SolarCity And Viviant Solar Stocks last Dance? Is there a Solar Lease and PPA Bubble?

Vivant Solar stock price has dropped like a stone since the offering. SolarCity is not doing much better these days.

Maybe the music has finally stopped.  A lot of people have been saying it for a while. I have .

 Does this sound familiar? Giving people something they can’t afford for free, and then packing it together and selling it to investment funds? Smells like 2007…. What happens if you decide to default on your Solarcity payment after 10 years, are they going to take down your panels from the roof, what will probably cost more than they are worth by then?

So here we have a 4.5 billion dollar company, making 56$ million in sales (112$ million this year if they reach the target), losing money every year, burning cash every quarter, with declining asset values and misstated financial statements. Not to mention intense competition, DOT investigations and technology, which will be probably much cheaper a few years from now. I wouldn’t pay a dime for such a business, and I’m going short if the price declines further.

Matus Kubala, CFA

Hedge fund manager and aggressive value/growth investor.

The solar lease and PPA offered by companies like SolarCity,Vivant and  Sungevity, SunRun among others have made solar affordable by eliminating these upfront costs. Consequently, the PPA/solar lease market has quickly risen to take the majority share of all residential installations. In fact the solar lease and PPA model has exploded. In the short span of 5 years. estimates are that leases and PPAs  now represent 75% of the market. The question is: are all these leasing companies that are springing up nd taking over the solar market the right model? Are they good for consumers, good for the solar industry and good for the planet, or are they gimmicky financial instruments built on the back of  government subsidies, a house of cards that is driving the solar industry toward a green bubble, akin to the mortgage bubble that hit the financial markets 5 years ago year ?

A solar lease is a type of equipment lease agreement which involves a monthly payment and a maintenance agreement. The leasing company, in exchange for the lease payments agrees to maintain the system for the length of the lease. A  PPA, or power purchase agreement is different in that homeowner is paying for the electricity generated by the system, not for the system itself. The pitch for both these programs is similar and attractive. No upfront costs. No maintenance concerns. Save money on your electric bill from day one with absolutely no out of pocket costs. The homeowner supposedly has to do nothing but sign a few documents, pay nothing, and if the system breaks down the leasing company has to fix it. There are performance guarantees written into all these agreements obligating the leasing company to ensure that the system produces a specified amount of electricity a month. Because of the financing company’s ability to write down dramatically the cost of these systems, they are able to offer consumers a means of reducing their electrical costs, allowing the use a sustainable clean form of energy.  The consumer, and the planet win.

The issue with the Lease and the PPA is that though they may be good for SolarCity and Vivant, in a lot of cases they do not save the consumer much  money.

LEASING IS NOT A GREAT  DEAL FOR THE HOMEOWNER.

In most cases it is much better for the homeowner to buy than to lease.  Over the longer term the homeowner is giving away all the incentives available for solar to the financing company and paying full price for the solar electric system. In New York State, which admittedly  has the best incentives in the country right now, if you were to buy an 8000 watt system. The costs and incentives would breakdown like this.

Cost $3.85/w -cost –                                                                            $30,800

Incentives

New York State rebate                                                                       -$7,200

New York State Tax Credit                                                            $ -$5,000

Federal Tax Credit                                                                                -$9,240

Net cost                                                                                                       $9,360

Total payments for 8000 watt system in a 20 year lease agreement. $34,035

The leasing company takes the incentives the tax credits depreciates the equipment and pockets the lions share of the electrical savings. The argument for these stocks is that they will be cash cows in years to come with hundreds of thousands of revenue streams. Solar panels being virtually maintenance free, once installed they will generate 20 years of revenue.

So excited was El0n about the ITC –  government incentives based on 30% of gross cost that he jacked up the price on all his leases in order to claim even bigger tax credits from the federal government.

4-large-treasury-dept-fingers-solarcity-in-exploration-of-the-dark-underbelly-of-solar-leasing

 

 

 

 

 

 

http://www.renewableenergyworld.com/rea/news/article/2012/10/treasury-dept-fingers-solarcity-in-exploration-of-the-dark-underbelly-of-solar-leasing

The question that arises is whether consumers will recognized when they are being fleeced as well.  will they recognize that financing programs now being introduced are a better model?

 

Stay tuned.

 

 

 

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