SolarCity will be broke in five years unless Tesla shareholders bail it out again…
Banker all right, OPM.
Denny Schlesinger
How solar city is having financial difficulties is just mind-boggling. PPOs are extremely profitable for the company issuing them. Solar City is pretty similar to Vivint Solar, where a large chunk of their business is from installing solar panels for free on residential homes and some commercial properties, then charging the property owner for every watt of electricity those panels produce (at a slightly lower rate than what the electric company charges). They are able to charge this lower rate because they don’t have the added cost of transmission costs and infrastructure delivering the electricity hundreds of miles to the house, which in most cases actually double’s the rate people pay for electricity. For instance, in western Massachusetts, the rate from Eversource is about $.11 per KWH. The actual cost to the consumer is around $.20 per KWH due to all those extra charges. Solar City and Vivint Solar are able to lock customers into a 20 year contract where the customer pays nothing for the panels, for the maintenance, or for the installation, but agrees to pay $.13 per KWH that those panels produce. That rate can increase 3% per year, at most.
With these PPO contracts though, while the consumer does save some money, close to 90% of the actual profits from the panels are kept by the company. For instance, in Massachusetts there are a couple programs that make buying your own panels a lot more affordable. First there’s the tax credit that everyone gets for buying panels, which is 30% of the total cost of the system. At an average of around $30,000 for most residential solar systems, a 30% tax credit is a pretty solid number. Secondly, Massachusetts has the Mass Solar Loan Program. Everyone is able to qualify for a 0% interest rate through that for financing for the system, paid over 10 years. Individuals in certain income brackets are able to get a 10%, 20%, or even 30% payoff of the loan for free, further reducing the total amount financed. Additionally, there is another component known as SRECs- Solar Renewable Energy Certificates, which are sold typically to electricity providers so they can reach the required percentage of energy sourced from environmentally friendly sources. A homeowner earns one SREC for every 1,000 kWh produced by their system. These certificates don’t have a fixed value, as supply and demand affect market prices. An example of that can be seen at the following website:
http://www.srectrade.com/srec_markets/massachusetts
So in my state each SREC is worth between $260-$300. An average residential system produces between 10 and 12 kWh, meaning that is an extra $2600 to $3600 a year that solar panel owners can get, in my state. Prices do vary by state. The average time to “break even” and start becoming profitable for a solar panel owner, even though Massachusetts is pretty far North, is between 3 and 5 years with SREC prices like that, depending on income bracket for the solar loan program. By opting for the PPO and just buying the electricity cheaper from SolarCity, SolarCity gets to keep the tax credit, they also get all the SRECs. Yes you get a cheaper electric rate and save money, but nowhere near as much money over the 20+ year lifespan of the panels, as if you had just bought them outright. The benefits of the PPO are that you don’t have to pay more in home insurance to cover the panels, as the company takes care of that. You also don’t have to do any of the maintenance or worry about replacing panels before 20 years, as they take care of that too. Long-term though, those PPO solar companies are eating your lunch, and your breakfast and dinner too.
SolarCity, as well as Vivint Solar, has a massive amount of deferred revenue from these contracts. They also have a lot of income from massive commmercial projects. Installing solar systems that customers buy isn’t nearly as profitable long-term as the company owning the system, having someone locked in for a 20 year contract, and charging them an increasing rate after expenses that is still highly profitable. If the break-even time for a homeowner owned system is 3-5 years, how long will it take for Solar City to break-even while selling the power from the panels? I’m honestly not sure, just after the tax credit and SRECs, it’s about 6-7 years. Everything else after for the next 13-14 years is revenue to offset the cost to install and maintain the system. If they aren’t profitable, then something is very wrong with their expenses associated with installing and maintaining these systems. Commercial projects are fine and all, but it makes more sense to go after the military for installations there, due to the absolutely ridiculous minimum contractor rate that bases have to pay for any sort of work (usually it’s about twice the hourly rate for any kind of work that would be done outside the base).
SolarCity/Tesla’s solar roof looks like a very attractive idea. I’m honestly considering getting one when they become available, but there’s several things to consider about it. First, if all the shingles are going to be tempered glass, there’s a few problems. Number 1 is access to the roof (maintenance, chimney repair, any leaks, cleaning gutters, etc). Glass shingles are going to be extremely slippery and impossible to walk on, which will make installation rather interesting as well. Number 2 is firefighting. If you get a fire in your home, myself or someone else on the ladder truck has to cut a hole in the roof (typically 4ft x 4ft) to ventilate toxic gases and heat. Solar panels and micro inverters are annoying because they are always energized, even after you shut down power from the conduit, so you just have to avoid that part of the roof, even if it’s the optimal location for ventilation. With an entire energized roof, it’s going to be off-limits, and ventilation points will be limited to attic vent locations just under the peak of the roof, and windows, either one of which can pull the fire across the building if not close to the fire’s location. Also if fire does damage the roof decking, how dangerous are falling glass shingles going to be? Falling slate tiles can actually kill people.
Also, how expensive are these solar shingle roofs going to be? Musk said they would be less than the cost to install a traditional tile or slate roof (which can be extremely expensive, depending on location). The cost of the roof though should be cheaper than the cost of a roof plus solar system. Without large hail or other impacts, glass would last an extremely long time compared to conventional roofing materials. Hopefully the photovoltaic cells will last as long. One way to reduce costs would be to make large 4ft x 8ft sections of shingles, all electrically connected, rather than having to preconnect each individual shingle or having a crazy underlayment that connects to each individual shingle. Depending on cost, the market for the Solar Roof will be enormous. I had to replace my asphalt shingle roof after it being on the house for only 12.5 years (shingles spaced a little too far apart, not enough overlap, so they didn’t last). Bought the house a couple years ago, otherwise I would have made sure it was done right the first time. On average though, an asphalt shingle roof in this area lasts for about 25 years if you get solid 30 year shingles.
Well anyway I think I’ve rambled on enough. If SolarCity is losing money, they’re just not managing their expenses. PPOs are very profitable. If you are looking into getting solar power, I highly highly recommend buying your own system after doing some shopping for a while. Check the price of SRECs in your area as well. And you might want to wait a couple years, because if that Solar Roof is really going to be at the price-point Musk says it is, it will revolutionize the entire solar industry.
