SolarCity Goes Public
By RONA FRIED, Ph.D.
SolarCity is now a publicly listed company on Nasdaq, under the ticker SCTY.
By Nov. 28, they had set their opening share price ($13 to $15) and hoped to raise $150 million in their initial public offering (IPO), scheduled for late December. In the event, the stock opened Dec. 12 at $8 per share and rose 47 percent on the first day. By late January it sold around $15 per share, for a market capitalization of about $1 billion.
This is an exciting IPO because it’s one of the first on the solar installation side. Dozens of solar manufacturers are listed on exchanges, and all of them have seen their stock prices crushed over the past few years. But the rapidly declining solar module prices that have made it so hard on manufacturers have been a boon for solar installers, and SolarCity has benefited mightily.
In 2011, the installed cost of U.S. solar photovoltaics (PV) systems fell an impressive 11 to 14 percent, and another 3 to 7 percent in the first half of 2012, according to Lawrence Berkeley National Lab’s latest “Tracking the Sun” report.
The solar industry, and cleantech in general, could sure use a successful IPO. While there have been a bunch of cleantech IPOs over the past year or two, only Tesla Motors has gained traction, and many companies have cancelled planned public listings (BrightSource Energy and Smith Electric Vehicles, for instance). There have also been high- visibility bankruptcies, like A123 Systems and the highly politicized Solyndra.
“If SolarCity’s IPO does well it could potentially mark a big transition point,” Rob Day, a partner with Black Coral Capital, told Reuters. “SolarCity represents the next wave of cleantech that people should be much more excited about.”
The company was founded in 2006 by brothers Lyndon (CEO) and Peter Rive (COO) — and their cousin Elon Musk, CEO of Tesla Motors, who serves as chairman of SolarCity (Musk owns 31.9 percent). Lately, the two companies have begun to leverage each others’ strengths and to co-develop products.
The company executed what has become a break-through model for the solar installation industry — solar leasing, a power purchase agreement tailored for mass marketing. The ability for homeowners and businesses (including Walmart) to put solar on their roofs without paying the upfront costs of the system and installation has been transformative. Instead, they sign a long-term contract to buy electricity at a fixed price from SolarCity, at lower prices than from the local utility. By June 2012, SolarCity had installed solar systems on 33,792 buildings in the United States. Some 70 to 80 percent of solar installations in California, Arizona and Colorado use the “no money down” approach (through SolarCity or one of its competitors), according to GTM Research.
SolarCity has raised $210 million in venture capital funding and $1.57 billion for 15 equity funds that pay the upfront costs for solar systems. Banks like Credit Suisse have loaned hundreds of millions of dollars, and Google’s $280 million investment is its biggest in renewable energy, creating the largest residential solar fund in the United States.
SolarCity’s most exciting project is SolarStrong, the largest solar rooftop project in U.S. history, literally doubling the number of residential solar systems in the country. It puts 300 megawatts of solar modules, comprising 120,000 rooftop systems, on houses at 124 military bases in 33 states. Bank of America Merrill Lynch finances the debt portion of the $1 billion project, and its equity funds (which qualify for the 30 percent federal tax credit).
Tesla and SolarCity now work together more frequently. SolarCity will install the panels to power Tesla’s national solar-charging network for electric cars, and SolarCity’s new energy-storage offering works off Tesla’s batteries. SolarCity is also diversifying into energy-efficiency audits and upgrades, and is even starting utility-scale solar projects.
SolarCity plans to use proceeds from the IPO to extend its solar network and to acquire complementary companies.
The company has yet to make a profit, but revenue is growing nicely. It has $70 million in debt, but revenue grew from $32.6 million in 2009 to $59.5 million in 2011 and to $71.4 million in the first half of 2012. Margins are at 14.9 percent, compared to negative 46.2 percent in 2010.
SolarCity has become the second biggest solar installer in the nation, after SunPower, and competitors include Sungevity, Vivint, Clean Power Finance and Sunrun. In its prospectus, SolarCity says it benefits greatly from net-metering policies in 46 states, but that would be a risk for the company if policies change. The prospectus also discloses that two SolarCity funds are being audited by the Internal Revenue Service. The IRS questions the valuations used to calculate the tax credits investors have received.
Solar leasing is expected to be among the most important drivers of the PV market for the foreseeable future, as government incentives dry up, making SolarCity an important company to keep your eye on.
Rona Fried, Ph.D., is president of Sustainable Business.com, the online community for green business: daily green business and investor news, green jobs and the green investing newsletter, The Green Investor. Contact Fried at firstname.lastname@example.org.
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