Jan

23

From a shareholders' perspective, Solar City Corp (SCTY) could be a disaster. My concern is the company's future is not in Musk's control. States will likely change their energy policies. If those policies go the wrong way, SCTY's shareholders could be left holding the bag. The odds of those policies hurting SCTY are significant.

SCTY discloses risks in their 10-K. Everything seems proper. However, it seems to me the sizzle, Musk's name, the linking of SCTY to TSLA and such could be distorting the public's perception. That perception and other forces have inflated the company's market cap to unwarranted levels. The present value of their future leveraged cash flows is nowhere near their market cap of $6.5 billion.

On the other hand, if Musk can navigate some tricky turns, SCTY could become another Google.

Henry Gifford writes: 

Any analysis of the industry cannot be complete without looking at the economics of the products the industry produces.

I have found that solar electric systems have an ATR of about 20. The ATR is the actual payback divided by the average claimed payback (Average Truth Ratio).

The financial return from solar electric panels can be calculated in a fairly straightforward way.

Systems now cost approximately $7.00 per Watt. That is the price including panels, other parts, and installation, according to Sharp USA, claimed to be the largest or near-largest supplier in the US.

A Watt is a rate, not a quantity. The rate of one Watt of capacity is at noon for an ideal installation. This brings up the question of how many noon-equivelant Watts of power a system will make in a year. The answer, in the 48 states, is about 1,150 to 1,200. The variation is not as great as one might expect, partly because the sunnier locations are hotter, and panels do not work well in the heat.

Producing electricty at the rate of one Watt for 1,200 hours yields a quantity of electricity called 1,200 Watt-Hours.

The numbers above are for DC (Direct current, like a flashlight battery with a + and - terminal) producted by the panel. There are losses when converting to AC (Alternating Current, as used in wall outlets) and in the wires, leaving perhaps 1,000 Watt-Hours per year. The utility companies call 1,000 Watt-Hours of electricity a KiloWatt-Hour.

As of a few years ago, the US average price of a KWH was $0.09 (nine cents). I do not know if it is higher or lower now, but I know it fluctuates.

To find the "simple payback," which is the years for the system to pay for itself, you divide the cost of the equipment and installation by the dollar value of electricity produced in one year. $7.00 divided by $0.09 yields a simple payback of 78 years.

Note that the panels start degrading they day they are installed, and have a useful life of 20 to 25 years. In other words, the payback period is three times the equipment life.

In places where electricy costs more, saytwice as much, or $0.18 (eighteen cents per KWH), the payback would be 39 years.

Note that my analysis is simplified, and a more sophisticated analysis would include the increasing price of electrictiy, while ignoring the future decreasing value of the money used to buy the equipment, which would make the payback unrealistically shorter, as the increasing price of electricity is a combination of the lowering of the value of the money and the expected increase in the value of the electricity.

And it is worth noting that this analysis does not apply to a typical installation, as a typical installation is not mounted at the optimin angle (latitude dgreees from horizontal) or oriented due south, and located where it is never shaded. Typical installations are not optimally angled or oriented, and are often at least partially shaded. Partial shade degrades the output from all the panels in a series, and can permanently damage the panels. With government "incentives" (something the ATM machine calls cash) ever increasing, it is common to mount panels verticaly (mounts are cheaper) where lower incidence of sunlight and increased reflection greatly decrease output, or horizontally, where increased reflection and increased dirtiness decrease output even more, and with disregard to azimuth (North-South orientation), even mounting them facing north on award winning buildings.

Therefore, from a financial standpoint, it is cear to me that the whole industry is a farce, just a taxpayer supported way of making a social statement while supporting many people highly skilled at filling out paperwork.

Solar thermal panels have, I think, a much more favorable ATR of about 10, but it is impossible to calculate the payback, because calculations require simulations of the amounts of hot water used and the times the water was used, and must make assumptions about the very common installation problems that in typical installations seriously reduce the useful production. But as solar thermal systems are usually not the recipients of tax money in nearly the same amount as solar electric, if at all, solar thermal systems are usually ignored in discussions of the solar industry.

If the price of either solar electric (PV) panels or solar thermal panels drops to zero, the economics of the industry would not change much, as the panels are about 1/3 the cost of a solar electric installation, and perhaps the same for a solar thermal installation.


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