Solar City Corp. (SCTY) – Buy or Sell Deep Dive Analysis and Review of IPO

8 Oct, 2012 by Sneha Shah

Solar Energy,USA,World Economy and Markets

Solar Stocks have performed terribly in the past couple of years and have been a very painful experience for long term solar investors. The bad performance has not been restricted to the solar industry but also to other green sectors like wind energy, biofuels, energy storage etc. Only Energy Efficiency has performed relatively better thanks to acquisitions by big industrial and electrical conglomerates looking to expand their offerings.

Solar City Corp is a major US solar installer/integrator that is offering around $200 million of shares to the public for an estimated 13% stake in the company valuing the solar system integrator for around $1.5 billion.

Solar City Business Model

Solar City is the business of installing solar systems for residential and commercial customers either outright or through leases in partnership with financial and other companies (Citi, Google, U.S. Bancorp). The company has diversified into providing energy audits and retrofits as well.

The company’s investors include Draper Fisher Jurvetson, DBL Investors, and Generation Investment Management. Tesla Motors’ CEO Elon Musk also is an investor and is SolarCity’s board chairman.

Solar City Pros

1) One of the largest solar installers in the US with presence in 14 states and a topline growth of 84% in 2011.

2) Solar integration is a growth industry with falling solar system prices making solar energy increasingly affordable to a greater size of the population.

3) Elon Musk is a major figure in the Green Industry being the CEO of Tesla Motors which is the only successful independent Electric Vehicle company in the industry currently.

4) Company benefits from solar panel prices selling for below cost as it is in the business of installing solar systems and not manufacturing them.

Solar City Cons

a) The company has made losses for the last 5 years.

b) Other listed US solar system installers like Real Goods Solar and Akeena Solar have proven to be terrible investments.

c) Solar Installer Industry has low barriers of entry and very low margins.

d) Valuation does not look cheap for the company considering that the largest solar panel manufacturer can be bought for less than $200 million. First Solar which is not only one of the biggest solar panel manufacturer but also a bigger solar developer and installer has a market cap of less than $2 billion and is much more profitable.

e) Its not a great business to be in. Some of the top German solar installers like Conergy and Phoenix have lost huge amounts of money as the solar shakeout has affected them badly as well.These companies lost money on falling prices of solar panels inventory and diversifying into solar panel production.

Solar City Buy or Sell

Given the above facts, it makes no sense to buy Solar City at the above valuation and considering the hugely competitive nature of the solar installer industry. It is very hard to make money in green investing and Solar City does not possess any competitive advantage that would justify buying it at the price that is being talked about. 5 years of annual losses does not augur well despite a growing topline. The business of installing solar panels systems is a low margin business.

Solar City Competitor Analysis

Here are a list of Top US Installers/System Integrators. Note the list will keep expanding in the coming years as the size of the US Solar Energy Market Grows.

The Large Vertically Integrated Solar Panel Installers

1) SunEdison/MEMC – US Polysilicon and Wafer Producer MEMC bought SunEdison which was one of the largest solar installers in 2008. Now MEMC is strongly expanding the system installation business not only in the US but other parts of the world like India, Europe, Korea, Canada and other places. The company recently installed one of the biggest solar plants in the world in Rovigo, Italy.

2) Sunpower – Sunpower is a vertically integrated solar energy company known more for its highest efficiency solar panels. The company bought Powerlight a few years ago to enter the solar systems market and has bolstered the business constantly to become a major global installer. Sunpower is present in all 3 segments of the solar system business namely a) residential, b) commercial and c) utility. It is one of the largest US installers and has recently won a number of large utility contracts for building solar farms.

3) First Solar – First Solar is the largest producer of solar panels in the world using its proprietary thin film technology. The company is also one of the biggest utility solar system developer in the world focusing mainly on the North American Market.The company has built and sold the world’s largest solar farms in Sarnia, Ontario.The company has beefed up its solar installation business by buying project development teams and pipelines from Ausra, OptiSolar Turner etc.

4) Sharp/Recurrent Energy – Sharp recently bought Recurrent Energy one of the large independent solar power developers and system integrator in the US.Sharp already had a big presence in the California market where it is now facing increasing competition from the low cost Chinese players like Trina Solar, Yingli etc.

5) REC Solar – The Norwegian based Solar Company REC has started it solar system in the US a year or two ago and has managed to win some contracts. It is targeting all the 3 segments and is present in the major solar states of the US like New Jersey and Californa. It claims to be the largest residential solar installer in California with 17 MW of installations in 2010.

6) Solarworld – Another European company like REC,S olarworld is mainly targeting the utility and big commercial market recently winning a 11.6 MW order from LADWP. The company has a big manufacturing facility in Oregon and has aggressive expansion plans in the US as its domestic German market slows down.

7) Mitsui/Sunwize – Mitsui, the giant Japanese tradings house bought Sunwize in 2006 to enter the solar system market in the US. Note Mitsui is not a big solar panel producer like Sharp, Panasonic and others. The company sells mainly in Oregon and California and targets all the 3 segments of the market.

The Solar Financing/Leasing Companies

8 ) Sungevity – Sungevity is a California company targeting the residential market through a solar leasing plan. It extensively uses the Internet to design the system and has a JV with US Bank to provide financing to its customers.

9) SolarCity – SolarCity is a full-service solar provider for commercial and residential customers and does solar power system design, financing, installation and monitoring services from a single source.SolarCity is introduced a new solar lease option, called SolarLease. It also has other options like PPA .The company’s footprint extends to Arizona, California, Colorado, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Texas and Washington D.C.

10) SunRun – SunRun is one of the newer solar installation and solar financing companies that target the residential market mainly. The company is present mainly in the Western part of USA operating in 7 states Arizona, California, Colorado, Hawaii, Massachusetts, New Jersey, and Pennsylvania. The company uses a PPA model to sell solar systems and has partnered with a number of pure play solar installers.

The Solar EPC/Installation Companies

11) Akeena/Westinghouse Solar (WEST) – The first US Solar Installer to list on the US Stock Exchange,the company’s operations are based mainly in California. The company also sells solar system through retail outlets which was a first. The company also has a unique solar system which reduces solar installation costs called Mandalay.

12) Real Goods Solar (RSOL) – The second US Solar Installer to list on the Stock exchange, Real Goods Solar is present in California and Colorado and it targets the residential and commercial segments of the market.

13) Verengo Solar – The company also provides solar financing solutions and is present in the California market.

14) Borrego Solar – The company is similar to Verengo Solar but mainly concentrates on the commercial market. The company signed a deal with Chinese solar panel producer Yingli for procuring solar panels. The company is headquartered in California like most others.

Summary

The US Solar EPC Market has a good mix of large vertically integrated solar companies as well as independent solar installers. The leasing and PPA companies have added another dimension to the Solar System Market by making it easier for customer adoption of solar energy. There a a large number of solar system installers in the US and its tough to include most as most of them remain private companies.

More Reading

Solar City gets sued by Sunpower

Green Industry in Upheaval – Yet another Energy Storage Company goes Kaput

17 Jul, 2012 by Sneha Shah

Green Investing,Solar Energy

Bankrupt Green Energy Companies

These days the only thing you hear about in the Green Industry is Bankruptcy or companies on the verge of insolvency. The problem is not related to the only sector, but afflicts the entire Green Industry with companies across Solar Energy, Wind Power, Energy Storage, Biofuels going out of business. The reasons are common and the results are also the same. In fact most of the stories related to massive job losses and how the companies have lost hundreds and millions of public and private money, led to ultimate failure. While the A123 , the most well known energy storage company is staring at a liquidity drought and desperately trying to survive, another company Valance Technology operating in the same sector has filed for bankruptcy. Valence develops rechargeable batteries based on lithium ion and polymer technology, has suddenly declared bankruptcy unable to weather the severe industry downturn.

Another energy storage company Beacon Power which used an innovative flywheel technology to store electricity had gone bankrupt earlier in the year. In fact the famous green investor, Vinod Khosla had said that he did not expect A123 Technologies to survive. Given the current fundamentals of A123, it does not look like he will be wrong. Centrotherm which was the third largest solar equipment manufacturers has become insolvent as well this week, as massive solar panel glut has made solar equipment makers compete with their own products being sold at 1/10^th of the price.

Greenworldinvestor

Solar equipment companies are now feeling the heat as almost every company has stopped expanding capacity and there exists a large number of companies willing to sell almost new equipment for pennies to the dollar. Centrotherm which was the second largest seller of solar equipment with revenues of more than $800 million is facing a credit crunch. The company’s bank are refusing to renew credit lines or give it shipment finance. Hyundai had earlier bought solar cell equipment from Centrotherm as far back as 2008. Hyundai Solar Panel & Solar Cell factory, the largest South Korean manufacturer is a 600 MW unit.

WSJ

Valence Technology Inc. filed for voluntary Chapter 11 bankruptcy as the battery maker looks to boost liquidity and focus on its core business.

Valence develops rechargeable batteries based on lithium ion and polymer technology licensed from Telcordia Technologies. It also has research and development pacts with Delphi Automotive Systems, which holds the license to sell its batteries outside the U.S.

Valence, which had a market value of $110 million as of Wednesday’s close, has posted losses as it struggles to control costs.

Indian Freakonomics – Why the Textile and Furniture Industry has started using Fertilizers

10 Jul, 2012 by Sneha Shah

Indian Markets

India gives billions of dollars in misdirected subsidies to the fuel and fertilizer sectors which goes into the pockets of middlemen and profiteers. It is a known fact, that India’s fuel subsidies has engendered a huge mafia which makes billions of dollars each year. What is less known is that the fertilizer subsidy too, has grown its own pet corruption industry with subsidized urea being used by textile and plywood resin manufacturers. India gives a whopping 50-75% subsidy to urea which is used in agriculture as a fertilizer. However this huge discount on the actual cost has led to its leakage and bizarre usage in industry. Misdirected incentives and subsidies are the root cause of this wastage. The Indian Government instead of changing the structure of the delivery mechanism is trying to stop leakage through enforcement which has always failed. Instead of trying to focus the subsidy through targeted cash transfers, it continues to fuel wastage through ham handed broad subsidies. Note India’s fertilizer subsidy is distorted in other ways, with some types of fertilizers like urea getting subsidies, while others like DAP not getting the government largesse. This results in overuse of urea and under-use of DAP leading to soil degradation.

India’s Misguided Fossil Fuel Subsidy root cause of Mafia Growth

India’s Fossil Fuel Subsidies have led to a massive growth of the petrol and diesel mafia in the country. India gives subsidies on diesel, kerosene and cooking gas through its state owned petro/gas companies like BPCL, IOCL, HPCL etc. These subsidies have been given for a long time and have led to the growth of a parallel black economy in these products. They not only lead to capital misallocation but also to the massive illegal profits for a few. It is a well known fact that all petroleum pump owners adulterate petroleum (which power most of the cars) with subsidized diesel and kerosene. This massive racket earns millions of dollars (if not billions) for a network of company officials, pump owners, government bureaucrats and politicians. The mafia is so strong and powerful that it thinks nothing of burning alive a senior police official. The racketeers are so rich and well connected that despite common knowledge nothing gets done about it.

Irked by misuse of subsidy, the Centre has directed state governments to take firm steps to curb illegal diversion of fertilizers like urea to non-farm sectors. It is estimated that about 2 million tonnes of soil nutrients, especially urea, is being smuggled out for use by plywood resin manufacturers, textiles and other industries every year.

The official said, “We have received complaints of such incidents rampant in Gujarat, Maharashtra and Haryana. We have asked states to take serious action as central subsidy on fertilizers is being misused.” Urea, whose price is still controlled by the government, is selling at a subsidized rate of Rs 5,310 per tonne as against the production cost of Rs 13,000-23,000 per tonne.

Pros & Cons of Global Warming

11 May, 2012 by Abhishek Shah

Green Investing

Global Warming

The increase in the average temperature of Earth’s atmosphere and oceans is known as Global Warming. It is believed to have started in 1975–80. Because of increased human interference with the ecosystem, there is a rise in the emission of gases such as carbon dioxide, methane, and nitrous oxide. These Greenhouse gases causes the planet’s lower atmosphere and surface to get warmed by the absorption and emission of infrared radiation by gases in the atmosphere. It is a sustained increase in the temperature levels, great enough to cause changes in the global climate.

The United Nations has formed a group of scientists called the Intergovernmental Panel on Climate Change, or IPCC, which reviews the latest scientific findings and summarizes all the current facts about global warming.

Causes Of Global Warming

The main cause that can be attributed to increase this phenomenon is the rising levels of greenhouse gases produced by human activities such as deforestation and the burning of fossil fuels. About three-fourth of the increased CO₂ level has been caused by the burning of fuels, over the past 20 years. The rest of it is caused mostly by deforestation.

Human Activity – With the increasing population, there is a huge demand for food & shelter for human beings. Industrialization, deforestation, and pollution have greatly increased atmospheric concentrations of water vapor, carbon dioxide, methane, and nitrous oxide. People have resorted to clearing lands to build houses & also need land for food cultivation. This has resulted in mass Deforestation all around the globe. Due to clearing of land for human habitations their is a major loss of forests, which would have otherwise absorbed all the CO2 released thereby.

Humans also emit several greenhouse gases responsible for warming in a variety of ways. Most come from the Combustion of fossil fuels in cars, factories and electricity production. Carbon dioxide is the major gas responsible for the most of the warming. Other gases & their major sources are methane released from land & grazing animals, nitrous oxide from fertilizers, gases used for refrigeration and industrial processes. All these greenhouse gases trap heat near Earth’s surface.

Pros Of Global Warming

Global Warming is something that could not have been totally avoided. To keep in pace with the rising population, humans started cutting down trees to satisfy their needs – build homes & do food farming. Where would the masses seek shelter? Global Warming has resulted in the colder regions being more habitable & now there are more options for food cultivation. Arctic, Antarctic, Siberia, and other frozen regions of earth may experience more plant growth and milder climates. Since the temperatures in frozen zones will go down less consumption of energy will be required to warm them. The next ice age may be prevented from occurring.

Though , the process should be done in an efficient way that would cause minimum loss to the environment. Making changes to the way we farm could reduce the gases we emit to the atmosphere.

There are many possible ways to improve the energy and vehicle fuel efficiency, so that less energy has to be produced – like increasing the wind, solar power & other renewable sources, biofuels, natural gas, and nuclear power. Carbon Sequestration is a process to capture the carbon dioxide emitted from fossil fuels and store it underground.

Cons Of Global Warming

Having said that, the effects of Global Warming are very alarming & cannot be neglected at all. Global warming could lead to large-scale food and water shortages and have catastrophic effects on wildlife. We are almost at the edge & immediate attention of everyone is required. Many people and governments are already working hard to cut greenhouse gases, and every single effort will count. There should be mass awareness programs where people can be educated about Global warming, its effects & solutions.

Hottest Times – The rate of warming is increasing. In the recent decades average temperatures have climbed 1.4 degrees Fahrenheit around the world since 1880. 11 of the past 12 years are among the hottest in the last two decades.

Endangered Animal Species – Due to the disappearing habitat, changing ecosystems, and polluted oceans, more than a million species have faced extinction. Arctic ice is rapidly melting. Polar bears and other local plants & animal species are already suffering from the sea-ice loss. Average temperatures in Alaska, western Canada, and eastern Russia have risen at twice the global average. The beautiful Coral reefs are highly sensitive to even a little change in water temperature have suffered the worst & die off. Some butterflies, foxes, and alpine plants have moved farther north to more cooler areas.

Loss of Natural Beauty – Glaciers and mountain snows are rapidly melting. Arctic ice is rapidly disappearing. Ice is melting worldwide, especially at the Earth’s poles. This includes mountain glaciers, ice sheets covering West Antarctica and Greenland, and Arctic sea ice.

Natural Calamities – Some experts are of the opinion that due to extreme weather events disasters such as strong hurricanes, droughts, wildfires, heat waves, and strong tropical storms can also occur become common in many parts of the world.

Food Shortage – The growth of deserts may also cause food shortages in many places.

Sea level Rise – have become faster over the last century. Rises of just 4 inches could flood many South Seas islands and swamp large parts of Southeast Asia.

Loss of Habitat – Some hundred million people live within 1 meter of mean sea level, and much of the world’s population is concentrated in vulnerable coastal cities. In the U.S., Louisiana and Florida are especially at high risk.

Green Jobs in India to be driven by Real Estate and Construction Sector

11 Jan, 2012 by Sneha Shah

Real Estate and Construction

Green Jobs in India is going to grow at a high double digit rate driven by the Real Estate and Construction Industry. The hiring will be done by Real Estate Companies in India looking for Energy Efficiency and Green Building professionals. Note the Green Industry globally has had a torrid 2011 with most of the major sectors like wind, solar, biofuels and lighting facing oversupply amidst slowing demand due to global macro problems. However the Green Industry has a great future driven by secular drivers like

a) Global Warming

b) Energy Security

c) Peak Oil

Real Estate in India is facing a Bubble and in general I have a bad opinion about the real estate developers and promoters. But this is one reason to be positive about the real estate industry in India . Note Green Buildings have become important not only from the planet point of view but also economically given the rising energy costs. Also LEED certified buildings command a higher valuation and rentals which drives the real estate protomers towards green buildings.

Why Green Buildings are Needed

Buildings account for a huge percentage of Energy Consumption and Carbon Emissions.They also use a massive amount of Resources and are responsible for a majority of the Solid Waste.Here are some fact about Green Building from the EPA.

39 percent of total energy use
12 percent of the total water consumption
68 percent of total electricity consumption
38 percent of the carbon dioxide emissions

What are the 7 Elements of Green Buildings

Green Buildings are made up of 7 Elements which need to incorporated during the Design and Construction of Green Buildings.

Energy Efficiency and Renewable Energy
Water Efficiency
Environmentally Preferable Building Materials and Specifications
Waste Reduction
Toxics Reduction
Indoor Air Quality
Smart Growth and Sustainable Development

According to an estimate from Jones Lang LeSalle, a real estate consultancy, there will be a demand for around 1,000 energy and sustainability professionals. Primarily dominated by engineers and architects, this opportunity could also attract people from more diverse fields, as the market opens up. “With the introduction of the LEED Green Associate accreditations last year by the GB Certification Institute, more professionals from diverse backgrounds are keen to consider this career option,” he says. All one needs is an endorsement from a LEED-accredited professional and preparation to take an online exam facilitated by Prometric, an online testing solutions provider.

EU stops the Free Carbon Lunch – Airline Prices to Increase to factor in Carbon Emissions

3 Jan, 2012 by Sneha Shah

Climate Change,Europe

Airline Ticket Prices are set to go up as European Union implements its ETS Scheme on the Airline Industry from 2012.Note EU as a region has been one of the most active players in the climate change arena and has an active carbon emissions market.Though this market has encouraged fraud and profiteering by unscrupulous players making it a good target for the fossil fuel lobby,the principle to fight against global warming is a good one.Compare that to USA,Canada and Japan who have done nothing to fight climate change despite the wealth of these nations.Canada has been guilty of abandoning the Kyoto Plan after missing its previous target.It has faced no penalties as it is not legally enforceable.The country continues down the pollute as much as you can pushing oil extraction from tar sands which is much more dangerous to the environment than normal oil drilling.

Not only have other countries not done anything to curb emissions they have protested against EU as well for imposing carbon emission taxes on airlines.Note airlines are a big carbon emitter and this part can be easily be avoided through use of biofuels and carbon mitigation efforts.However everyone wants a free carbon lunch.In my view it is a great move and other polluting industries everywhere should be made to pay for the global common goods.The voracious use and exploitation of world resources has to stop sometime .

Gulf carriers say EU scheme may inflate fares: Report

Fast-growing Gulf airlines Emirates andEtihad Airways warned of higher ticket prices on Tuesday as they look to pass on costs of a European Union carbon trading scheme to passengers. Tim Clark, the president of Emirates, Dubai’s flag carrier and the world’s largest long-haul airline, told the Gulf News newspaper that the company would spend over 40 million euros ($51.93 million) in 2012 to purchase additional emission allowances. The EU says the new scheme, which already applies to other industries, is the fairest way to cope with aviation’s contribution to global warming.

However, it has sparked a trade spat, with the United States, China, India and others accusing it of infringing their sovereignty.

Note USA has completely given up its carbon emission plan as well despite high hopes with the election of Obama.Most firms and exchanges that were set up have closed down.EU carbon credit prices are touching new lows as the apathy towards global warming keep growing.It will only take a massive crisis to wake everyone.Lets hope its not too late.

Curtains Fall on only US Carbon Trading Chicago Climate Exchange on Republican Ascendancy

Chicago Climate Exchange the only USA Exchange to allow trading of Carbon Emission Credits has been shut down by its owner ICE.While I am no fan of Carbon Emissions Cap and Trade Policy as it gives rise to Frauds and Misplaced Incentives,the mechanism is one of the popular subsidy tools in combating Global Climate Change.Note Carbon Cap and Trading was on the Policy Agenda of the Obama Administration,however a deadlock in the Senate prevented any move in 2010.The US has been a huge laggard in the global warming fight and with the Republican Ascendancy following the MidTerm Polls,things are set to stay the same.Despite the BP Oil Spill and Record Global Temperatures,US remains blind to its climate obligations.With US reluctance,the Climate Change has been in Cold Storage with little progress expected in Cancun Meet.

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