Tag Archives: cafd

SolarCity Risk Called ‘Elevated’ After Dumping MyPower Loan

No. 1 residential installer SolarCity ( SCTY ) abandoned its MyPower loan program after overestimating the number of customers qualified for the Investment Tax Credit on solar, JPMorgan Chase analyst Paul Coster wrote Tuesday. Coster downgraded SolarCity stock to neutral from an overweight rating and slashed his price target to 29 from 44, reflecting the firm’s “elevated” risk in 2016. Intraday on the stock market today , SolarCity stock toppled 5.2%. “We still believe the stock is undervalued,” Coster wrote in a research report. “However, risk is currently elevated, and business model uncertainty will weigh on the stock in 2016.” SolarCity is toeing the line between development company and power company. The tricky combination has played out in “poorly expressed GAAP numbers,” Coster wrote. He ticked off SolarCity’s transgressions. Over the last year, SolarCity launched and then withdrew its MyPower loan program, introduced and then de-emphasized a cash available for distribution (CAFD)-like metric, and amended its methodology for examining megawatts installed vs. deployed. “Mostly, these changes made sense to us, but the complexity and flux make it difficult to bring new money investors into this stock,” he wrote. SolarCity Worse Off Than Peers To that point, SolarCity is already driving off current investors. Since Dec. 17 — the day before Congress extended the ITC — SolarCity stock has fallen 68%, while IBD’s 23-company Energy-Solar industry group has dropped 32% over the same period of time. Ongoing net-metering headlines have only fueled the incineration, Coster wrote. Days after Congress extended the ITC by five years, Nevada regulators cut payments to solar customers for excess energy fed back into the grid. Earlier this month, the Nevada Public Utilities Commission voted against grandfathering existing solar customers under the previous rate scheme. “Encouragingly, California’s PUC has already approved a favorable plan for the solar industry, extended into 2019,” he wrote. But whether that will be enough to mitigate the “headline risk” remains to be seen. And SolarCity’s discontinued MyPower plan prompts further customer base questions, Coster wrote. CEO Lyndon Rive told GreenTechMedia.com on Monday that many customers couldn’t qualify for the ITC. “In hindsight, I definitely underestimated that,” he said. “I underestimated the success we’ve seen, which is fantastic.” Growth Hits Stalling Point SolarCity’s customer base isn’t solely wealthy households typically associated with solar panel investments, Coster wrote. And that could be a problem. “We believe new customers (with) apparently good credit (scores) at the lower end of the income spectrum may be at some risk for slow-pay or default in the event of an economic downturn,” he wrote. Meanwhile, SolarCity’s growth is slowing. During Q4, SolarCity installed 272 MW , which was up 54% vs. the year-earlier quarter but missed earlier guidance for 280 MW to 300 MW. SolarCity blamed its exit from Nevada for the miss. Fellow residential installer Sunrun ( RUN ), too, left Nevada upon the PUC vote in December. Although SolarCity reiterated 2016 guidance for 1.25 gigawatts in installations, up 44% year over year, that implies “re-acceleration and a back-end-loaded year — a risk,” Coster wrote. First Solar ( FSLR ), the largest stock by market cap in IBD’s Energy-Solar industry group, was down 4.5% to near 61 in afternoon trading, ahead of its after-the-close earnings report.

First Solar, SunPower To Overshadow SolarCity, Sunrun In 2016 Melee

No. 2 solar installer SunPower ( SPWR ) and Nevadan utility giant NV Energy partnered Tuesday to complete a 15-megawatt solar installation on Nellis Air Force Base — adding to a 13.2-MW system implemented in 2007. Together, the two stations can generate enough energy to power the base during daylight hours, according to NV Energy, which is a part of Berkshire Hathaway’s ( BRKA ) energy portfolio. The Nellis Solar Array II Generating Station is the first large-scale solar resource owned by NV Energy. SunPower’s announcement comes less than a week after Nevada regulators unanimously approved a solar-rate scheme that cuts net-metering payments to solar customers over 12 years. NV Energy pushed for that cut. Net metering, which means business and residential customers can receive payment for unused solar energy they feed back into the grid, is mandated in 44 states. The rules rile utilities, which could otherwise purchase the same energy at a wholesale price from utility-scale solar farms. First Solar ( FSLR ) and SunPower dominate the utility solar sector, Barclays analyst Jon Windham wrote in a January research report. In December, Congress’ adopted an eleventh-hour extension of the Investment Tax Credit (ITC) for solar, buoying residential installers like SolarCity ( SCTY ) and Sunrun ( RUN ).  But growth in 2016 will come on the backs of utility-scale developers, industry tracker  IHS wrote this month . No. 1 solar installer First Solar focuses on low-cost utility-scale projects likely to curry favor with the Obama administration’s 2015 Clean Power Plan. SunPower is vertically integrated with fingers reaching into the utility, commercial and residential solar pots. Utility-Scale Solar Flashes Before SunPower’s 15-MW commercial project wrapped, First Solar announced in January that it has installed “Australia’s largest utility-scale solar plants” — 155 MW between two systems in New South Wales. As of Jan. 20, there were 245 MW of utility-scale solar operating in Australia.  First Solar built 165 MW (67%) of that capacity. The Aussies still have a long way to go to catch up to U.S. markets, which exceeded 2o gigawatts in cumulative installations early last year, according to the Solar Energy Industries Association , up from under 2GW in 2011. A gigawatt is equal to 1,000 megawatts and can power about 700,000 homes. China and Germany are the global leaders, raising their estimated installed solar capacity to 43GW and 40GW, respectively, in 2015. Earlier in 2015, the SEIA projected roughly 20 GW of additional solar capacity coming online — effectively doubling U.S. solar capacity — in the next two years. Nearer term, photovoltaic (PV) installations are expected to grow 60% year over year in 2016, reaching total installed capacity of 15 GW on the back of “strong demand for utility-scale PV,” IHS analyst Camron Barati wrote in a report. Previously, Wall Street modeled a 2017 collapse for the U.S. solar industry. The ITC was set to expire at the end of 2016. Then Congress voted in a five-year extension to the key subsidy. “While all market segments are expected to benefit from the ITC extension, utility-scale PV will benefit most and account for over half of newly added capacity from 2016 to 2019,” he wrote. Larger-scale installers like First Solar and SunPower are the safest investments in 2016, S&P analyst Angelo Zino told IBD. “These companies have significant backlogs of pipelines that allow them to navigate softness in the industry,” he said. “If we see more of a flat environment in 2016, First Solar and SunPower have the geographic reach as well as the pipeline and backlog to weather through any potential softness within the local markets here.” Barati doesn’t see any U.S. solar softness in 2016. But utility-scale demand could peter 30% in 2017, he noted. In 2015, 16 GW of projects entered the U.S. pipeline and 10 GW of tracked projects were installed or entered construction, IHS analyst Josefin Berg wrote in a separate report. Currently, the U.S. has a 50 GW pipeline of commercial- and utility-scale projects from 2016 to 2019, Barati wrote. “The previous panic to complete project phases ahead of schedule has reverted to a development pipeline responding to demand and contract fulfillment,” Berg wrote. Barati expects California, Texas and Nevada to each contribute 1 GW in 2016 installations — a divergence from other analysts. Credit Suisse analyst Patrick Jobin, however, sees Nevada demand hitting a floor on the net-metering cut. Will Nevada Demand Survive? Nevada regulators voted unanimously earlier this month to cut net-metering payments without grandfathering existing solar-energy customers — a decision that Sunrun executives plan to oppose legally. Residential installers Sunrun and SolarCity vehemently oppose Nevada’s net-metering cut which will take place in five steps over 12 years. Both exited Nevada in December after the first vote. Cumulatively, Nevada had installed a total 974 MW of solar capacity by Q2 2015, according to the SEIA. During Q4, SolarCity installed 272 MW, which was 8 MW short of its guidance after leaving Nevada. SolarCity and Sunrun still have some runway for 2016 installation growth, even without Nevada, Zino told IBD. A central issue for both, however –  particularly SolarCity – is whether they will have sufficient access to capital . SolarCity is undergoing a strategic shift to become cash flow positive . The No. 1 residential installer will halve its installation growth target to do so. Currently, SolarCity is targeting 1.26 GW in 2016 installations, up 44% year over year. Solar is a capital-intense industry, Jobin says. Companies rely on tax equity capital, traditional bank financing and long-term securitizations to fund growth. In this environment, SolarCity and Sunrun are “very attractive” because they’ve already smartly deployed their capital in the form of fixed infrastructure costs. But investors fear dislocation could squeeze available capital, Jobin says. “My view is not that capital isn’t available to them; we’re just monitoring the health of the capital pools to them,” he said. “These assets are significant amounts of capital so if capital isn’t committed, demand would be challenged for all the players.” That could help explain a recent pullback in solar stocks. IBD’s 23-company Energy-Solar industry group ended 2015 1% higher after an up-and-down year. It has since fallen 32%. Still, the group ranked No. 11 on Friday  – meaning over the past six months it has outperformed all but 10 of the 197 industries tracked by IBD. Regulatory challenges, fluctuating oil prices and the rise of alternative business models known as yield companies forced violent vacillation in 2015 solar stocks. The combination drove the 49% differential between the IBD group’s April high and its low on Nov. 17. Tough Yieldco Market Continues Wall Street is unlikely to let up on yieldcos in 2016, Zino says. Yieldcos are public companies formed to hold assets, generate dividends and create on-tap cash flow. The latter helps with the capital-intensive nature of the solar industry. In 2015, yieldco stocks were smashed. SunEdison ‘s ( SUNE ) TerraForm Power ( TERP ) and TerraForm Global ( GLBL ) exited 2015 down 57% and 63%, respectively. NRG Energy’ s ( NRG ) NRG Yield ( NYLD ) sliced 40% off its IPO price. First Solar and SunPower’s 8point3 Energy Partners ( CAFD ) left 23% behind in 2015 after going public in June. But 8point3 is one of the stronger names likely to “sustain tougher market conditions better than others,” Zino says. “The market has already shown a name like that is going to hold up better and we’ve seen that with the yields,” he said. Chuck Boynton, SunPower CFO and 8point3 CEO, says investors “have been running for cover” amid serious solar volatility . But 8point3 posted a strong first full quarter in operation, distributing 22 cents to shareholders, up 3.5% sequentially and in line with guidance. “Over time, they will see it really is a safe haven and that of the companies that are yield-oriented we are at the top of the class,” he told IBD in January. SunEdison’s plan for TerraForm Power, however, is seeing a bit more drawback. Activist investor Appaloosa Management is suing SunEdison over its plan to drop a 523-MW rooftop asset to TerraForm Power. Appaloosa owns 9.5% of the yieldco. The assets are owned by soon-to-be acquired Vivint Solar ( VSLR ). Although SunEdison’s acquisition is still pending, SunEd began trying to offload the debt-laden portfolio months ago. SunEdison stock plunged 92% between July and November as the drama played out in national headlines. Can Solar Cut The Cord? Over the last year, Tesla Motors ( TSLA ) teamed up separately with SolarCity , SunPower and SolarEdge ( SEDG ) to explore solar storage opportunities. Tesla CEO Elon Musk also chairs SolarCity. Solar storage is technologically possible, but remains too uneconomical for widespread adoption. As it is, solar customers still rely on utility electricity at night and on cloudy days. In Nevada, Nevada Power Company and Sierra Pacific Power Company solar customers use the grid 42% and 49% of the time. Industry watchdogs are split on whether solar customers will ever be able to completely cut their utility ties. But SolarEdge said earlier this month its StorEdge Solution, in conjunction with Tesla, will “ sell thousands of units ” in the first half of 2016. SolarEdge makes inverters and power optimizers, competing most directly with Enphase to supply panel manufacturers with key components. SolarEdge stock recently topped Needham analyst Y. Edwin Mok’s 2016 solar picks. Enphase ( ENPH ), too, is planning to release an energy storage system later this year in Australia, spokesperson Danny Miller told IBD earlier this month. A U.S.-based project will follow, he added. But Enphase won’t weather the post ITC-environment as well as SolarEdge, Mok wrote. He expects SolarEdge to grow beyond its 36% market share to the mid-40%-range on lessened pricing pressure. “Due to the extension of the U.S. solar ITC, we expect Enphase to deliver lower volume in 2016 as the ITC eliminates the need for installers to rush into completing projects within 2016,” Mok wrote.

SunPower CEO Attributes 8point3 ‘Drop Downs’ To Q1 Sales Miss

Wall Street bandied SunPower ( SPWR ) stock Thursday after the No. 2 solar company reported forecast-topping Q4 sales and earnings but issued Q1 sales guidance that halved analyst views, which CEO Tom Werner said stemmed from project “drop downs” to yield company 8point3 Energy Partners ( CAFD ). There was a 12% disparity Thursday between the high and low points of SunPower stock. Shares were up as much as 4.7% earlier, but in afternoon trading on the stock market today , SunPower stock was down 4%, near 23. Analysts were forgiving. Credit Suisse analyst Patrick Jobin says that SunPower is “bucking the trend” of solar demand challenges and investor fears of a capital squeeze. Solar is a capital-intense industry, and limited access to capital can strangle growth. “SunPower is bucking the trend and remains in a healthy position with a clean balance sheet and an execution track record that is enabling growth,” Jobin wrote in a research report. He retained his outperform rating and 32 price target on SunPower stock. EBITDA Shift Buoys Q4 For Q4, SunPower reported $1.36 billion in sales ex items and $1.73 earnings per share minus items, up 124% and 563%, respectively, vs. the year-earlier quarter. Both metrics topped the consensus view for $1.27 billion and $1.52. Earnings before interest, taxes, depreciation and amortization (EBITDA) surged 347% to $379.9 million. CFO Charles Boynton, on the company’s earnings conference call Wednesday, pointed to a $65 million shift in EBITDA after projects expected to be completed in the current quarter actually wrapped up in Q4. SunPower finished 2015 with $556.5 million EBITDA, up 49%. Sales minus items and EPS ex items came in at $2.6 billion and $2.17, flat and up 63%, respectively, and beating consensus expectations. The EBITDA shift impacted Q1 and 2016 guidance, Boynton said. SunPower lowered 2016 EBITDA guidance by that $65 million, to $450 million-$500 million, and sees $0-$25 million in Q1. For the year, SunPower expects $3.2 billion-$3.4 billion in sales minus items, where analysts had modeled for $3.42 billion. Yieldco Drops Impact Q1 Guide But the Q1 sales-minus-items view for $290 million-$340 million was far short of Wall Street views for $675.7 million. CEO Werner attributed the guidance miss to the timing of project drop-downs to 8point3. SunPower and First Solar ( FSLR ) teamed up to form the yield company last year, a company formed to own assets that produce predictable cash flows. Yieldcos are gaining headway in the solar industry. “We’re building projects in Q1 that we won’t sell to 8point3 until Q3, so we don’t get the revenue and the income until Q3,” Werner told IBD on Thursday. “It’s the timing of the ‘drop down’ of projects to Q3.” Investors are warming to the yieldco idea, Werner says. 8point3 made its IPO in June, pricing shares at 21. It now trades near 16%, up 3% Thursday afternoon. “Think of it (the yieldco) as strategic and the core of what we do,” Werner said. During Q4, SunPower dropped down its first project to 8point3 — a 20-megawatt project for California’s Kern County School District consisting of 27 carports at various locations across the district, according to a SunPower press release. And the 135-MW Quinto solar project in central California is now also generating energy for 8point3. Power Plants To Fuel Growth In 2016, Werner expects 60% of sales to stem from SunPower’s utility business. In Q4, power plants comprised 77% of SunPower’s sales. Residential and commercial accounted for 13% and 10%, respectively. SunPower’s vertical overlap and geographic expansion will help growth, Werner told IBD. On the call, he emphasized SunPower’s investment in China and the U.S. China and the U.S. are at opposing ends of the solar spectrum. China, Chile and South Africa have heavy investments in utility-scale solar. The U.S., Japan and Europe are more focused on rooftop solar. In the U.S., extension of a key subsidy, the Investment Tax Credit on solar, will help the rooftop business boom in 2016, Werner says. And companies like Apple ( AAPL ) and Stanford University have created their own hybrid — an offsite utility with a direct access line, Werner said. He also sees growth stemming from SunPower’s Helix platform, which aims to cut installation time. Werner likened it to a solar system for a modular home; the cables are precut, and a roofing company merely snaps them together. “You don’t need all the trade labor,” he said. “You can have a roofing company install a system and then just a little electrician time. It’s five to 10 times faster.” SunPower continues to partner with Tesla ( TSLA ), Sunverge and Stem for solar storage solutions. Two homebuilders in California and Germany are offering it as a standard option, Werner said.