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Nevada PUC ‘Contortionist’ Act Will Kill Rooftop Solar: Sunrun

Nevada regulators will vote Friday on a restructured net-metering scheme that increases rates over 12 years and doesn’t grandfather existing solar-energy customers — a decision sure to rile installers SolarCity ( SCTY ) and Sunrun ( RUN ). The draft order , released late Wednesday, stems from a week of hearings at the Public Utilities Commission, and pits billionaire CEOs Warren Buffett and Elon Musk in a battle over the sun. Buffett’s Berkshire Hathaway ( BRKA ) owns NV Energy, the utility pushing for a rate change, and Tesla Motors ( TSLA ) CEO Musk chairs SolarCity. SolarCity and Sunrun exited Nevada in December when the PUC first voted to cut payments to solar customers for excess energy fed back into the grid. Net-metering angers utilities because it forces them to buy energy from rooftop customers at the expensive retail rate. California regulators recently upheld net metering. Under the Nevada commission’s new proposal, the new rates won’t apply to existing solar customers for a period of 12 years. Over that time, the rates will step up five times until reaching a cost-based structure on Jan. 1, 2028. The PUC estimates that the 12-year time frame represents $81 million in costs shifted to non-solar customers. Solar Advocates Cry Foul In May, the Nevada Legislature voted to allow the PUC to create new solar-energy rates in exchange for lifting the 3% cap on customers eligible for net metering. On Dec. 23, the commission voted unanimously to cut net-metering payments. Solar-energy advocates immediately began calling for a reversal. “By eliminating net-metering, the order has discouraged private investment, which has led to layoffs and ensured that there will not be future applications to install (rooftop solar),” the Solar Energy Industries Association argued in a PUC filing. Not grandfathering existing solar-energy customers under the old net-metering rules was particularly egregious, the SEIA wrote. “The elimination of net-metering for existing customers makes their investment meaningless and creates a ‘financial catch 22’ of deciding between spending more every month or spending significantly to remove a (rooftop solar) system,” they wrote. “For potential customers, the decision is easier because there is no longer a financial incentive to invest in net-metering.” Bureau of Consumer Protection representatives argued for a 20-year grandfather clause that would allow existing solar customers to recoup the costs of their hefty investments. NV Energy, in turn, filed a proposal for a 20-year grandfathering period last month. Solar advocates also bashed the NV Energy rate study used to justify the net-metering cut, with the Southern Nevada Home Builders Association claiming it contained “logical and factual flaws.” The BCP argued that the study discounted medium- and large-scale users, which skewed the results. “No reasonable person would accept as reasonable the inference that Nevada Power Company’s ability to provide as much power to (rooftop solar) customers as they could need creates an obligation to pay for power not received,” the SNHBA wrote. Further, the SEIA argued the new rate structure ignores 9 of 11 rooftop solar values, and unfairly lets the utility buy solar energy at a wholesale price to sell it back at a retail price. “This decision denies their right to be fairly compensated,” The Alliance for Solar Choice (TASC) separately argued. ‘Kicking The Can Down The Road’ Net-metering was codified in 1997, the PUC wrote. Since then, rooftop installers have made big bucks by advertising set-in-stone solar rates and “unrealistic payback periods,” the commission argued. And as a result, non-solar customers are now paying $16 million annually to carry solar customers — a subsidy that “will cumulatively grow unreasonably larger over time,” said the PUC. Proposals to delay the necessary correction in rates to a cost-based structure only serve to kick “the can down the road,” it said. Over 40 years, the subsidy borne by non-solar customers would grow to $640 million. “These proposals do nothing to address the problem of antiquated rates that were instituted nearly 20 years ago to jump-start an industry,” the commission wrote. “The old net-metering rates are not reflective of accurate price signals or actual costs to serve.” And while the PUC understands the desire to “lock in rates and structures . . . electric utility rate-making cannot work in this manner.” Over time, new ratepayers would be forced to take up increasing incremental costs as new customers join the grid. By gradually shifting costs, solar customers can avoid “rate shock.” The structure also allows solar customers time to customize their usage to benefit from time-of-use policies. Currently, NPC and Sierra Pacific Power Company solar customers still rely on the grid 42% and 49% of the time. Under the new proposal, solar customers will save about a third on their electric bills, according to TASC estimates. That’s in line with the cost of service, the PUC wrote. The PUC also took issue with SolarCity, Sunrun and TASC’s “all-out campaign to influence public perception” by claiming the commission was in NV Energy’s pocket. Customers are now unlikely to accept the new rates. “However, this commission will not allow such actions by TASC, SolarCity, Sunrun and other rooftop vendors to dictate a certain outcome in this proceeding,” the PUC wrote. ‘Contortionist Twisting Of The Law’ Sunrun executives blamed Commissioner Dave Noble and Gov. Brian Sandoval for the ultimate death of Nevada’s solar industry, in an emailed statement to IBD. “Every party to the case, including NV Energy, recommended grandfathering these customers for a period of 20 years,” they wrote. “Once again, Noble proposes to give NV Energy more than it asked for.” As presiding officer, Noble has received a fair amount of online flak since the commission’s decision in December. Bryan Miller, TASC president and senior vice president of public policy and power markets at Sunrun, accused Noble of contorting the law to “kill” the industry. “Noble’s contortionist twisting of the law belongs in a Vegas Cirque du Soleil show, not the halls of government,” he wrote in the email to IBD. “Brian Sandoval’s legacy will be letting his hand-picked commissioners eliminate a booming industry while he complicitly stays silent.” SolarCity didn’t respond to an email seeking comment.

SolarCity Inferno Chars Sunrun, SunEdison, SunPower, First Solar

SolarCity ( SCTY ) stock combusted Wednesday after the No. 1 residential installer guided to weak Q1 installations and failed to assuage investor concerns about the rising cost of capital. The resulting conflagration charred rivals Sunrun ( RUN ), SunEdison ( SUNE ), SunPower ( SPWR ) and First Solar ( FSLR ), shares of which were down 13%, 6.5%, 4% and 2.5%, respectively, in midday trading Wednesday. IBD’s 26-company Energy-Solar industry group was weaker by more than 10%. In early trading on the stock market today , SolarCity stock crashed as much as 38%, touching a 34-month low at 18.26. By midday, shares were down 17%, above 21. Wall Street was split on SolarCity’s prospects. While at least three analysts slashed their price targets on SolarCity stock, another boosted his price target, and two analysts upgraded the shares. For Q4, SolarCity reported a per-share loss ex items of $2.37, widening from $1.33 in the year-earlier quarter. Sales grew 61% to $115.5 million. Both measures beat analyst expectations and SolarCity’s earlier outlook. SolarCity losses are expected to widen in Q1. SolarCity guided to per-share losses ex items of $2.55 to $2.65, deepening from $2.36 in the year-earlier quarter. Analysts polled by Thomson Reuters had modeled a loss of $2.36 a share ex items. Nevada Withdrawal Snags Installations Installations of 272 megawatts in Q4 and 870 MW for all of 2015 were each slightly short of SolarCity’s earlier guidance. The installer previously saw 280 MW to 300 MW for the quarter, and 878 MW to 898 MW for the year. Current-quarter views for 180 MW, up 18% year over year, don’t jibe with 2016 guidance for 1.25 gigawatts, up 44%, Needham analyst Y. Edwin Mok wrote in a research report. Mok retained his hold rating on SolarCity stock. CEO Lyndon Rive blamed SolarCity’s exit from Nevada and 15 MW in commercial project push-outs to Q1 for the December-quarter installation miss. Commercial installations of 51 MW in Q4 were below guidance for 80 MW to 90 MW. The commercial push-outs could snag guidance, Mok wrote. “We believe the Q1 and 2016 outlooks require SolarCity to complete a large amount of commercial projects, which clearly have timing risks,” Mok wrote. Solar, Wind Vie For Capital SolarCity’s 44% growth target for 2016 is predicated on the company’s access to capital, Credit Suisse analyst Patrick Jobin wrote in a report. At year’s end, SolarCity had $658 million in committed tax equity funding, providing about 510 MWs of runway. And the cost of capital is on the rise . In December, Congress extended key subsidies underpinning the solar and wind industries, and now more competitors are vying “for the same capital pool,” Jobin wrote. “Investors continue to fear cost-of-capital increases could jeopardize the positive spread (SolarCity) is earning,” he wrote. But SolarCity can raise $2.73/watt in financing, above its all-in $2.71/watt cost, Jobin wrote. That “indicates to us that the equity return is explicitly positive,” he wrote. On the flip side, the cost of capital differs between companies, and Sunrun’s more flexible structure has allowed it raise capital at a more attractive rate than SolarCity. Jobin cut his price target on SolarCity stock to 89 from 124 but reiterated his outperform rating.

SolarCity Torched On Q1 Guidance As Losses Expected To Deepen

SolarCity ( SCTY ) stock was torched after hours Tuesday, after the No. 1 residential installer guided to deepening Q1 losses and slower installation growth in 2016, despite CEO Lyndon Rive’s earlier pledge to curb losses by 2017. SolarCity stock was down more than 30% after the close, after the company released its Q4 earnings and gave guidance, and after falling 5.7% in Tuesday’s regular session. Shares of rival installer  Sunrun ( RUN ) also wrapped Tuesday’s regular session down 7% and were down another 6% after hours. Big solar companies  SunPower ( SPWR ) and First Solar ( FSLR ) were down 6% and more than 2%, respectively, after hours. For Q4, SolarCity reported $115.5 million in sales, up 61% year over year, and a per-share loss ex items of $2.37, widening from a $1.33 per-share loss in the year-earlier quarter. Both measures beat Wall Street expectations for $105.6 million and $2.59, as well as SolarCity’s three-months-ago outlook for $100 million to $108 million and $2.60 to $2.75 losses. During Q4, SolarCity installed 272 megawatts, which was up 54% vs. the year-earlier quarter but missed the company’s earlier guidance for 280 MW to 300 MW. SolarCity ended the year with $399.6 million in sales, $7.91 losses per share minus items and 870 MW installed. The consensus of 18 analysts polled by Thompson Reuters saw $389.7 million and $8.03. Installations for the year came in below prior guidance for 878 MW to 898 MW, up 73% from 2014. Current-quarter guidance for $2.55 to $2.65 losses per share ex items would deepen from $2.36 in the year-earlier quarter and would miss analyst expectations for $2.36. SolarCity didn’t offer a Q1 sales view. The consensus modeled $113 million, which would be up 57%. Shortening Cash Conversion Cycle SolarCity’s Q1 180 MW installation guide would be up 18% year over year. For the year, it expects installations of 1.25 gigawatts, up 44%, as the extended Investment Tax Credit (ITC) on solar provides more growth tailwinds. The ITC extension will lead to “good growth in 2017 and beyond,” Rive told analysts during the company’s earnings conference call late Tuessday. But SolarCity shifted its focus in Q3 to becoming cash flow positive, sacrificing its typical 80% annual installation growth rate. Rive reiterated SolarCity’s 40% growth target for 2016 despite the low 18% growth forecast for Q1. Part of that process is shortening SolarCity’s cash conversion cycle, Rive told analysts. As a result, commercial installations will be back-end loaded. “While the ultimate result will be shorter time from the start of construction to operation and thus higher cash generation, the initial impact is lower installations in the first period implemented,” according to SolarCity’s letter to shareholders. Nevada Policies Nick Q1 Installations Nevada’s decision to slash net-metering payments to solar customers also impacted Q4 installations and Q1 guidance, Rive said. During Q4, Nevada contributed 23 MW in installations and typically accounts for 20 MW per quarter. By year’s end, Rive expects Nevadans to overturn the Public Utility Commission’s late-December decision. “Homeowners in Nevada want solar, they want the freedom to choose where their energy comes from, and I think this is going to be overturned by the public, by ballot referendum by the end of the year,” he said. Solar has thrived on other policy fronts. As the Nevada battle waged, California regulators opted to continue paying solar customers for energy fed back into the grid. And in December, more than 190 countries pledged to curb carbon emissions during a climate change summit in Paris. “The majority of this (climate change agreement) is going to be on renewable energy, which is going to be solar,” Rive told analysts. Tesla Motors ( TSLA ) CEO Elon Musk is SolarCity’s chairman. Tesla is due to report earnings late Wednesday. Tesla stock rallied to close up 0.2% after falling intraday to a two-year low.