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What SolarCity’s earnings say about the challenges of building a solar retail business

Ucilia Wang — Tue, 14 May 2013 21:00:44 +0000

This article originally appeared on GigaOM Pro, or premium research subscription service.

What are the challenges of growing a solar installation company? SolarCity provides some good insight into that question as it reports earnings for the first full quarter since it became a public company last December.

Raising funds to support its financial product offerings, signing up a greater number of new customers, expanding its operations, and shortening the project completion process are just some of the issues outlined by SolarCity’s executives during their discussion with financial analysts yesterday.

These issues are nothing new, of course, but SolarCity’s financial results help to quantify some of their costs. Given that the solar market is still young, most of SolarCity’s competitors are private and often much smaller.

The California company installed more megawatts of solar energy projects during the first quarter than it initially anticipated (46MW instead of 41MW). But it didn’t raise its 2013 installation forecast, which remains at 250 MW this year. SolarCity boosted its first-quarter sales to $28.2 million but posted $31 million in losses.

“At this stage, we still find ourselves delivery constrained. It’s a matter of scaling our residential operation as well as bringing in our commercial projects on schedule that prevent us from increasing the guidance from 250MW right now,” said CEO Lyndon Rive during the conference call. “We are just focusing our operational capacity.”

SolarCity runs on a business model that is quite different from many of its competitors. The company does the sales, engineering, installation and maintenance with its in-house crew. Rivals such as Sungevity, OneRoof Energy, Sunrun and Clean Power Finance farm out the installation and maintenance work to roofers and other installers. Some of them want to build their brands and invest in marketing and sales to consumers while others sell their financial products and services to installers. Vivint, which has built a large home security system business before getting into solar, operates more like SolarCity.

SolarCity’s model requires much more capital to scale up the business. It needs to hire and train more people, maintain trucks and other tools of the trade and set up shop in expanding its reach across the country. It also has to aggressively court consumers.

The company does business in 14 states, and in March it announced a plan to set up operations in Nevada. The company saw its operating expenses grow from $24.7 million in the first quarter of 2012 to $34.5 million a year later. It serves home and business owners, as well as schools and government agencies. It’s getting into the utility market, too. By the end of the first quarter, SolarCity had accumulated 54,416 customers, and most of those customers are in the residential space: 33MW of the 46MW it completed during the first quarter went to homes.

Raising enough money to finance leases and power purchase agreements is another big challenge for SolarCity and its competitors. With leases or power purchase agreements, customers pay a monthly fee for the electricity generated from the solar panels on their rooftop. They don’t own the panels, however, since they didn’t pay for the high upfront costs of the equipment and labor that can run around $20,000 for an average system in places like California.

The investors that give the funds that support those financing options own the solar electric systems, and they get to take advantage of a 30 percent federal investment tax credit and count on revenues from the monthly payments for the duration of the contracts, which usually run 20 years. As of May 10, SolarCity has enough funds to finance 158MW worth of projects.

SolarCity is a formidable fundraiser. In its 2012 annual report, the company said it had raised $1.7 billion to finance installations since its inception from companies such as U.S. Bancorp, Google, PG&E and Credit Suisse. SolarCity also puts in its own money in some of the funds to finance the installations. The pressure to raise money consistently is even greater now that SolarCity is a public company and must not only show growth but also generate profits at some point. It doesn’t want to be in a situation where the demand for its leases outstrips the funds available, something that happened to SunPower during the first quarter of this year.

SolarCity also needs to shorten the amount of time it takes from selling solar panel systems to installing each project. It has 195MW of backlog, some of which are planned as multi-year projects. But overall, the company wants to sell and install the equipment during the same month, Rive said. To accomplish that, the company is constantly looking for ways to simplify the installation process by using different designs for racks and other components. It also invests in software to reduce the time it takes to apply for permits and complete the sales process.

SolarCity has been an interesting company to watch since its start in 2006. It was one of a crop of venture-backed companies in the emerging residential solar market. Now, how well the company can grow its business and make a profit will be used by investors to evaluate other solar retail service companies that want to go public.

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Blackstone to buy home automation player Vivint for $2B

Katie Fehrenbacher — Wed, 19 Sep 2012 14:59:03 +0000

Vivint, one of the largest companies in the U.S. that makes home automation technology — like connected security systems and energy management devices — is going to be acquired for $2 billion by a private equity fund owned by the Blackstone Group. The acquisition also includes Vivint’s solar installation and finance business Vivint Solar.

Vivint was previously was 50 percent owned by Goldman Sachs, Jupiter Partners and Peterson Partners, and those firms sold their shares to Blackstone.

Vivint says the new funds will:

Allow Vivint to develop innovative new technologies, products and services designed to expand the company’s influence beyond the home environment into the “Connected Life” home automation marketplace which includes automobile, the workplace, areas of recreation and other core spheres of human activity.

The market for home automation technologies will only continue to grow as connectivity and smart devices become pervasive. A variety of startups have emerged in recent years to sell this type of connected technology, including companies focused on energy like Nest and Tendril, to large players selling security like ADT.

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SolarCity moves beyond solar

Ucilia Wang — Tue, 27 Mar 2012 01:00:33 +0000

SolarCity isn’t content with being just an installer of solar panels on rooftops. With ambition to become a big national company and possibly go public soon, the company has expanded beyond solar to brand itself as the provider of a broader set of energy-related services, including upgrading air conditioning systems and insulating air ducts to minimize leaks to achieve savings.

The company is launching a marketing push for its energy efficiency service by announcing Tuesday a loan program from Admirals Bank of Boston. Homeowners can use the loan program to help finance energy efficiency audits and subsequent home improvement work, the cost of which typically ranges from $4,000 to $12,000, said Lyndon Rive, CEO of SolarCity in San Mateo, Calif.

“We are getting into more than electricity sales [to include] the full management of your energy at home — everything that consumes energy in your house,” Rive said.

The loan, and the accompanying announcement that it’s expanding the energy efficiency service to the East Coast, provides a snap shot of a company that is a solid fund raiser and has helped to popularize the use of leases and power purchase agreements to remove the expensive barrier for going solar.

But competition has grown quickly in solar. The company recently bagged an $81 million equity round for expansion, technology development and acquisitions. An IPO would give it more capital to grow the different services it offers beyond solar, such as installing electric car charging stations.

Expansion mode

The company, founded in 2006, is making a push for its new services at a time when the business of installing solar systems has moved beyond the startup stage to attract a growing number of companies that have established brands. Vivint, known for its home security business, lined up $75 million last year to push its solar service. NRG Energy is now targeting the same kind of rooftop projects that SolarCity does after buying Solar Power Partners last year to create an in-house development team.

SolarCity, which has been going after larger and larger projects, also is now competing more so than ever against companies such as SunEdison and SunPower which, incidentally, filed a lawsuit last month alleging data theft by former employees who went to work for SolarCity.

Then there are the roofing materials companies and electricians and roofers and various other businesses that have jumped into the solar market in recent years. Finally, not to mention venture-backed solar startups that have broadened their reach beyond their home state of California, such as Sungevity and Sunrun.

Growing the energy efficiency business is a key part to show SolarCity can scale beyond solar. The company hasn’t touted its energy efficiency services as much as it has its solar installation work, at least not in press releases, though Rive did invite Forbes into his home last year for a video tour to explain the results of an energy audit by his own staff.

Software and rebates

The company has worked on about 5,000 energy efficiency projects, some of them already completed, since mid-2010 when it bought Building Solutions and launched the service in several western states and Texas. The company improved Building Solutions’ software to do more accurate energy audits, recommend and prioritize upgrades and better quantify energy savings, said Levi Blankenship, manager of energy efficiency services at SolarCity.

While SolarCity offers leases for solar, it doesn’t provide similar financing arrangements for energy efficiency upgrades. Owning and operating solar energy systems and collecting monthly payments from their electricity production makes a good business case, but the same can’t be said for owning, say, furnaces, air duct insulation or water heaters, Rive said. So customers pay cash upfront for the retrofits, and some could turn to banks for home improvement loans. Federal, state and local incentives for energy efficiency upgrades also have helped to defray the costs for many.

And unlike the solar lease, which guarantees the amount of electricity produced each month, an energy efficiency contract from SolarCity doesn’t provide energy savings guarantees. It’s difficult to promise a certain amount of energy savings when the company can’t control how much energy a household uses, and that use can change with, for example, an addition of family members, Blankenship said.

The company does do a post-installation evaluation within a week or so to verify what energy savings will likely be if energy use doesn’t change, Blankenship said. This evaluation is sometimes necessary for claiming government rebates. SolarCity entered the energy efficiency business around the time when California started an incentive program called Energy Upgrade California that gives rebates based on projected energy savings of a retrofit project rather than the cost of buying individual equipment. The company is now expanding its energy efficiency service to the East Coast regions, such as New Jersey, New York and Massachusetts, where it already offers solar installation.

Photos courtesy of SolarCity

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After Solyndra: analyzing the solar industry

Ucilia Wang — Fri, 03 Feb 2012 20:44:10 +0000

Solar companies worldwide will remember 2011 as a dark time in their history. The failing of Solyndra symbolizes that market volatility, and 2012 no doubt started with trepidation. But as we have mentioned before on GigaOM Pro, the industry has survived nonetheless. This report analyzes the current state and future concerns of the solar industry, with a particular focus on the photovoltaic industry and the U.S. market. From the silicon companies to inverter manufacturers to government venture money, here is what to expect as the industry marches toward its uncertain future. Additional companies mentioned in this report include First Solar, Intel, NRG Energy and SunEdison. For a full list of companies, and to read the full report, sign up for a free trial.

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PHOTOS: Energy Gadgets from Distributech!

Jeff St. John — Fri, 04 Feb 2011 03:42:40 +0000

The annual smart grid show Distributech, held this week, was chock full of energy gadgets for consumers and utilities to manage home energy consumption. Will any of these succeed, and which one is your favorite? Check out our photo slide show below:

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