SunWorks Inc (SUNWQ)

[Schris]

Don't Buy The Solar Scare by Dana Blankenhorn

http://seekingalpha.com/article/3774076-dont-buy-the-solar-scare?app=1&auth_param=6iu0b:1b7ll8k:754768bafb3fa43a04db51a9324c619e&uprof=45

Great quote - "The right place to be in the residential solar market is in the business of selling systems, not leasing them, because the economics of purchase are just too favorable." This is where SLTD is!!!

Don't Buy The Solar Scare
Dec. 23, 2015 12:08 PM ET |

Berkshire Hathaway's NV Energy is sticking a fork in the solar lease market in Nevada.

The plan has yet to be tested before voters, and solar lease companies have not yet begun to fight.

Solar leasing is not the industry's future anyway.

Do not short SolarCity.

EnerTuition has a feature up about a recent Nevada Public Utilities Commission decision that he says sticks a fork in the solar lease model and, thus, companies like SunRun (NASDAQ:RUN), SolarCity (NASDAQ:SCTY) and Sun Edison (NYSE:SUNE) which have used it.

Since the decision applies to all residential solar customers, not just new customers, EnerTuition confidently pronounces solar dead.

The article is filled with anti-solar boilerplate, and is highly political, but here's the bottom line. Utilities like NV Energy, which is owned by Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), don't want their customers competing with them in the power market. They have been lobbying for years to charge solar customers to access the grid, and to take the excess power they produce at a pittance, which Nevada now plans to do. Remember, solar power supplies peak during the late afternoon, at the same time that utilities can get peak power rates as air conditioners run at peak. At the same time these same companies, most notably Berkshire Hathaway Energy, have been buying utility-scale solar projects with both hands.

Nevada was the third-leading solar state in 2014, according to the Solar Energy Industries Association, but the vast majority of its production comes at utility scale, with projects like First Solar's (NASDAQ:FSLR) Copper Mountain and Crescent Dunes, built by privately-held Solar Reserve. Despite getting 384 MWatta in solar installed last year, it is still only the fifth-leading solar state, despite having a casino-based economy that uses lots of air conditioning and is thus perfect for solar.

EnerTuition seems to be under the impression that other states, including California, are ready to kneecap residential and commercial solar the way Nevada has - stealing the excess power and charging consumers for daring to connect to the dominant utility's lines. To follow that advice would be a mistake.

I personally don't think that, as 20-year costs of solar cross under the 20-year costs of other grid energy - as they did this year - companies like SunRun, Sun Edison and Vivint (NYSE:VSLR) (which is being bought by Sun Edison) are on the right side of the trade. The right place to be now is on the other side, supplying panels. The right place to be in the residential solar market is in the business of selling systems, not leasing them, because the economics of purchase are just too favorable. The right place to be in states where utilities are resisting solar, like Nevada, is on systems that can take people entirely off the grid, using batteries or other storage to keep the lights on at night. Outside Las Vegas, Nevada is loaded with customers, at large distances from the grid, who make perfect candidates for solar-with-storage.

Where EnerTuition's argument falls apart lies in calling out SolarCity as a stock that's worthless. He ignores the company's construction of a factory in Buffalo that will be delivering 1 Gwatt of panels each year, starting in 2017, and puts the company on the other side of the trade. He ignores SolarCity's efforts to re-sell batteries as well as panels, and deliberately does not mention its connection to Elon Musk - its founders are his cousins.

SCTY has doubled its revenues in the last year, to $113 million for the most recent quarter, and as leaseholder it takes a short-term loss in exchange for long-term gains on these transactions. The company's debt load relative to assets is stable, and it has sufficient financing to achieve its investment aims.

Again, if the Nevada PUC decision were applied across the country, including California, it would hamper the residential lease market. It might even slow the sales market by imposing high costs on panel users. But most state regulators are not in the pocket of utilities to the degree Nevada's are, and its decision has yet to be tested in the electoral arena - solar advocates do very well electorally.

I have written favorably about First Solar, which is not at all impacted by the Nevada decision, and somewhat favorably about SolarCity, noting in particular the risks associated with the factory.

Those remain my top calls in the sector. I don't like Sun Edison, don't like SunRun, and don't like Vivint, which SunEdison is buying.

But please, dear reader, understand the underlying economics and the popular reality of alternative energy at this point in the decade. Be prepared to move even more strongly into the panel construction side of the trade going forward. Choose your stocks carefully. Don't buy political spin, and if you want to accuse me of it here, I'm happy to see your money wasted shorting SCTY. You can put it alongside your Tesla (NASDAQ:TSLA) short.