - 13 cents, Tier 2 - 16 cents, Tier 3 - 27 cents, Tier 4 - 31 cents), and Solar City quoted a PPA for 20 cents a kWh, you would only get a system big enough to get you down to Tier 2 and no more. Has anyone received a quote?

 

From their annual report I see that cost of installation is about $3/Watt so a 1KW system would cost them roughly $3000. This should generate between 1400-2000 kWh  in California (more in SoCal, less in NorCal). Say 1700 kWh on average. If they sell this to the customer at 17 cents a kWh (average for CA), they get revenue of about $290/year. Federal and State incentives would bring the cost down (I have no idea what kind of incentives they receive) and maintenance would eat into some of that. Anyway, the stock looks absurdly overpriced but I'm off to do more reading since the industry is interesting and I'm realizing I don't know enough to even ballpark what they/any other company in the industry could potentially make.

 

Oh wait though, it gets better.  I have the "Home and Electric Vehicle Plan" with them.  So my power costs 49 cents per kWh between 10am and 6pm (you know, like when the sun is shining). 

 

So if I install solar, it will be paid off in less than 2 years.

 

49 cents!

 

 

https://www.sce.com/wps/portal/home/residential/electric-cars/residential-rates/!ut/p/b1/hc_NboJAFAXgZ3HBUubAGMHuhpQMg3-1osXZNNDgSIKMQVrSt-9o3Giq3t25-U5yL5EkJbLOfkqVtaWus-qU5fDT8TmLxBKCrxIGEbwGTjQVwGxgwMYA3BmGZ_0PIq-Jn_DQkDFG6zeXDjzvFvB3z4WI1-FkHjgufPcCRhxhFM8NSBYUgi4wWzJGgeEFPDgyJlJVOj8_vGF1Tn1FZFNsi6Zo7O_GrHdtezi-WLDQdZ2ttFZVYX_pvYX_Kjt9bEl6Lclhn6IUfZn_dr0_EY5KsQ!!/dl4/d5/L2dBISEvZ0FBIS9nQSEh/?from=/residential/rates/electric-vehicles.htm#/accordionGrp1-2/accordionGrp1-1

 

 

[topofeaturellc]

I may be reading that wrong, but that price is inclusive of grid costs.  The problem is that grid is always an ROE remunerated business even if its priced on units.  So if people take less volumes off the grid, but remain connected to it, they'll raise the price per unit of the grid costs.  So in the short term, yeah it only needs to beat the fully loaded cost, but in short order it will really just be pricing against generation, and eventually it'll be generation + the costs of maintaining a less stable grid. 

 

Eventually solar will work against all that, but its not as simple as looking at a your cost per Kw delivered and saying that's the bogey SCTY has to hit.

[jouni1]

if electricity costs 49 cents per kWh, it makes sense to build your own power plants yes.

 

it's hard for me to understand that number. i'm paying around 10 cents and it used to be less. makes me look at solar and wind differently.

[yadayada]

Southern California Edison rates:

 

31c per kWh for Tier 4

 

https://www.sce.com/wps/portal/home/customer-service/billing-payment/understanding-your-bill/!ut/p/b0/04_Sj9CPykssy0xPLMnMz0vMAfGjzOINLdwdPTyDDTwtfMLMDTyd3IMDwwLCDCxDjfQLsh0VAVoaPaU!/

 

On a tiered plan, you typically will wind up offsetting the 31 cents first.  Once the Solar Panels generate enough electricity to knock you down to the next Tier of usage, you are paying 27c.

 

So basically, Solar City can easily beat those rates and still earn a good rate.

 

Oh yeah, there's no doubt it makes sense in some scenarios. Keep in mind though you're talking about the highest tier in the state which has the 6th highest average rate of electricity in the country (Source: http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_6_a ). The average rate for CA is around 17 cents. I'm in Los Angeles and our highest tier during the most expensive season is 21.5 cents. Even so, I was doing some back of the envelope calculations for a household in my area and installing solar would yield mid-teen returns (after federal and state incentives). I was just pointing out to yadayada that in his back of the envelope calculation for the power consumption of the entire United States, using 37 cents per kWh isn't appropriate.

 

I'm wondering if one were to sign a Power Purchase Agreement with Solar City, what kind of rates they would charge. Hypothetically, if someone was with Southern California Edison (Tier 1 - 13 cents, Tier 2 - 16 cents, Tier 3 - 27 cents, Tier 4 - 31 cents), and Solar City quoted a PPA for 20 cents a kWh, you would only get a system big enough to get you down to Tier 2 and no more. Has anyone received a quote?

 

From their annual report I see that cost of installation is about $3/Watt so a 1KW system would cost them roughly $3000. This should generate between 1400-2000 kWh  in California (more in SoCal, less in NorCal). Say 1700 kWh on average. If they sell this to the customer at 17 cents a kWh (average for CA), they get revenue of about $290/year. Federal and State incentives would bring the cost down (I have no idea what kind of incentives they receive) and maintenance would eat into some of that. Anyway, the stock looks absurdly overpriced but I'm off to do more reading since the industry is interesting and I'm realizing I don't know enough to even ballpark what they/any other company in the industry could potentially make.

I would say a 19% efficiency is lowballing it? Can probably do almost double?

[topofeaturellc]

if electricity costs 49 cents per kWh, it makes sense to build your own power plants yes.

 

it's hard for me to understand that number. i'm paying around 10 cents and it used to be less. makes me look at solar and wind differently.

 

If you look at the actual generation component of the bill it makes more sense. But SoCal is structurally more expensive than Finland.  Fortum owns a lot of hydro

[jouni1]

yes we have a lot of hydro. i disagree about socal being structurally more expensive for electric utilities. we have just north of 5 million people on a piece of land that is 2,5(?) times the size of socal(22mio people). loads of people still live in the woods/rural areas and the grid is very very expensive to keep up. temperature range and weather add even more trouble to the equation. fuel is super expensive (for example a gallon of gas is over 8 dollars). labor is also very expensive.

 

the pricing structure suggests that the day/night loads are fucked down there. we had something similar like 20 years ago, but the utilities forced people/industrials to shift their electricity usage (heating etc) to night time. right now the difference between night and day prices is just a few cents.

[topofeaturellc]

I meant just generation wise.

[jouni1]

oh sorry :D why is generation so expensive then? isn't there a lot of coal and gas plants? both are pretty cheap there now? (the pricing makes it seem like it's a capacity problem)

[topofeaturellc]

well first off - that price quoted above is wrong. That's delivered.  The generation price is 8.5c kwh.  That's sort of a blended average of what plants run when - as its regulated generation so the cost is something like energy*efficiency+ opex+capital*roe

 

Whereas fortum's generation is mostly deregulated and purchased sorta via nordpool - where spot is like 38EUR Mwh or 3.8 eurcents Kwh

 

But the difference is that (and I don't have the data in front of me ) there are lots of times during the day when hydro or wind are the marginal producer so prices are something like 0.  If you look at the underlying data you can see hydro producing regions offering power for negative prices (because of how the market clears you can't get < 0, it just tells the market you will generate at any price).  So even though there are parts of the day where much more expensive than US gas might be the marginal producer, in aggregate costs are a lot lower.

 

If you are as dull as me and this actually interest you, Nordpool's website is hands down the most user friendly of any of the power pools I've looked at.

[ERICOPOLY]

if electricity costs 49 cents per kWh, it makes sense to build your own power plants yes.

 

it's hard for me to understand that number. i'm paying around 10 cents and it used to be less. makes me look at solar and wind differently.

 

If you look at the actual generation component of the bill it makes more sense. But SoCal is structurally more expensive than Finland.  Fortum owns a lot of hydro

 

Not just about hydro, although that's certainly a part of it.

 

SoCal has a lot of peak demand issues from the sunny hot conditions -- air conditioners.  So they have these extra power plants that are idle during the cooler weather, and get used for peak load only a few hours of the day when it's hot and the air conditioners are all running.

 

That's why we have this "time of use" billing system, where my daytime usage is 49 cents and my night-time usage is only 9 cents.  The utility is encouraging me to shift my usage to the night when nobody else is drawing power, so they won't need as many overflow plants that sit idle most of the time.

 

This is why solar makes so much sense for consumers in SoCal -- it's because you get paid for your power generation at the peak rates.  I live on the coast and it's usually only 72 degrees here so we never use our air-conditioner.  We use most of our electricity at night when the lights and TV come on.

 

So putting solar panels here is a great idea -- you get paid for the power not on your average rate, but rather on the time-of-use rate.  So I can earn 49 cents for one kWh of power generated by my panels, and then at night time I can purchase 5.5kWh with that.  So I get operational leverage on my electric bill.

[Liberty]

Solar will start by shaving off the most profitable peak during the day. By the time that's done, storage will be a lot less of a problem. Most opponents of solar like to pretend we'll go from zero to 100 all at once, which would be incredibly hard. But like with electric cars, it'll be gradual and we'll have ample time to adapt.

[ERICOPOLY]

Solar will start by shaving off the most profitable peak during the day. By the time that's done, storage will be a lot less of a problem. Most opponents of solar like to pretend we'll go from zero to 100 all at once, which would be incredibly hard. But like with electric cars, it'll be gradual and we'll have ample time to adapt.

 

How is that the most profitable time of day?  They have extra transmission lines that need to be built just for a few hours of the day of peak usage.  There are plants that are idled most of the time... except during the peak load hours.

 

They might be charging a ton during those hours, but they have to recover the costs of all that extra infrastructure that needs to be built to service those peak hours.

 

In other words, if we all ran our air conditioners off of batteries, and charged the batteries evenly throughout the day, we could then get to a near-constant load on the system.  That would mean an optimal configuration of transmission lines and power generation plants.  Electricity costs would then be able to fall... because there would be less infrastructure expenses to service.

 

Although, I suppose the state regulators allow them to price-gouge a bit during those peak hours in order to discourage usage -- so we can get by with less transmission lines... etc...

[ItsAValueTrap]

That's why we have this "time of use" billing system, where my daytime usage is 49 cents and my night-time usage is only 9 cents.  The utility is encouraging me to shift my usage to the night when nobody else is drawing power, so they won't need as many overflow plants that sit idle most of the time.

 

This is why solar makes so much sense for consumers in SoCal -- it's because you get paid for your power generation at the peak rates.  I live on the coast and it's usually only 72 degrees here so we never use our air-conditioner.  We use most of our electricity at night when the lights and TV come on.

 

So putting solar panels here is a great idea -- you get paid for the power not on your average rate, but rather on the time-of-use rate.  So I can earn 49 cents for one kWh of power generated by my panels, and then at night time I can purchase 5.5kWh with that.  So I get operational leverage on my electric bill.

 

See http://www.forbes.com/sites/gordonjohnson/2011/03/31/are-solar-power-incentives-a-nasty-regressive-tax-on-the-poormisinformed/

 

QUOTE: In short, the way solar incentives work is by taking money from the poor to subsidize the rich homeowners, businesses, and investors who can afford the high upfront costs of installing solar power (a reverse Robin-Hood structure), which is among the most expensive forms of energy available today. While the solar industry has grown considerably, increasing its lobbying power globally, which in-turn has allowed for a massive expansion in marketing (with the key selling point being you must support solar to stop global warming), it remains among the most costly and inefficient forms of electricity available when observing: (1.) cost/kWh compared to other forms of electricity (i.e., wind, hydro, geothermal, nuclear, etc.), and (2.) usage (solar power is only available when the sun is shining, and declines in output with less intense sunrays and cloud coverage).

[Liberty]

Solar will start by shaving off the most profitable peak during the day. By the time that's done, storage will be a lot less of a problem. Most opponents of solar like to pretend we'll go from zero to 100 all at once, which would be incredibly hard. But like with electric cars, it'll be gradual and we'll have ample time to adapt.

 

How is that the most profitable time of day?  They have extra transmission lines that need to be built just for a few hours of the day of peak usage.  There are plants that are idled most of the time... except during the peak load hours.

 

They might be charging a ton during those hours, but they have to recover the costs of all that extra infrastructure that needs to be built to service those peak hours.

 

In other words, if we all ran our air conditioners off of batteries, and charged the batteries evenly throughout the day, we could then get to a near-constant load on the system.  That would mean an optimal configuration of transmission lines and power generation plants.  Electricity costs would then be able to fall... because there would be less infrastructure expenses to service.

 

Although, I suppose the state regulators allow them to price-gouge a bit during those peak hours in order to discourage usage -- so we can get by with less transmission lines... etc...

 

I didn't mean for the peakers, I meant for baseload. If you own a coal plant, you make your money selling power during the day, not at night. It's the most profitable time for them. But if the daytime peak is shaved off by solar, like it is right now in Queensland in Australia (you can google it), the whole dynamic changes a lot.