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The San Francisco Board of Supervisors passed a bill on
Wednesday that could foretell some major long-term gains for
). The bill requires all small- and medium-sized residential and
commercial newbuilds in the city to
install solar panels
You didn't have to tell investors twice. SCTY stock shot up 7.8%
on Wednesday, and was followed by an additional 3% bump on
Although shares are still down 33% year-to-date, the recent
rebound has been swift, and SolarCity shares are up 27% in the
last month alone.
The big question is this: Does San Fran's move mean anything
substantive for SCTY stock in the months and years ahead? I think
the answer is yes.
SCTY the Major Beneficiary of Law, Other Trends
Installing solar panels is sort of SolarCity's thing, so
expect it to be an overwhelming beneficiary of the San Francisco
ruling. And while I don't necessarily anticipate a massive sweep
of such local laws passing across the country immediately, I
think more towns will certainly follow.
The world's getting greener, and increasingly, industry is
leading the charge. In another move that may have longer-term
implications for SCTY stock,
Whole Foods Market, Inc.
) announced it would
use SolarCity to install panels at its stores
across the country.
Whole Foods, not surprisingly, said it was retrofitting up to
100 of its locations in an effort to save money on
energy. No longer can people argue that solar power isn't
One of the biggest reasons SCTY stock is still down so much
for the year is the decision by Nevada to
abandon net metering
, which allowed SolarCity to pocket the difference between
retail and wholesale electricity prices.
The fear is that more states will follow suit, and this is
certainly possible and definitely poses a risk to SolarCity
However, SolarCity has several powerful tools it can and has
been using in recent years (and recent months) to help its
business model become even more attractive. Because SolarCity's
customers don't typically want to throw down
$10,000 to $35,000
or more it can cost to install solar panels, the company
typically offers financing.
While financing ensures (hopefully!) a steady flow of cash
payments for years and often decades to come, SCTY still has the
onus of paying the upfront installation costs. To keep this model
sustainable, SolarCity has been bundling up the loans it
originates and selling them to other parties. That way, it can
transfer the risk off its balance sheet, and receive a large cash
Not only does that fundamentally make sense, it also decreases
the risk of dilution for SCTY stock owners, since the company is
less likely to issue additional shares to raise capital.
The newer form of financing that SolarCity gained access to is
somewhat esoteric, but quite helpful. They're called solar
renewable energy certificates (or SRECs), and SolarCity receives
them for each megawatt hour of solar electricity its panels
produce. They're similar to carbon credits; various states
require utilities to produce a certain amount of solar energy
each year, and if utilities fall short they can buy these
Several weeks ago, SCTY sold its first SREC-backed bond for
$40 million, and many more may be in the works down the road.
All that's to say: If and when more local laws like the one in
San Francisco get passed, this is an automatic,
chalk-it-up-in-the-win-column, long-term business for SCTY, and
those additional projects are becoming easier to finance by the
While analysts don't expect the company to be profitable for a
number of years, SolarCity is playing the long game. Over time,
it should become a reliable cash flow machine.
As of this writing, John Divine did not hold a position in
any of the aforementioned securities. You can follow him on
or email him at firstname.lastname@example.org.
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