EDITOR’S NOTE: Yesterday, Tesla (NASD:TSLA) announced that it has no intention of using Silevo’s technology at “Gigafactory 2,” the former Silevo facility in Western New York, now owned by Tesla through its acquisition of SolarCity.  This makes some background on Panasonic (Whose technology Tesla plans to rely on instead) in this month’s Solar Flare particularly relevant.

Panasonic recently announced that the New York Facility would be operated under the name Panasonic Eco Solutions Solar New York America (PESSNYCA?) and that equipment will be installed and production will begin by summer 2017.

In 2014 SolarCity acquired Silevo and broke ground on its New York Giga-factory promising that it would begin high volume production as early as 2016. This was an announcement doomed to retraction from the outset given that breaking ground and construction are not synonymous.

In 2015 SolarCity announced that it would produce modules in its New York facility by 2017 that would be 30% more efficient than the modules it was currently producing even though it was not producing any modules at the New York facility and Silevo was operating as a module assembler in China. Also in 2015 SolarCity leased the former Solyndra manufacturing facility in Fremont a move that at least finally (finally) got rid of the Solyndra sign and the constant reminder of this fiasco.

In 2016 SolarCity announced that the champion modules produced in Fremont by Silevo had reached 22% conversion efficiency. Note, champion efficiency and commercial efficiency are not the same thing. Given the 2015 announcement that it would increase its nonexistent module efficiency by 30%, did SolarCity mean that in 2017 it would produce modules of >28% efficiency in New York using the Silevo technology? This is both unlikely and, well, it’s more than unlikely. And now SolarCity/Tesla and Panasonic have announced that Panasonic will produce high efficiency cells and modules in New York by mid-2017. This is also unlikely.

Well, it’s more than unlikely.

Comment: Panasonic’s cost structure is not a good fit for manufacturing in the US. Given the crash dive in prices and the forces holding prices down it is difficult to see the new announcement in a positive light.

Lesson: This latest announcement may end up to be no more than an announcement but it will be repeated as progress before PESSNYCA turns out even one module. The lesson is not to put too much credence in announcements or in long company names that cry out to be acronym-ized.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.
This article was originally published in SPV Reaserch’s monthly newsletter, the Solar Flare, and is republished with permission.

The post Can Panasonic Produce High Efficiency Solar Modules at Tesla’s Gigafactory 2 in 2017? appeared first on Alternative Energy Stocks.

2016 was a wild year and not just for solar and after decades of reliance on government incentives, subsidies and mandates the global solar industry may be inured to unpredictability but the industry as a whole should be wary of global trends.  Solar PV expert Paula Mints looked at a number of the developments for solar companies in the December edition of  SPV Market Research‘s Solar Flare.  Adapted for AltEnergyStocks.com, this series of articles is reprinted with permission.

Over 60% of global PV cell and module manu-facturing is either in China or owned by Chinese manufacturers. At ~30-GWp China’s market for PV deployment is over 44% of global demand.

A parable of what happened to module prices in 2016 is as follows: A company has one primary customer. This customer buys close to 50% of the company’s product. The customer cuts its demand for the company’s product suddenly also indicating that demand the following year will be 50% of its previous level. Suddenly demand for the company’s product has fallen by 50% with the promise of a further significant decrease in demand the following year. The company has several choices: A) sit on inventory, B) find new customers to absorb the excess production, C) sell the product at a sig-nificant discount and reduce capacity to serve the current level of demand or D) all of the above.

Late in 2016 China’s government moved to control demand and several gigawatts of product flooded into the market at historically low prices. Manufacturers outside of China and some Chinese manufacturers reduced staff. The rapid drop in price was, as usual, celebrated by some as an example of progress. The chart above offers average module prices (ASPs) from 2006 through 2016 as well as the low and high module prices during 2016.

What it means for solar: Prices have already ticked up slightly but full price recovery depends on another record year for solar PV deployment in China. Meanwhile other manufacturers face some tough decisions concerning pricing strategy for 2017. It’s a bad time to be a PV cell and module manufacturer.

Previous articles:

•  SunEdison, First Solar, and SolarCity
• Chinese Solar-Boom or Bubble?

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.

The post What Just Happened: Solar Module Prices Drop To New Lows appeared first on Alternative Energy Stocks.

2016 was a wild year and not just for solar and after decades of reliance on government incentives, subsidies and mandates the global solar industry may be inured to unpredictability but the industry as a whole should be wary of global trends.  Solar PV expert Paula Mints looked at a number of the developments for solar companies in the December edition of  SPV Market Research‘s Solar Flare.  Adapted for AltEnergyStocks.com, this series of articles is reprinted with permission.

China’s 2016 market for solar deployment soars to near 30-GWp: Solar PV deployment in China ballooned in 2016 to double the goals of its government and make no mistake, globally solar deployment in 2016 would be 15-GWp lower if developers in China had not continued installing systems.

China serves as a perfect example of how the solar industry has behaved for decades. Developers in China have not been paid the FiT regularly, curtailment is high and yet developers (while complaining of unprofitability) continued installing systems. This is, again, a perfect example of solar industry behavior for decades. It is illogical and trying to understand why an entire industry would continue to act against its own self-interest could make a logical person’s head explode.

Solar industry participants – globally – should pay close attention to China’s economy. Recently the country’s bond market popped, debt is high leaving banks and companies vulnerable and the country’s shadow (grey) banking is close to out-of-control.
What it means for solar: The solar industry once again finds itself vulnerable to one big market much as in the mid to late 2000s when Europe consumed over 80% of module product. The excess of activity in China could come to an abrupt halt leaving the in-dustry overcapacity and desperate for a new multi-gigawatt market.

It is not too late for the solar industry to change. Growth for unprofitable growth’s sake is not healthy. Some business is not worth doing.

Previous article: SunEdison, First Solar, and SolarCity

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.

The post What Just Happened: Chinese Solar-Boom or Bubble? appeared first on Alternative Energy Stocks.

by Paula Mints

When two companies with negative financials and high debt marry a good response to the nuptials is … Huh?

When Toto pulls back the curtain in the Wizard of Oz to reveal that the Wizard is just a normal man with no special powers the Wizard says: Pay no attention to the man behind the curtain.

In the case of the proposed stock acquisition of SolarCity by Tesla pulling the curtain would reveal two debt ridden companies with cash flow problems.

Just the Facts Please

The facts are: two companies with high debt and consistent net losses have joined their net losses and debt to enjoy the synergies offered by Tesla’s (TSLA) electric car and Powerwall Lithium Ion battery technologies with SolarCity’s (SCTY) residential/commercial lease business model and its Silevo crystalline cell technology.

Other facts include that SolarCity has experienced setbacks with its module assembly/cell manufacturing ramp up and optimistic announcements aside are likely far away from com-mercializing its technology.

Once SolarCity’s PV cell/module technology is commercial it will be competing in a market with significant downward price pressure. Also, given that China’s PV cell/module manufacturers are ramping capacity in countries that are not subject to import tariffs competition on price will get a lot more painful in the near future.

Also to be considered is that with demand for solar leases slowing SolarCity has announced that it will compete in the highly competitive utility scale space, a segment of the PV market that is highly capital intensive on a much bigger scale.

Finally (or, really not finally) the company’s reliance on debt renders it highly vulnerable.

Now to Tesla: facts include consistent net losses, high debt and a residential/commercial battery product that is not widely deployed and is quite expensive.

Both companies have liability/asset ratios over .50, which means that a higher proportion of each company’s assets are financed by debt.
So … just where is the synergy in combining two companies into a massive, debt-laden, clean technology powerhouse?
The proposed acquisition DOES make sense for SolarCity, which can be viewed as the weaker party. For Tesla, it only makes sense when thought of as a lifeline for SolarCity.

Table 1 (click for larger version) offers total revenues, net losses and the Liability/Asset ratio for SolarCity and Tesla from 2010 through 2015.

Tesla is not the only company to recently make interesting acquisition decisions. SunEdison, currently in bankruptcy, went on a buying spree with the goal of creating a massive clean technology powerhouse and now finds itself selling assets and seeking a busi-ness-savior-marriage of its own.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.

This article was originally published in the June  30 issue of  SolarFlare, a bimonthly executive report on the solar industry, and is republished with permission.

The post Tesla and SolarCity: When Acquisition Strategies Run Amok appeared first on Alternative Energy Stocks.

Shoppers who bring reusable bags to the grocery store buy more junk food.

This example is part of a growing body of behavioral psychology research showing that when we feel good about ourselves for doing one thing right, we give ourselves permission to be careless in other areas.

The solar installation industry seems to be falling into the “reusable shopping bag” trap. Solar itself is the reusable shopping bag. The junk food is net metering.

Net metering is a simple, intuitive way to pay for solar generation at retail rates. But it puts solar companies on a collision course with regulators trying to protect non-solar customers from cost-shifting. Solutions to this conflict exist and have the potential to unlock an even brighter future for the solar industry.  

Net metering pays owners of distributed solar for their excess power generation at the same price they would pay for power from the grid. When solar is a small fraction of the generation on the grid, this is a great deal for utilities and other ratepayers: solar generation occurs during the day, when electricity demand is typically higher and wholesale prices are also high. This is crucial on hot summer days when air conditioners drive up peak loads.

Net metering becomes less attractive for utilities as solar penetration increases. Hawaii and California are seeing this already.

Because electricity transmission is hard to build and storage is expensive relative to electricity generation, supply must be locally and instantaneously matched with demand. When lots of generation comes from variable, price-insensitive resources like solar, the grid suffers from too much of a good thing. In the middle of the day, solar production starts to meet and eventually surpasses daytime peak demand, and the value of electricity falls. Low prices during the day mean that more flexible forms of generation need to make profits when solar production is low, increasing prices and the value of electricity at night and on cloudy days.

This process puts utilities and regulators in a bind. The conflict can hurt both sides of the utility-customer relationship.

The Nevada Public Utilities Commission’s decision to end net metering for both old and existing customers may seem like a victory for the utility, but it is a Pyrrhic victory at best. 

When only a small fraction of the electricity on the grid comes from solar (low penetration) in any part of the grid, net metering is a subsidy to the utility, not the net-metered customer. But rather than replacing net metering with something that would encourage distributed solar where it would be most useful, Nevada has driven solar installers from the state. 

The decision did the greatest damage to solar customers who had the rules changed on them retroactively, and many of them will now never recover their solar investments. It also hurt other ratepayers who might have wanted to go solar in the future, and robbed all ratepayers of the benefits of any such installations to the grid. They are also robbing the planet of an opportunity to cost-effectively reduce carbon emissions.

The retroactive removal of net metering is also increasing uncertainty among large-scale energy developers, who reasonably wonder if something similar could happen to them.

How the conflict over net metering can be an opportunity

Must solar companies’ gain be a utility loss? Hardly. The key is to learn from the principles of stakeholder capitalism and turn the seeming tradeoff into an opportunity.

Speaking at the 2016 Conscious Investors Summit, R. Edward Freeman, the academic director at the Institute for Business in Society of the Darden School and the University of Virginia, made the point that tradeoffs are a managerial failure.

Freeman explains that when you treat employees and managers like jackasses, with carrots and sticks, they start acting like jackasses. When you treat them like human beings who crave a sense of purpose, they work with passion and deliver creative solutions to seemingly intractable problems. 

The solar/utility conflict is far from intractable, but for now, both sides are acting like jackasses. Utilities deride net metering as a subsidy from customers who can’t install solar to those who can, while the Solar Energy Industries Association publishes principles stating that customers should always have net metering as an option.

Both sides should stop acting like jackasses and seize the opportunity instead to focus on the tradeoff.  

A solution already exists. This is the value-of-solar tariff, where solar customers are paid for the value of the electricity they produce at the specific time and place they put it on the grid.

Under a value-of-solar tariff, non-solar customers cannot subsidize solar customers (a common utility claim about net metering). By definition, under a value-of-solar tariff, solar customers are paid only for the value they bring to the grid. They won’t be subsidized by other ratepayers simply because they are only paid for the value they create.

Untapped potential

Not only can a value-of-solar tariff resolve the conflict between solar and non-solar customers, but it can also unlock opportunities for solar which are currently being squandered under net metering. 

Under net metering, the incentive is to install solar so that it produces the maximum possible amount of electricity. This means pointing the panels south, at latitude tilt. Under a value-of-solar tariff, the incentive is to produce as much value for the grid as possible, which often means pointing panels west or southwest, in order to help service peak air-conditioning loads on hot days, which usually occur in the afternoon. Such decisions depend on both the local climate and on the local loads on the grid.

They also depend on getting the value of solar right. This is where we need creativity from all parties working together.

The paradox of doing good

Few people expect much creativity from utilities although there are notable exceptions, especially when it is the regulator driving change.

The solar industry is another matter. Almost all solar companies portray themselves as working for the good of the planet, and most of those genuinely believe that is what they are doing.

That’s where the reusable bags conundrum comes in. The mental accounting that allows a shopper to offset junk food indulgence with shopping bag virtue also seems to be affecting the solar industry as a whole.

If the solar industry were a person, it would be thinking: “I’m doing something great for the planet, so I don’t need to worry about all the non-solar ratepayers my actions might hurt. As long as the greater good is being served, it’s not my problem.”

It’s a pity that solar companies, which are doing so much good for the planet by displacing fossil fuels, are falling into the same trap as shoppers who displace plastic bags with reusable, but then poison themselves with junk food.

More solar companies need to stop substituting doing good for being good, and start living up to their true ideals. Solar has the potential to help all users of electricity, not just those who can install it themselves. A value-of-solar tariff can unlock that potential, as long as we have the creativity and courage to take everyone’s interests into account.

Getting a value-of-solar tariff right will be tricky, but creativity in the pursuit of a greater good is precisely what stakeholder companies excel at.

If all parties work toward a well-calibrated tariff, everyone will have the incentives they need to get the most out of future solar installations. Solar companies will get more business deploying solar where it does the most good. Regulators will see that all ratepayers are treated fairly. Utilities will find that new solar is connected to the grid where it makes it easier, not harder, to balance supply and demand.

Some people will still want to install solar even where the new supply is difficult to integrate, but a value-of-solar tariff will give them the incentive to install it with electronics and storage that makes the new supply easier to manage, or the price will be low enough that it will make sense for the utility to make the changes needed to handle it.

This kind of dynamic tariff is also likely to catalyze demand management, energy storage, and other industries we have not even thought of all of which will add jobs, create value, and help unlock the potential of solar.

Perhaps the solar industry and utilities can both have their cake and eat it together.

The post Net Metering Is the Solar Industry’s Junk Food appeared first on Alternative Energy Stocks.

by Paula Mints

Net metering and interconnection are rights afforded distributed generation (DG) residential and commercial solar system owners through the U.S. Energy Policy Act of 2005. The act required publically owned utilities to offer net metering and left the various policies up to the states to enact.

In 2004, before that energy policy was enacted, 39 states had net metering and interconnection standards and policies. At the beginning of 2016, 43 U.S. states and three territories had net metering policies, and four states had policies similar to net metering that the Database of State Incentives for Renewables & Efficiency refers to as “statewide distributed generation compensation rules other than net metering.”

In the U.S., the availability of net metering was a key driver in the adoption of residential and small commercial solar. Net metering allows DG system owners (or lessees) to receive a credit for the electricity their solar systems generate. In the early days of net metering the electricity generated by the owner’s solar system was purchased monthly by the utility with, typically, the excess credited and rolled over to the following period or granted to the utility at the end of the year. Utilities paid for the net excess or credited the electricity generated by net metered solar systems at avoided cost, a market average or in some cases, at the retail rate.

The concept of avoided cost is essentially a comparison point used by utilities (in this context) to arrive at reference price point for buying electricity from another source. The Public Utility Regulatory Policies Act of 1978, affectionately known as PURPA, defined avoided cost in general as the cost of generating power from another source. In 2005, the Energy Policy Act amended PURPA and, as previously noted, obligated publically owned utilities to offer net metering. In terms of DG residential and commercial solar, avoided cost comes into play in terms of how utilities pay for a system’s net excess electricity. Not only is there no standard for the state-by-state definition of avoided cost in the context of net metering, there is no standard as to how net excess electricity will be compensated.

Some states use a definition of avoided cost based on short run marginal cost diminishing marginal returns and some states use a definition based on long run marginal cost returns to scale. Basically, avoided cost is a reference point derived by some means to set a price for power. In the case of DG residential and commercial solar the method by which avoided cost is calculated is very important it is also important in setting power purchace agreement rates.

In the early days of net metering, it was not typical for customers to be paid for the net excess generated by their solar systems at retail rates or favorable market rates. In many cases, utilities owned the net excess electricity generated by net metered systems while the owners of these systems had no right to the excess electricity. In the early days of net metering customers were solely looking to save money the potential of making money at the DG system level is fairly recent.

Net Metering in the Spotlight

From 2005 through 2015, the residential application in the U.S. grew at a compound annual rate of 53 percent. Though net metering is only one driver of this growth, it certainly makes the economic case for the homeowners, particularly when net excess electricity is credited at retail rates. Figure 1 offers residential solar growth in the U.S. from 2005 through 2015.

Figure 1: US Residential Application Growth, 2005-2015

Utilities did not expect solar industry growth to accelerate so significantly, and there is no doubt that they see this growth in terms of revenue decay.

Currently, and it must be stressed that there is no clear trend in terms of outcomes, the following changes to net metering are being sought on a case by case basis:

• Additional or increased fees for net metered systems: Depending on the fee, this change can dissuade potential buyers/lessees, and high fees can upend the economic benefit for buyers/lessees
• A switch to time-of-use rates: Higher prices for electricity during peak times and lower payment for net excess during off peak times can upend the economic benefit for buyers/lessees
• Lowering the reimbursement for net excess to avoided cost: Danger of undervaluing net excess and upending the economic benefit for buyers/lessees
• Changing the rules for reimbursement for net excess: A blast from the past that could (in the worst case) result in the net excess being granted to the utility
• Making all of the above retroactive: So many dangers, so little time to list them

The utility argument for altering how net excess is compensated and for adding additional fees is economic. Utilities argue that ratepayers with solar systems (leased or owned) are renting less electricity from the utility and thus not paying their fair share for overall maintenance. The argument continues that the costs are unfairly shifted to ratepayers without solar systems on their roofs.

Establishing a fair fee for solar customers over and above the base fee all ratepayers pay is not simple. The addition of fees for solar customers should not be overly punitive or appear as a referendum against DG solar. After all, ratepayers without solar systems benefit from the clean energy generated by ratepayers with solar systems. Also, the electricity future likely includes more self-consumption and more microgrids as well as a new operating and revenue model for utilities. Fighting this change is futile.

The argument over who owns the net excess electricity generated by a DG solar system is simple. The electricity is fed into a common grid, all electricity customers use it and the generator of the electricity owns the net excess and deserves to be paid a market rate for it.

At the core of the utility’s argument, and often unmentioned, is a reduction in its revenues.

A Comparative Trip Down Memory Lane

Four states have been front-and-center currently in the net metering landscape: Arizona, California, Hawaii and Nevada. These states offer examples of the way things could play out as the net metering argument spreads from state to state. Reference years provided as examples are 2006, 2009, 2013 and 2016.

Arizona, Abandon all Hope Ye in APS Territory

In 2006, Salt River Project (SRP) purchased net excess at an average monthly market price minus a price adjustment, while Arizona Public Service (APS) and Tucson Electric Power (TEP) credited net excess at retail rate and granted the electricity to the utility at the end of the calendar year. There were no specific fees for solar system owners/lessees.

In 2016 things are very different; the state net metering policy credits net excess at retail rate with net excess paid at avoided cost. APS ratepayers, whether they leased or bought their systems, pay a $0.70/kWp monthly charge. For many, the changes in net excess compensation along with the additional fees for ratepayers in APS territory could swing the economic argument away from leasing or owning a solar system.

Table 1: Arizona Net Metering Overview, 2006, 2009, 2013 and 2016

California: Walking the Fine Line of Compromise

California’s solar system owners came
through a recent high profile fight over net metering relatively unscathed, though the result is not perfect. The net metering landscape has changed from no fees to a one-time interconnection fee and non-by-passable monthly charges for all electricity consumed from the grid. Though the charges are relatively modest, system owners beware; charges always go up and almost never go away. Ratepayers with solar systems will also be forced into time-of-use billing and will be credited or paid for net excess at the rate equal to the 12-month spot market price. To this last, spot market prices are not always favorable and in an oversupply situation can be downright penurious.

Table 2: California Net Metering Overview, 2006, 2009, 2013 and 2016

Hawaii: Not an Island Paradise for Solar

In October 2015, for all those applying for interconnection/net metering after Oct. 12, 2015, the Hawaii Public Utilities Commission voted to end net metering, offing instead three options: grid-supply, self-supply and time-of-use tariff. This decision effectively put the brakes on Hawaii’s strong market for DG residential and small commercial solar.

Table 3: Hawaii Net Metering Overview, 2006, 2009, 2013 and 2016

Nevada: Et tu, Brute?

Nevada’s recent net metering decision slammed the door shut on the state’s DG solar installation industry, outraged current solar customers and set a precedent that if not overturned by legislation or lawsuit will be considered in states across the country. Specifically, by making the new rules essentially retroactive the decision of Nevada’s Public Utilities Commission (PUC) could cause potential DG solar system owners/lessees to think once, twice and maybe delay adoption.

Nevada’s PUC increased the monthly fee paid by net metered solar customers from $12.75 to $17.90 and will credit net excess at avoided cost. Existing solar customers will be phased into the new rates in three years for the monthly fees and over 12 years for the lower net excess rates.

Table 4: Nevada Net Metering Overview, 2006, 2009, 2013 and 2016

The Trend is That the Fight is On As Usual

Net metering serves the market function of setting a price for kWhs of electricity. A DG solar system (homeowner or small business) generates electricity and the owner/lessee of the system sells the electricity that it does not need (the net excess) to the utility. The electricity that is generated is used by all ratepayers. The value proposition is clear. Reasonably the sellers want to profit from the electricity they sell or at least receive a credit on their electricity bill that fairly values their net excess generation.

Unreasonably, utilities would prefer not to pay a fair market price for the net excess.

Changes to net metering programs are being considered all across the U.S., and there will be wins, losses and new fees. Trends to be very concerned about include the switch back to crediting net excess at avoided cost instead of at retail rates and to higher fees for net metered solar customers. The most disastrous potential trend is to make changes to net metering retroactive thus encouraging potential customers to reconsider. This last trend must be fought vigorously. The U.S. solar industry is up to the fight.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here.
This article was originally published on RenewableEnergyWorld.com, and is republished with permission.

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By Jeff Siegel

Last Thursday at around 11:00 p.m., the world changed.

I don’t mean to sound so dramatic, but there’s no other way to put it.

You see, that night, Tesla Motors (NASDAQ: TSLA)) CEO and super-genius Elon Musk unveiled something so monumentally game-changing, it’s almost hard to put into words without sounding like a lunatic. But I’m going to try anyway…

Out of the Starting Gate

When I first started covering the renewable energy space in 2005, it was like pulling teeth to get investors to pay attention. After all, the renewable energy industry had a long history of great ideas but poor execution.

However, in the early 2000s, the once-niche industry that had long been suitable only to overzealous tree-huggers and wealthy eccentrics had finally inched out of the starting gate. And I wasted no time in capitalizing on the clean energy boom I knew was coming.

Over the years, we did quite well. In fact, after the effects of the recession subsided, the renewable energy industry has enjoyed some pretty impressive and consistent growth. And today, things like solar, wind, and electric cars have really become ubiquitous.

That being said, there’s always been a hurdle for renewable energy technologies…

No matter how rapidly the technology develops and the costs of integration fall, when the sun doesn’t shine and the wind doesn’t blow, solar and wind are of little use.

Of course, there have also been plenty of arguments to support the idea of an energy economy heavily weighted in renewables, where only a small percentage of fossil fuel generation would be necessary. By utilizing intelligent energy systems, smart grids, and all kinds of wonderful technologies, this is doable.

But there’s an easier way.

Energy Independence

Energy independence is a dream for many but a reality for just a few.

The truth is, energy independence has long been little more than theory because of the high costs of achieving such a thing at least in the face of a heavily subsidized, centralized energy system that seems to reward complacency while penalizing innovation.

But thanks to Elon Musk, that’s about to change.

Last week, Musk introduced Tesla’s  latest game-changer: the Powerwall.

Tesla’s Powerwall is a home battery that can be charged using electricity generated from solar panels on your roof. At night, after the sun goes down, you can use this battery to power your home. Or, if some of your electricity still comes from the grid, you can simply use it as a backup system against power outages.

Basically, what we’re talking about here is the fact that most of us now have the opportunity to turn our homes into small power plants and fueling stations. That’s right, fueling stations, too because if you own an electric car, you’ll now be able to fuel your car with domestically generated electrons in your own home.

This is not a lofty goal  this is reality.

Of course, with Musk allowing this technology to be open-sourced, Tesla won’t be the only game in town. And the way Musk sees it, this is a good thing, as it’ll spark competition and enable a faster transition of our energy economy.

A New Energy Economy

One company that’s actually looking to offer its own similar battery system is Sungevity.

Sungevity is one of the biggest solar financing and installation companies in the U.S. Not quite as big as SolarCity (NASDAQ: SCTY), but still a major player.

Last month, we learned that Sungevity had teamed up with German battery manufacturer Sonnenbatterie to supply storage systems to homeowners, too. However, the initial pricing we see on this is around $10,000, and these systems will mostly be marketed in Europe.

Of course, moving beyond Tesla (and SolarCity, which is run by Elon Musk’s cousin and of which Musk is chairman), this will provide yet one more boost for the solar industry in general.

One of the reasons some folks have held back on going solar is because of the concern over solar being an intermittent power source. But with a competitively priced, reliable battery backup, this is no longer a concern. Every major solar manufacturer on the planet will benefit from this development.

Now, the rollout of these new batteries won’t happen for another three or four months. And that rollout will be relatively slow until 2017, when more batteries will be pumped out of Tesla’s new Gigafactory which, by the way, will enjoy production levels in 2020 that will exceed all of 2013’s global production.

Click Image to Enlarge

As I’ve been preaching for years, we are at the dawn of a massive transition of our energy economy.

Going forward, it will be supported by new energy technologies that will be much more efficient and reliable than what we rely on today. As well, these technologies will allow us to enjoy all the conveniences and comforts we enjoy today  but do so without fouling up the planet. Not a bad deal!

To a new way of life and a new generation of wealth…

Jeff Siegel is Editor of Energy and Capital, where this article was first published.

The post Tesla Just Killed Your Power Company appeared first on Alternative Energy Stocks.

by Colin Murchie

Seeking Solars’ Emilio Estevez

It is no secret that costs of capital must decrease to make distributed generation a massively scaling resource. And, as costs of capital steadily decrease, the “residual value” – what happens to the asset once the PPA has run out – becomes more and more important. With that in mind, it no longer seems reasonable to fill the years after the PPA’s expiration – with a row of zeros on the pro forma. There is residual value there that is often ignored.

Customers and investors often assume a negative residual value – that the panels will need to be removed at end of term at some significant net cost. In fact, there’s been a recent trend in public RFPs in particular to require a reserve or bond for same. The effect of these requirements is to raise the cost of solar to the customer – they’re buying pricey insurance against the exceedingly unlikely event that the panels will need to be removed.

Clearly, there is not agreement on the ability to monetize an out of term or defaulted asset. It’s in this kind of situation that our thoughts must inevitably turn to Emilio Estevez.

How Emilio Estevez Relates to Solar

In the 1984 classic Repo Man*, Emilio’s character, Otto, works as – we’ll call him a facilitator to lower costs of capital in the secured asset finance market – and “stumbles into a world of wackiness as a result.” Emilio’s work represents something critically missing from the solar industry as a whole – a robust, standard, and low-friction set of secondary industries that permit off-contract or out-of-contract assets to be monetized.

So how do we capture this real value? There’s a few means of approaching it, of radically different levels of sophistication. To illustrate this point, let’s look at an end-of-term 1MW system today and see what cash they’d generate to the hopeful PPA provider (or creditor) in three different scenarios below, presuming an active Emilio working on behalf of the hopeful investor or developer:.

Scenario One: The Renewal – $130,000 / MW / yr

In the first and most simple scenario, the developer may leave the system in place and encourage the customer to renew or extend their PPA contract at the then-prevailing PPA price. Most PPAs explicitly contemplate this one way or another. In fact, Job #1 of SolarCity’s (SCTY) investor relations team is probably convincing the public that their 50,000+ PPA customers will extend or renew their contracts in an exchange for just a 10% discount of their then-applicable contract rate. Presuming a system in the Maryland area might enjoy a 10 – 20% discount to retail rates – from say $.13/kWh to $.10/kWh – a 1MW system so renewed could add $130,000 in annual revenue.

To be clear, the level of assumption in this number makes it much more debatable than the others; it’s more of an equity valuation assumption than a valid underwriting one. Customers at end of term will have some amount of leverage – roughly, the amount of space between the discounted cash flow in the fully loaded “Repo” model and whatever Emilio charges the developer. (This probably contributes to the significant spread between Solar City’s market price and its analyst valuation targets.)

Scenario Two: The Repo- $40,000 / MW / yr

In our second scenario, at the end of the contract term, a customer stops paying their PPA contract, and Emilio comes by to repossess the system, and then plant the modules on the cheap land next to the junkyard and tow lot, selling the resulting electricity is sold at a wholesale price. Solar panels are not perishable items (as a sort of party trick, John Perlin will happily produce from his briefcase and produce a 40+ year old and entirely functional mini-module). Even though a 20-year old panel will have significantly degraded performance, its value is much higher than zero.

Imagine a boneyard of more – or – less matched panels, placed on string inverters and some sort of highly undesirable land. On an 8,760 hour adjusted basis, a brand new 1MW system airdropped into the PJM market would earn something like $56,250 / year in pure wholesale revenue; an end of life system panel operating at perhaps 80% of initial output should still garner north of $40,000– more than $50,000 if PJM doesn’t make its proposed disastrous modifications to the wholesale market. That’s revenue that could be reliably expected to increase in future (and while the ITC would be long gone, the new owner would be able to restart depreciation on their purchase price).

Of course, someone would still need to erect racking and string inverters, plant hedges around the motley array, handle wholesale market scheduling, feed the Doberman, etc. But these are (mostly) fixed startup costs associated with the single facility; the marginal MW still makes a great deal of sense.

In sum, solar still has the potential to generate significant value, even if the modules are removed from the roof after the expiration of the PPA.

Scenario 3: Scrap Cars Hauled for Free? One-time payment of ~$30 – 50,000 / MW

Even if Emilio decides to just take the modules to the scrapyard after removing them from a customer’s roof at the end of the contract, even the scrap steel in a typical ground mount array (roughly 275,000 lb / MW**) would fetch $30 – $50,000 / MW in today’s market. This is enough to pay for three month’s work by four construction laborers, some 15 x 30 yard dumpsters for the (nonhazardous) panels, and a fair amount of grass seed. Customers anxious about removal or restoration of the system should just preserve the right to an abandoned system; escrowing funds for what should be a positive-cash flow removal just increases end user PPAs to insure against an unrealistic risk.

Why You Should Pay Attention to the Residual Value of Solar

Solar is still in the early days of project finance; while some of its supporting and secondary industries are robust and well established, others do not yet exist. But, it is still possible and desirable to make end of life assumptions that are empirical, conservative, defensible, and which make a real impact on project economics – and another horizon of opportunity for solar support businesses.

As the weighted age of end of term assets increases, the opportunity to build a business in the space becomes more concrete. (Consider – some of SunEdison’s first PPAs have already hit their first customer buyout eligibility dates.)

*We will not for the purposes of this metaphor be discussing the inferior 2010 Jude Law vehicle.

** Approximately 2,500 lb. of steel including piles to support a 5 x 6 module array of ~ 7.5 kW; 133 such subassemblies in 1 MW, at conservatively just <$.12 / lb scrap prices for SAE 3xx stainless steel as of April 2015 would be $40,000; purlins and other components would be seperateable, higher quality stainless components – thanks to MJ Shiao of Greentech Media for
some thinking here.

ABOUT THE AUTHOR

Colin Murchie is Director of Project Finance at Sol Systems, a solar energy finance and investment firm. The company has facilitated financing for 180MW of distributed generation solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services range from tax structured investments and project acquisition, to debt financing and SREC portfolio management.

The post Making Residual Value Real: Where is Solar’s Emilio Estevez? appeared first on Alternative Energy Stocks.

By Jeff Siegel

Good news for solar investors …

Another solar financing/installation company is about to go public. And if history serves as any indicator, this could be yet another opportunity to land some pretty solid gains.

As reported in the Wall Street Journal, Sunrun, Inc. is set work with banks including Credit Suisse Group AG and Goldman Sachs Group Inc. on an IPO.

No final price has be set at this time, but currently the company is valued at more than $1.3 billion, which puts it roughly in the same box with Vivint Solar (NYSE: VSLR). The fastest horse in this race right now is SolarCity (NASDAQ: SCTY), which is valued at just under $5 billion.

SolarCity was certainly a great opportunity for investors back in 2012, when the company first went public. At it’s highest, the stock had climbed more than 700% since debuting. Check it out …

SolarCity is currently taking on a very aggressive growth strategy, and with this growth has come growing pains which have resulted in a sizable sell-off since last September. Still, overall I like SolarCity and believe it’s a force that will continue to eat up market share. But for investors, 2015 is going to be a bumpy ride.

Now Vivint Solar has only been public for about six months. After the initial enthusiasm of its debut, the stock fell a bit and found support around the $8.00 level. However, since the start of the year, the stock is up about 40%.

Vivint Solar is also a force and should not be taken lightly.

Of course, Sunrun is no slouch either. Solar installation and financing companies aren’t typically valued at more than $1 billion. The company has been in the game since 2007, has more than 60,000 customers, and is in the right business, as residential solar installation is expected to grow by 50% this year.

I will be curious to see how they price this thing, though. With so many investors so incredibly giddy over solar again, I won’t be surprised if Sunrun gets a rather large price tag attached to it. In which case, I’ll happily wait for the sell-off and scoop up a few shares after the smoke has cleared.

Jeff Siegel is Editor of Energy and Capital, where this article was first published.

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By Tim Conneally

From a huge crop of Israeli cleantech companies, solar power optimization and management startup SolarEdge has filed for a $125 million initial public offering on the NASDAQ exchange.

SolarEdge has been talking about IPO since 2011, but opted instead to work with venture capital through three separate funding rounds. By the time it completed its Series D, SolarEdge had raised a total of $37 million from more than ten venture capital groups.

The company’s CFO recently told Bloomberg that it was difficult to grow such a large company with only private money. An IPO was a given, it was just a question of when it would happen.

Yesterday, the Securities and Exchange Commission published SolarEdge’s S-1 filing that revealed the nuts and bolts of this offering.

What SolarEdge offers

A major problem for solar panels is how easily their output can be lessened. When even a portion of a solar panel loses its direct sunlight, the energy output is compromised. SolarEdge claimed to maximize efficiency of panels to mitigate the effects of things like partial solar shading.

By correcting inefficiencies in DC to AC conversion, SolarEdge claimed to be able to boost energy output by as much as 30 percent.

The value of the company is in its patented power inversion technique. It’s an upgrade to the dominant method of harvesting solar power. In short, the system uses a distributed architecture of power optimizers. The SolarEdge system hooks up each photovoltaic (PV) module in the array with its own low-cost optimizer. The whole network of optimizers is monitored and managed by a cloud-based interface.

In the company’s SEC filing, it describes itself in the following way:

“Our system enables each PV module to operate at its own maximum power point (“MPP”), rather than a system-wide average, enabling dynamic response to real-world conditions, such as atmospheric conditions, PV module aging, soiling and shading and offering improved energy yield relative to traditional inverter systems…Our architecture allows for complex rooftop system designs and enhanced safety and reliability.”

SolarEdge is a B2B company. It sells this solution to solar providers of various sizes in 45 different countries so far. It works with big installers like SolarCity (NASDAQ: SCTY) Vivint Solar (NASDAQ: VSLR) and SunRun and claims to have shipped more than 4.5 million power optimization units and 201,000 inverters since its founding in 2006. Approximately 95,000 installations are hooked up to its cloud monitoring platform.

In 2013, the company’s revenue was $79 million. In 2014, revenue grew to $133.2 million. The comany’s revenue for the first six months of fiscal 2015 have been double that of the previous year. After a history of losses and negative cash flow from operating expenses, the company is posting a net gain for the first six months of this fiscal year. The first six months of fiscal 2014 resulted in a $13.1 million net loss. So far this year, it’s tracked a $5.9 million gain.

But that’s an extremely limited run. The company’s ability to generate a profit seems to be the biggest question, and it’s marked as the number one risk factor in the SEC prospectus. Sure, they market their ability to optimize solar panels for output, but can they optimize their operating costs so they can turn a consistent profit?

SolarEdge will trade under the symbol (NASDAQ: SEDG), and it will not yield cash dividends at any point in the forseeable future.

Tim Conneally is an analyst at Energy and Capital, where this article was first published.

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