http://www.insidermonkey.com/blog/jim-chanos-latest-short-is…
Chanos was on CNBC this morning and disclosed that he is short SCTY. His position is that they are really just a financial company getting people to take out a loan to get solar panels. He says the argument that their competition is the electric company is really false, their competition is other solar panel companies and the other companies are cheaper. He claims the loans are subprime.
He further called upon the negative EBIDTA of the firm and the rate at which it is burning cash… “And the residential model, I’d like to point out – SolarCity is really a subprime financing company in effect. You basically lease the panels from SolarCity. They put them on your house and they collect the lease payments. So in effect, if you put on the panels you have a second mortgage on your home because you hope it’s an asset, but in many cases it turns into a liability.”
True, if you sell your house, the buyer does have to be qualified to ALSO take over the lease payments and this could make it a pain to sell your house in a poor market.
I feel like we have heard this argument before, maybe from Spewing Alpha?
Here is a response from the CEO saying how wrong Chanos is.
Meanwhile… 1.4 GW of solar installations last quarter…
The residential market continues to grow like gangbusters. The second quarter added 473 megawatts, a record and a 70% jump from the same quarter a year ago. Falling prices and financing options, such as leases and loans, from a greater number of installers, are big reasons for the growth. A solar panel system prices fell between 9% and 12% during 2014.
I held SCTY for a while, but sold my small position at a small gain. I just couldn’t get my head around their finances. It seemed like they kept inventing new accounting methods and measures in order to indicate their performance.
I have enough trouble with traditional (non-GAAP) measures - financial analysis is not a long suit for me - I couldn’t follow the logic behind their new measures. I take that back, I sort of followed it, and maybe it seemed logical, but it still bothered me. I’d rather have my money in something where I am better able to understand how well the company is performing.
If I bought a house with Solar panels on it I would tell the owner to take them with them or I wouldn’t buy the house. Unless they gave them to me for free, why would I want to inherit someone else’s older technology? I understand the house is older but it doesn’t depreciate like Solar panels. Would anyone take over the payments, for an older car or truck that someone has sitting in their garage, just because you are buying their house? If they claim I have to take the solar panels or I do not buy the house, well I am going to walk.
If I bought a house with Solar panels on it I would tell the owner to take them with them or I wouldn’t buy the house.
Maybe you would. But if you really liked the house and there were 4 other offers then you walking wouldn’t matter. It would just mean that you wouldn’t get the house that you want. You can only effectively negotiate if you are the only offer. Sure, some people would view the solar contract as a negative but it’s really a matter of price when a house is sold.
Maybe you would. But if you really liked the house and there were 4 other offers then you walking wouldn’t matter.
But if a person couldn’t sell there house because they had ten year old technology on the roof then it could be a big negative. In ten years a lot can change and I suspect that a lot of people will either have to take the panels with them or give them away for free. The price is dropping and in 10 years the price of solar panels will be at least half of what they are today (Swanson’s law), they could even be cheaper because they will be making more of them. So by then I am not sure why anyone would want a ten year old technology on their roof unless they stayed in their homes.
Sure, some people would view the solar contract as a negative but it’s really a matter of price when a house is sold.
I agree with this Chris and I think the price is “Free”. Now some people might think they can add it into the price but if I can buy a house next door, Same size and features for 10,000 dollars less than the one with ten year old solar panels, well I am going for the one without the solar panels. Let’s say you are paying 200 dollars a month for your solar panels and in ten years you can get better solar panels for 100 dollars a month why would anyone want to pay for the older panels? Just doesn’t make sense to me.
Let’s say you are paying 200 dollars a month for your solar panels and in ten years you can get better solar panels for 100 dollars a month why would anyone want to pay for the older panels? Just doesn’t make sense to me.
If we are talking economics here then it really depends on what a monthly electric bill is compared to the monthly cost of the solar contract. If the solar least payment is less than the cost of electricity from he utility then it’s not an economy burden regardless of what a new system would cost. Solar lease is lower now which is why SCTY is signing up so many new customers. Utilities have zero incentive to lower rates when less than 1% of US residential has rooftop solar.
If we are talking economics here then it really depends on what a monthly electric bill is compared to the monthly cost of the solar contract. If the solar least payment is less than the cost of electricity from he utility then it’s not an economy burden regardless of what a new system would cost.
This doesn’t make sense to me. If you go with Solar City right now and lease a system for 200 dollars a month, and just to keep it simple, it never goes up. In 10 years you can now lease a system for 100 dollars a month. Explain to me why someone would pay 100 dollars a month more for a system that is ten years old? Unless you can tell me that the lease price over 20 years will go down. From what I have read the price will actually increase over the 20 year period, depending on how your contract is written.
So just for discussion sake let’s say that your electric bill right now is 220 dollars a month and you are leasing your solar system for 200 dollars a month. You are saving money and this is a great deal. Then in 10 years the person without solar panels is paying 300 dollars a month and you are paying 200 dollars a month with your solar lease. You sell your house to me and I can now lease or buy solar panels, that are more technology advanced than your 10 year old panels for half the price of what your lease is. So the person without solar panels is now paying 300 dollars a month for electricity, you are paying 200 dollars a month, and I can buy a new system for 100 dollars a month. Why would I want to keep your solar lease?
but it’s really a matter of price when a house is sold.
And, in the case of a house in many parts of the country with some years already consumed on the lease, and with the existing solar being better than the utility, so bettering the existing solar means a deeper expense or longer commitment to new solar, it is hard to imagine this being a deal breaker unless one was so wishy washy about the house that one probably shouldn’t be buying it anyway.
One, a big cost for solar is not the panels. It is the installation.
Second, today that cost is subsidized. Ten years from now it will not be.
Third, today you can get net metering. Ten years from now to be economical the system will need battery plus solar if it is allowed net metering at all.
Finally, as pertains to Solar City, the company 10 years from now will look nothing like it does today. An investment in Solar City is nothing more or less than a flyer on Musk and company. It is not an investment in a company so much as an investment in some people.
Thanks Qazu and those are some great points on why you are invested in Solar City but I am trying to understand why anyone would want to take over a lease on solar panels in 10 years? The only way it makes sense to me is if in 10 years the solar panels and installation cost a lot more than they do today. Now if I planned on staying in my house for 20 years it makes perfect sense to have solar panels installed, I just do not think I would want to try to get someone to take over my lease.
When you buy a house, do you insist that the owners take the water heater with them because you can buy a new one that is better?
Or does one mostly buy the house as it is, dickering over the price according to the condition of the various components and possibly over whether transportable items like stoves are left or taken?
When you buy a house, do you insist that the owners take the water heater with them because you can buy a new one that is better?
First Tamhas,
That is a terrible analogy. but if anyone trying to sell me a home wanted me to take over a 10 year lease on a water heater, than yes, I would tell him to take it with him. It would just be common sense.
Or does one mostly buy the house as it is, dickering over the price according to the condition of the various components and possibly over whether transportable items like stoves are left or taken?
Exactly, and I am thinking that most people will insist that people take their solar panels with them. The main reason is that the technology will be obsolete in 10 years and the person buying the house will not want to take over that payment. Now if you give it to me for free than I would agree that it would be a great deal. Maybe that is how it will work out. People will use the solar panels as a selling point for their homes. Buy my house and I will throw in the solar panels. Your electrical rate will only be XXX for the next 10 years.
Thanks Qazu and those are some great points on why you are invested in Solar City but I am trying to understand why anyone would want to take over a lease on solar panels in 10 years? The only way it makes sense to me is if in 10 years the solar panels and installation cost a lot more than they do today. Now if I planned on staying in my house for 20 years it makes perfect sense to have solar panels installed, I just do not think I would want to try to get someone to take over my lease.
Andy,
I thought I covered it, but I have been opaque in the past.
There are three reasons.
The cost to install will be the same, or close to it. Not the cost of the panels, the labor. Solar City has driven a lot of the cost out now, and they may drive more out in the future, but the cost will be pretty much a sunk cost.
There will be no subsidies. Now the installation cost is subsidized, as the cost for the 10 year old panels is a sunk cost, a new installation must pay the new installation costs without subsidies.
This is probably the most important. In those places where Net Meetering is allowed, the number of connections will become limited. The existing connections will most likely be grand fathered, but new one will not be allowed, or if they are allowed they will be required to either buy at retail and sell at wholesale, or more likely, buy at a spot price and sell at a spot price. In either case, the legacy panels will have an economic advantage for a long time.
Personally I am getting more and more involved, (attending webinars, and taking online training classes) in grid scale storage. It is an extension of my work as a Communications Tech that specialized in power for the telecommunications industry. What I have learned is that we only need to time shift power by a few hours for that arbitrage to be profitable. The business systems are not built yet, but the economic pressures, (Read there are some folks salivating on the huge sums of money to be made) are there to build them.
The idea of a few hours is important. Today we have various battery technologies available, but the only one that can be used for quick demand is lithium ion. Lithium Ion runs about 400 dollars a kilowatt hour and deep discharging is expensive. A Lithium Ion battery that is cycled through a 30 or 40 percent charge discharge cycle and not pushed to the limits of its power capability (Power limits and Energy limits are similar but not same.) can be cycled 10’s of thousands of times, a lithium ion battery pushed to its power limits and deep discharged into the 80 percent range may last a 1000 or so cycles.
So, many times we tend to look at something new and exciting and see problems and think that this problem or that must be completely solved. In reality it does not. In the case of batteries and solar we tend to think that we must take homes off the grid, and we cannot do it until battery costs get below the holy grail of 100 dollars a kilowatt hours. This is a strawman. While intermittant power sources are harming the grid, and at a certian point they cannot continue to be added to the grid in the way that they are currently being added, it is not binary.
Ten years is a long time, but panels that are paying for themselves and are causing no problems, they can sit there fat dumb and happy.
Cheers
Qazulight (Not adding SCTY, but am dreaming about some more AMBA.)
I don’t understand the debate. It just comes down to what value there is in the panels at the time of the sale. Whether you install $20k worth of solar panels or kitchen/laundry appliances, they all will depreciate over time. If the seller still owes money on that refrigerator, they can’t expect that the buyer will just take over the payments yet still pay the same price as if they fridge was paid in full. The house is worth some amount, the included fridge adds some amount, but if money is owed on the fridge it’s worth some amount less. If the buyer really doesn’t want the fridge, even if it’s free, then the value added to that buyer is $0 (or negative if there is a cost to dispose of it). Same for A/C or any other appliance or solar panels.
It really isn’t a debate IRdoc. I thought it was a discussion. I do not have a dog in this hunt but it interests me on what is going to happen in 10 years if someone sells their house. It might be moot because people might just give them away. But it is interesting that some people think that there still is value in the panels even after 10 years. We all know how fast technology moves and after 10 years I would think the panels would be worthless to anyone but the person who first bought them. My electric rate is .0743 so I doubt that I will ever have solar panels on my roof. Yet within 50 miles of me their are at least 8 commercial solar plants.
Personally I am getting more and more involved, (attending webinars, and taking online training classes) in grid scale storage. It is an extension of my work as a Communications Tech that specialized in power for the telecommunications industry. What I have learned is that we only need to time shift power by a few hours for that arbitrage to be profitable. The business systems are not built yet, but the economic pressures, (Read there are some folks salivating on the huge sums of money to be made) are there to build them.
I am a Communications Tech also. I used to work for a Telecommunications Network company (Nortel) where we installed our own power plants for the telephone companies. Although it wasn’t my expertise, it was something I had to deal with on every job we installed. My expertise was in the front end (CPU) of the switches.
Exactly, and I am thinking that most people will insist that people take their solar panels with them.
I would be very surprised. For starters, even making the analysis you are presupposing assumes more knowledge of the energy market than is likely in the typical buyer. Moreover, asking for it to be removed implies reverting to utility power, at notable expense per month, or installing one’s own system at non-trivial outlay or a new lease.
People may decide that a house is unattractive because of the solar panels and demand that they be removed as a part of an offer, but I find it hard to believe that anyone who genuinely liked the house with the panels would do anything but see it as a plus because of the savings over using the utility. And, frankly, the balance on the lease … considering that it also covers one’s power bill for that period, is trivial compared to the cost of the house. You are talking as if the solar installation was massively expensive and the remaining 10 years lease was just paying off some capital improvement. But, it isn’t. Those remaining 10 years are payments which provide most of one’s power at a lower rate than one would get from a utility. Whole different kettle of fish.
When you buy a house, do you insist that the owners take the water heater with them because you can buy a new one that is better?
How many water heaters come with a 20 year lease, some of those years which you’re asked to assume are for a used asset no longer worth the price it was originally set? Moreso, the efficiency of said item you’re being pressured to takeover the lease is not as good as when it was new? Nor is it nowhere near as good as the efficiency of the latest technology?
You guys high on SCTY need to get MrCherryO’s thoughts on this one. You will not like what he says, but, he’s been amassing one hell of a folder on SCTY, Musk and his cousin. MrCherryO claims SCTY will result in the next Enron type implosion in our markets.