Solarcity Copper Ridge School

Image source: SolarCity.

When the solar investment tax credit (ITC) passed in December, the entire solar industry rejoiced and SolarCity Corp (NASDAQ:SCTY) seemed to have dodged a bullet that could have derailed its high-growth business. But since that time, more questions have popped up about SolarCity's business that remain unanswered. When the company reports earnings on Tuesday, Feb. 9, there are two big questions I think investors need answered.

Did Nevada kill solar growth?
When SolarCity reported third-quarter earnings, there were two major disappointments that led the stock to crash the next day. First, sales costs rose far more than expected, leading to fewer cost reductions than investors expected. And that led to the second problem: SolarCity focused on less costly sales, which resulted in 2015 installation guidance dropping from 920 MW-1,000 MW to a range of 787 MW-898 MW. In 2016, installations are "only" expected to grow 41% to 1,250 MW, after doubling each year for about the past five years.

What changed between then and now is that SolarCity's highest-growth state -- Nevada -- has essentially vanished as a source of growth. The state's public utilities commission (PUC) changed the rules of net metering and added fees that make solar unworkable in the state (more detail on this here), causing SolarCity and others to flee the state.

In the second half of 2015, residential solar installations exploded in Nevada, and it was the No. 2 state in the country for installations, behind only California. So, will this affect SolarCity's growth plans for 2016 or will it be able to replace those sales somewhere else? Watch management's comments closely, because like it or not, the Nevada PUC decision had solar installers shaking in their boots at the end of 2015.  

Scty

Image source: SolarCity.

Will SolarCity still be able to raise prices?
One of the interesting things I took away from SolarCity's third-quarter conference call is that management was going to raise prices for solar energy by 0.25 to 1.0 cents per kWh. This was a bit shocking considering SolarCity's need for growth, but it made sense in the context of the expiring ITC. If the ITC was indeed going to expire at the end of 2016, there would likely be a rush of customers looking to take advantage of the subsidy while it was still in place, meaning some pricing power for SolarCity.

Now that we know the ITC has been extended, it would make sense that customers will be less urgent to go solar in 2016 and may push back that decision as much as three years, the length of the full 30% ITC extension. Does that mean SolarCity won't go through with its planned price increase, especially with the loss of customers in Nevada? That's a big question for management.

Some of SolarCity's warts are starting to show
SolarCity has never been in such an uncertain situation as it is today. Utilities are learning how to fight residential solar by adding fixed charges to customer's bills and challenging net metering, and investors are starting to question how reliable residential customers will be after Nevada pulled the rug out from under the solar industry.

We don't yet know the impact of these changes to residential solar, but SolarCity's stock, which once seemed invincible, has shown that it has flaws that investors need to consider. Fourth-quarter earnings and guidance for 2016 could give investors a better view of the company's future when it reports on Tuesday.

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.