Saturday, October 3, 2015

Paying For Solar: SolarCity's GigaFactory (SCTY)

This trip down memory lane was prompted by yesterday's SCTY announcement (link below) of new panels that hit 22.04% conversion efficiencies.

The company is in a race against its cash burn rate and in this race the lawyers and lobbyists are as important as the engineers and salespeople. And finance guys.

From MIT's Technology Review, August 2015:

Paying for Solar Power
SolarCity’s massive new manufacturing plant in Buffalo, New York, reflects a booming demand for solar power. Is it sustainable?
The rail cars that once carried iron ore around Republic Steel’s sprawling plant at the edge of downtown Buffalo, New York, were plowed under when the steel company abandoned the location in 1984. They were recently discovered when excavation began for the so-called gigafactory to be operated by SolarCity, the country’s leading supplier of solar panels. Now the rusted cars and a scattering of other relics from the days of Republic Steel greet visitors to the construction site, a reminder of the city’s past manufacturing might and a testament to the dream that North America’s largest solar-panel manufacturing facility can help revive it.

Buffalo is attempting an economic comeback fueled by the state’s Buffalo Billion initiative, a multi-year redevelopment plan spearheaded by Governor Andrew Cuomo. Included in the funding is support for a new genomic research center and an information technology center, but at the heart of the city’s ambitions is the solar factory, which New York is spending $750 million to build and equip. SolarCity, based in Silicon Valley, will lease it, essentially for free, and has committed to spending $5 billion on its Buffalo operations over the next decade. For Buffalo, it’s an attempt to reimagine its future around solar manufacturing. For SolarCity, it will solidify its position as one of the country’s most aggressive and fastest-growing solar companies.

The plan to build the massive manufacturing facility comes at a time when demand for solar power is booming in the United States. In 2008, the nation had about 1.1 gigawatts of photovoltaic power, the dominant type of solar energy; by the end of 2014 it had 18.3 gigawatts. Last year, homeowners, businesses, and energy companies added about 6.2 gigawatts, and they are expected to install another eight gigawatts this year. Much of that is in California, but solar power is taking hold in other states, boosted by a mix of federal tax credits and state and local incentives. Roughly a third of the electricity generation capacity added last year in the United States was solar, second only to natural-gas plants. (Even so, solar power still provides less than 1 percent of the country’s electricity.)

SolarCity has played a large part in the rapid expansion. By offering innovative financing schemes, it has spurred strong demand for rooftop panels on homes, the fastest-growing sector of the solar market. Instead of buying the expensive solar panels and paying for their installation, homeowners participating in one of SolarCity’s offerings can lease the system for 20 years, paying a monthly fee. Because it owns the panels, SolarCity benefits from the generous 30 percent federal investment tax credit for solar power; the homeowner is credited at retail electricity rates for any surplus power fed back to the grid. SolarCity is still unprofitable, but its revenue doubled from 2012 to 2014 as its leasing program proved attractive for homeowners—especially in locations with high electricity rates and lots of sunshine, such as California. The company expects to install enough panels this year to produce a gigawatt of power.

Not coincidentally, a gigawatt will be the capacity of the Buffalo factory when it is fully up and running, which is scheduled for the beginning of 2017. Until now, the company’s business has been built around marketing, financing, and installing solar systems. Instead of producing solar panels, it buys them, mostly from Chinese manufacturers. The Buffalo factory changes all that. “Our aspiration is to build many more of these factories over time,” says Peter Rive, the chief technology officer, who founded SolarCity with his brother nine years ago (their cousin Elon Musk is the company’s chairman). And though Rive says the company doesn’t want to “take its eye off the ball” in getting the Buffalo plant built and operating, he adds that shortly after that’s accomplished, “we want to create the largest solar facility in the world, never mind the Western Hemisphere.” Indeed, SolarCity stated earlier that its plan is to add “one or more significantly larger plants” with annual production capacity an order of magnitude greater than that of the Buffalo facility.

The company will make a new type of photovoltaic technology in Buffalo. The solar cells use crystalline silicon—the material used in conventional cells—with a thin film of another form of silicon and a layer of a semiconductor oxide. The hybrid solar-cell design, which SolarCity got when it bought a small company called Silevo in 2014, is designed to be more efficient than standard silicon cells in converting sunlight to electricity, as well as relatively cheap to make. But while SolarCity operates a 32-megawatt plant in Hangzhou, China, that Silevo built to make the solar cells, quickly scaling up those operations to the far larger plant in Buffalo will be an engineering feat.
Even if all goes well, the gigafactory could be facing a dramatically different solar-power market. At the end of 2016, the federal tax credit for solar power is due to drop from 30 percent to 10 percent for businesses and to disappear altogether for consumers who buy their own solar panels. By making residential solar power less affordable, the change could be devastating to the industry. And it will come just as the Buffalo factory is ramping up its manufacturing capacity.

True costs
Fears about what will happen when the tax breaks decrease are fueled by an unfortunate reality: in most locations and under most conditions, unsubsidized solar power is still far too expensive to compete with other sources of electricity. And rooftop solar is especially expensive. Subsidies and other government incentives are the reason the solar market is booming. If technologies were chosen purely on the basis of what it costs to produce power, “there isn’t a market for residential solar,” says Severin Borenstein, a professor at the Haas School of Business at the University of California, Berkeley, and an expert on electricity economics. Without government incentives for clean energy like solar, he says, “natural gas wipes everything else away.”...MUCH MORE
Also at Technology Review:
SolarCity Shows Off Its New Modules; Now It Has to Manufacture Them

Here's the stock action over the last couple years:
SCTY SolarCity Corporation weekly Stock Chart

We've been following this one for a while:
More Elon Musk: "5 things to know about SolarCity’s IPO (and it’s not all good)"
"SolarCity postpones initial public offering, according to report" (SCTY)
After Price Cut Elon Musk's SolarCity Trades, Soars (SCTY)
The stock was priced at $8.00, down from the $13-15 range the underwriters were throwing out earlier this week.
It is currently trading at $11.60, up 45%.
And many, many more.

Like most of the old pros we pine for a return of the speculative glory days.
The  2005-2008 mania was probably best exemplified by First Solar:

Nov. '06 IPO at $20, $317.00 top tick in May 2008, $11.43 by June 2012. 
Yeah baby!