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Last Week in Solar

By Travis Hoium - May 8, 2016 at 8:02AM

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SolarCity's new market and Tesla Motors' earnings dominated the week in solar.

Image source: SolarCity.

We're in the midst of earnings season, and that'll shape a lot of the discussion in the solar industry in the next few weeks. SunPower (SPWR -6.51%) was the big report last week (which I covered here), and SolarCity (SCTY.DL) reports its first-quarter results on Monday.

I'll get to some earnings takeaways below, but there were also a few notable news items, mainly from SolarCity itself.

SolarCity gets into the grid
One of the wildest moves of the week was SolarCity announcing a utility and grid services business. It's essentially launching a utility-scale solar business, just like what SunPower or First Solar has, although it's adding "advanced controls for demand response, distributed energy resources, and aggregated grid services." 

The services it's adding will be of growing importance to grid operators, but SolarCity isn't a logical provider of those services. A company like GE, Oracle, or another major supplier would likely have more integration into the grid, and they're not coming from the competitive position SolarCity is.

A move into utility-scale solar is even more puzzling. I'm not sure what SolarCity offers that SunPower or First Solar doesn't already do, and those two companies have years and gigawatts of experience installing large solar systems. Could this be a sign that there's not enough work to do in residential and commercial solar? Maybe Monday's earnings report will answer that question.

Image source: SolarCity.

Cashing in on residential solar
One of the goals residential companies have had for a long time is to be able to split up their value streams and immediately sell those value streams as they build projects. Ideally, they'd like to generate more cash from the sales than it takes to build each system, and even keep a little value long term. And that's exactly what SolarCity is starting to execute on. 

Last week SolarCity announced a $227 million cash equity transaction, where it sold cash flows over 20 years to John Hancock Financial in exchange for upfront cash. When combined with other value streams, the cash it has received of $3.00 per watt is higher than its total installation cost of $2.71 per watt. If these trends continue, we could see SolarCity become cash flow positive short term and maintain some value long term, which would be a great place to be.

Tesla Motors delivers in energy storage
When Tesla Motors (TSLA -4.75%) reported first-quarter earnings, most of the attention was on the Model 3's ramp-up. But the company also gave an important progress report on energy storage. 

Tesla delivered 2,500 Powerwalls and 100 Powerpacks around the world, totaling 25 MWh of energy storage. That doesn't sound like a lot, and it isn't, but this is a fairly small market right now. For perspective, the U.S. installed 161 MWh of energy storage in all of 2015. Keep an eye on where these numbers trend throughout the year, but for now they're a significant share of the market.

Where is the power in solar going?
As the solar earnings season moves along, investors should keep an eye on where the industry is trending, particularly in rooftop solar. SunPower announced 50% residential solar growth year over year in Q1, and said it expects to double its share of commercial solar. SolarCity has said it will only grow 18% in Q1, and that's after missing guidance the last two quarters.

Meanwhile, Vivint Solar's CEO just stepped down, and that company is struggling just to survive. Could the power be shifting in small-scale solar from great sales organizations to companies with superior technology? It'll be too early to make any conclusions this quarter, but that's something worth keeping in mind when SolarCity reports earnings on Monday.

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Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
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SunPower Corporation
SPWR
$16.95 (-6.51%) $-1.18
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SolarCity Corporation
SCTY.DL

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