Solar Sector

Investment Analysis Clubs Saul’s Investing Discussions
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A short while ago, I posted an upbeat summary of UBNT’s earnings report. Yeah, I’m still smiling…but I forgot to mention the shares were up 18+% in the after hours. My smile just grew larger.

But, hey, my friends, there’s the yin-yang of investing that must be respected. Here’s a well-detailed, well-reasoned Seeking Alpha article that I suggest everyone invested in the solar sector contemplate:

http://tinyurl.com/zldedu8

It’s a long article, fairly well thought through (in my opinion), and detailed enough such that I won’t try to summarize.

I’ll simply state that the author examined California’s revised rules regarding feed-in tariffs and time-of-use programmatic changes and concluded that the PPA-pushers are hurtling towards certain death.

Now, I’m not nearly as negative as the author. After all, he focused exclusively on Nevada and California, whereas I tend to contemplate the entire planet but, nevertheless, he raises valid points.

I hope that everyone who has any money invested in the solar sector reads the article and contemplates it soberly. Those of you with dollars invested in SolarCity, Vivint or Sunrun should really think long and hard about the changes coming in the solar/utilities arena. Even those of us invested in the ancillary industries (e.g., the panel makers and the inverter manufacturers) should contemplate the headwinds blowing our way.

Having said all that, I’m still bullish on the sector and still believe the industry will grow by 30-40% in the coming year. However, I do expect stormy seas.

I’ve no interest in the PPA-pushers. This article simply provides another cogent reason why.

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It’s a long article, fairly well thought through (in my opinion), and detailed enough such that I won’t try to summarize.

putnid, this article represents the kind of “analysis” I despise. It throws out huge assumptions without ever providing any data to back them up, and then proceeds to build on those assumptions as if they were facts. That amounts to FUD in my book.

Here are some examples of statements made with zero evidence or facts to back them up:

Investors should, however, note that a new net metering regime is mandated in 2019 and the new regime will certainly be more restrictive and will certainly reduce the available TAM for lease/PPA companies.

and

From a customer perspective what this could mean is that a perceived savings of, say, $0.06 a KWH under the previous regime could now become a perceived savings of $0.04… This would considerably shrink the TAM of the residential lease/PPA market compared to the past Net Metering regime.

and

The TOU [time of use] rates will also ensure that the compensation will decrease over time making lease/PPAs uneconomical in as little as 5 years into the 20/30 year term. While the market may not have realized this yet, we believe lease/PPA model is dead under the TOU rate structure.

Even silly little things are spun as negative:

A $100 charge, for example, would increase the overall cost of the installation by a fraction of 1%. Nevertheless, this is one cut in a death by thousand cuts.

I haven’t analyzed or thought through the PUC decision yet, so it’s premature to say this guy is wrong. But most of his conclusions are pure speculation, and without any facts provided to back up that speculation. Nor is any consideration given to how the industry might overcome any new challenges (for example, even though the article discusses storage, no mention is given of using that storage to offset any TOU treatment, which strikes me as extremely odd).

The other weird thing the article seems to totally ignore is that the economics of solar installations improves around 10% per year, and the impact that will have as time goes on.

In any case, more research is needed. And I do like that these questions are raised: I just wish they were raised as genuine, speculative questions (which may or may not be able to be answered with any kind of confidence) instead of stated more-or-less as facts.

Incidentally, I just started reading some of the comments on that article, and there are some clearly better-informed people countering the statements from the author and offering important additional facts that the author admits to leaving out. So for folks who read the article, it’s worth looking at some of the comments too.

But mostly, it’s worth thinking for yourself :wink:

Neil
Long SEDG

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