SolarCity Getting Into Crowdfunding -- Shakes Up Solar Again

Does another funding source add value to SolarCity, or is it more of a public relations move?

Jan 15, 2014 at 2:05PM

SolarCity (NASDAQ:SCTY) has been on the cutting edge of residential solar in every way, and now it's making the push to crowdfunding. In an announcement made this morning, the company said that it has acquired Common Assets LLC to help build a web based platform that will allow individuals and institutions to invest in baskets of distributed solar projects. The offerings will consist of debt, although exact details of how the projects will be securitized or what interest rates will be are unknown at this point.  

This is similar to Mosaic, an early adopter of crowdfunding for solar projects that I highlighted last month. Mosaic allows investors to provide debt to individual small- to medium-sized solar projects, while SolarCity is bundling hundreds or thousands of residential projects for its funds.

Why is SolarCity interested in crowdfunding?
The move into crowdfunding is a bit curious for SolarCity, especially since it was only two months ago that the company completed the first distributed solar securitization deal. There are two reasons I can see SolarCity getting into crowdfunding, and they center around continued growth.

Scty Installation Image

Residential solar installations by SolarCity. Image courtesy of SolarCity.

First, SolarCity needs access to capital. It seemingly has plenty of that from banks and the securitization deal, but with aggressive expansion plans, the company may be eying even more ways to access the market. As projects come out of their equity funding phase -- which typically lasts five years -- they'll need to be funded with debt and equity, and with 464 MW deployed already, mostly through leases, and plans to install around 500 MW this year, we're talking about billions in debt needed in the next decade.

Second, SolarCity may see crowdfunding as a way to get cheaper capital. The securitization deal it completed in November was done at a 4.8% interest rate and included customers with the highest credit score the company has. Mosaic is offering rates as low as 4.4%, so it's possible to lower the cost of capital slightly.

Is this the new paradigm in solar?
The entire solar industry is looking for ways to finance growth right now. SunPower (NASDAQ:SPWR) is leaning on its majority owner Total (NYSE:TOT) to not only provide project financing, but also to provide debt for the company's operations. Chinese manufacturers are increasingly partnering with power companies to build utility-scale projects. Normally, these big partners or banks like Wells Fargo or Goldman Sachs have financed projects, and now SolarCity is looking to smaller groups for funding. 

Spwr Residential New Home Community

Residential solar installations by SunPower. Image courtesy of SunPower.

What's interesting is that the democratization of solar financing doesn't require the scale SolarCity has built. Currently, SolarCity can offer banks and institutions access to the solar market in ways no other company can through hundreds of millions in financing. In offering crowdfunding, it's moving to products that align well with Mosaic, Sunrun, and Clean Power Finance's business models. These companies are in the business of financing projects and acting as middlemen in the process. They could easily offer similar crowdfunding to small investors, but going to the point of securitization is harder because they don't have SolarCity's scale. 

For that reason, I wonder if SolarCity has a sustainable advantage in solar crowd funding. If SolarCity offered distributed solar debt for a 4.4% and Sunrun offered a 4.5% interest rate, which one would you take if everything else was equal? 

This may not be a big portion of SolarCity's financing, but it shows how the company is leading the solar financing business and desperate to have more ways to access capital. To build 500 MW of solar projects next year and grow at any significant rate after that, SolarCity will need billions in financing. Maybe debt markets aren't eager to finance those projects, and that's why SolarCity is looking to less tradition funding sources. Time will tell.

Foolish bottom line
At the end of the day, crowd funding is an interesting add for SolarCity, and I'm excited to see how it plays out. Let's just not get carried away on what impact it will have on operations. It's incremental positive if anything, just not something investors should consider a huge value add because it won't lower borrowing costs significantly, if at all. It's also not a business SunPower or any other big company couldn't get into easily. 

The value of SolarCity is still driven by how many MW of solar the company can install and how much margin the company can make from those MWs. Unless this drives either of those figures, investors shouldn't read too much into it.

3 companies on the cutting edge of energy
The energy industry is changing rapidly and The Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Fool contributor Travis Hoium manages an account that owns shares of SunPower and personally owns shares and has the following options: long January 2015 $5 calls on SunPower, long January 2015 $7 calls on SunPower, long January 2015 $15 calls on SunPower, long January 2015 $25 calls on SunPower, and long January 2015 $40 calls on SunPower. The Motley Fool recommends SolarCity and Total SA. (ADR). The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information